<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-58485
PROSPECTUS 1,000,000 PREFERRED SECURITIES
EBI CAPITAL TRUST I
8.50% CUMULATIVE TRUST PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
(EAGLE BANCSHARES, INC. LOGO)
The 8.50% Cumulative Trust Preferred Securities (the "Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of EBI Capital Trust I, a statutory business trust created under
the laws of the State of Delaware ("the Trust"). Eagle Bancshares, Inc., a
Georgia corporation (the "Company"), will own all of the
(Continued on next page)
The Preferred Securities have been approved for listing on the American
Stock Exchange, under the symbol EBS.Pr, subject to notice of issuance.
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE PREFERRED
SECURITIES OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS,
ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NONBANKING AFFILIATE OF
THE COMPANY (EXCEPT TO THE EXTENT THAT PREFERRED SECURITIES ARE GUARANTEED BY
THE COMPANY AS DESCRIBED HEREIN), ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Underwriting Proceeds to EBI
Price to Public(1) Commission(2) Capital Trust(3)(4)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security.................................. $25.00 (3) $25.00
- -----------------------------------------------------------------------------------------------------------------------
Total(5)................................................ $25,000,000 (3) $25,000,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accumulated Distributions (as defined herein), if any, from the Issue
Date (as defined herein).
(2) The Trust and the Company have each agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Since the proceeds of the sale of the Preferred Securities will be invested
in the Subordinated Debentures, the Company has agreed to pay the
Underwriters, as compensation, $.95 per Preferred Security, or $950,000 in
the aggregate. See "Underwriting."
(4) Before deducting expenses of the offering which are payable by the Company,
estimated to be $280,856.
(5) The Trust and the Company have granted the Underwriters an option,
exercisable within 30 days from the date of this Prospectus, to purchase up
to 150,000 additional Preferred Securities on the same terms and conditions
set forth above solely to cover over-allotments, if any. If the
Underwriters' over-allotment option is exercised in full, the total Price to
Public, Underwriting Commission and Proceeds to the Trust will be
$28,750,000, $1,092,500, and $28,750,000, respectively. See "Underwriting."
---------------------
The Preferred Securities are offered by the Underwriters subject to receipt
and acceptance by them, to prior sale and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Preferred Securities will be
made in book-entry form through the facilities of The Depository Trust Company
on or about July 29, 1998.
---------------------
INTERSTATE/JOHNSON LANE
CORPORATION
MORGAN KEEGAN & COMPANY, INC.
STERNE, AGEE & LEACH, INC.
July 24, 1998
<PAGE> 2
(METRO ATLANTA BANKING MAP)
<PAGE> 3
(Continued from previous page)
common securities (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities") representing undivided beneficial interests
in the assets of the Trust. SunTrust Bank is the Property Trustee (the "Property
Trustee") of the Trust. The Trust exists for the purpose of issuing the Trust
Securities and investing the proceeds thereof in an equivalent amount of 8.50%
Subordinated Debentures (the "Subordinated Debentures") of the Company. The
Subordinated Debentures will mature on September 30, 2028 (the "Stated
Maturity"). 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 over the Common
Securities. See "Description of the Preferred Securities -- Subordination of
Common Securities."
Holders of Preferred Securities are entitled to receive cumulative cash
distributions, at the annual rate of 8.50% of the liquidation amount of $25.00
per Preferred Security (the "Liquidation Amount"), accruing from the date of
original issuance (the "Issue Date") and payable quarterly in arrears on the
last day of March, June, September and December of each year, commencing
September 30, 1998 (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 "EXTENDED INTEREST PAYMENT
PERIOD"); PROVIDED THAT NO EXTENDED INTEREST PAYMENT PERIOD SHALL END ON A DAY
OTHER THAN AN INTEREST PAYMENT DATE (AS DEFINED HEREIN) OR EXTEND BEYOND THE
STATED MATURITY. Upon the termination of any such Extended Interest Payment
Period and the payment of all amounts then due, the Company may elect to begin a
new Extended Interest Payment 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 Extended Interest Payment 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 continue to accumulate) at
the rate of 8.50% per annum, compounded quarterly to the extent permitted by
applicable law, 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. 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," "Material 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
i
<PAGE> 4
Indenture to force payments of amounts equal to such Distributions to such
holder. See "Description of 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 any approval that the Office of Thrift
Supervision (the "OTS") or other bank regulatory authority then having
regulatory authority may have over the Bank (the "Applicable Bank Regulatory
Authority") (if such approval is then required under applicable capital
guidelines or policies of the Applicable Bank Regulatory Authority) the
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (i) on or after September 30, 2003, 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 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
allocated on a pro rata basis (based upon Liquidation Amounts) among the Trust
Securities (the "Redemption Price"). See "Description of the Preferred
Securities -- Redemption or Exchange."
The Company has the right at any time to dissolve, wind-up or terminate the
Trust, subject to the Company's having received prior approval of the Applicable
Bank Regulatory Authority to do so, if then required under applicable capital
guidelines or policies of the Applicable Bank Regulatory Authority. In the event
of the voluntary or involuntary dissolution, winding up or termination 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 $25.00 per Preferred Security, plus accumulated
and unpaid Distributions thereon to the date of payment, which may be in the
form of a distribution of such amount 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
Termination."
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
ii
<PAGE> 5
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company and the Trust with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Preferred Securities and the Subordinated
Debentures. This Prospectus does not contain all of the information set forth in
such Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, although it does include a
summary of the material terms of the Indenture and the Trust Agreement.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Company, the Trust, the
Preferred Securities and the Subordinated Debentures. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission or incorporated by
reference herein are not necessarily complete, and, in each instance, reference
is made to the copy of such document so filed for a more complete description of
the matter involved. Each such statement is qualified in its entirety by such
reference.
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. The Trust is not currently subject to the information reporting
requirements of the Exchange Act and although the Trust will become subject to
such requirements upon the effectiveness of the Registration Statement, it is
not expected that the Trust will file separate reports under the Exchange Act.
The Company's reports, proxy statements and other information can be inspected
and copied at the following public reference facilities maintained by the
Commission: 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade
Center, Suite 1300, New York, New York 10048; and the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon
payment of prescribed rates. The Company's Common Stock is listed on The Nasdaq
Stock Market's National Market, 1735 K Street, N.W., Washington, DC 20006 under
the symbol "EBSI." The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers, such as the Company, who file electronically with the Commission. The
address of that site is http://www.sec.gov. In addition, reports, proxy
statements and other information concerning the Company may be inspected at the
offices of The Nasdaq Stock Market.
No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would
be material to holders of 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
interests in the assets of the Trust and investing the proceeds thereof in
Subordinated Debentures issued by the Company, and (iii) the obligations of the
Company described herein under the Indenture and pursuant to the Trust
Agreement, the Guarantee issued by the Company with respect to the Preferred
Securities, 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."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended March 31, 1998,
previously filed by the Company with the Commission pursuant to Section 13 of
the Exchange Act, is incorporated herein by reference.
All documents, reports and any definitive proxy or information statements
filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Preferred Securities offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of
1
<PAGE> 6
such documents. Any statement contained in documents 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 such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by reference
in such documents). Written requests for such copies should be directed to
Richard B. Inman, Jr., Secretary and Treasurer, Eagle Bancshares, Inc., 4305
Lynburn Drive, Tucker, Georgia 30084. Telephone requests may be directed to
(770) 908-6400.
2
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus or
incorporated herein by reference. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of the Underwriters' over-
allotment option. Prospective investors should carefully consider the
information set forth under the heading "Risk Factors." Certain statements in
this Prospectus and documents incorporated herein by reference are
forward-looking. Such statements are identified by the use of forward-looking
words or phrases such as "intend," "will be positioned," "expects," is or are
"expected," "anticipates," "anticipated," "may," "could," "should," "would," and
"believe." These forward-looking statements are based on the Company's current
expectations. To the extent any of the information contained or incorporated by
reference in this Prospectus constitutes a "forward-looking statement" as
defined in Section 27A of the Securities Act, the risk factors set forth below
under the caption "Risk Factors" and in the information incorporated herein by
reference are cautionary statements identifying important factors that could
cause actual results to differ materially from those in the forward-looking
statement.
THE COMPANY
The Company is a unitary savings and loan holding company which owns and
operates Tucker Federal Bank (the "Bank"), Eagle Real Estate Advisors, Inc.
("EREA") and Eagle Bancshares Capital Group, Inc. ("EBCG"). The Company has
grown total assets to $1.1 billion at March 31, 1998, making it one of the
largest financial institutions headquartered in metropolitan Atlanta. The Bank
is a federally chartered stock savings and loan association organized in 1956
and based in Tucker, Georgia, a suburb of Atlanta. The Bank serves the
metropolitan Atlanta area through 15 full service banking offices. As a unitary
thrift holding company, the Company is permitted, under current regulations, to
engage in activities in which bank holding companies may not legally engage. To
capitalize on this advantage, the Company formed EREA in 1991 to perform real
estate brokerage and development activities and formed EBCG in 1997 to provide
mezzanine financing that is not readily available to small and medium size
businesses from traditional commercial banking sources.
Growth in the metropolitan Atlanta area and ongoing consolidation of the
financial services industry have resulted in significant recent increases in
loans, deposits and customers at the Bank. In February 1996, the Company sold
1,435,000 shares of common stock, raising $21.5 million of additional capital to
support growth in deposits and permit investments by the Company. The Company
also has benefited from industry consolidation by hiring experienced banking
executives and acquiring surplus local branches. On March 26, 1997, the Company
acquired Southern Crescent Financial Corp, which had total assets of
approximately $150 million and four full-service branches in the rapidly growing
markets of the south metropolitan Atlanta area. The acquisition also enhanced
the Company's commercial lending capabilities. Since the Company's last
offering, total assets have grown from $558 million at December 31, 1995 to $1.1
billion at March 31, 1998, or 105.9%. Deposits have grown from $332 million to
$779 million, or 134.6%, and the Company's total loan portfolio, which includes
loans held for sale, has increased from $381 million to $868 million, or 128.2%.
The following table summarizes certain selected consolidated financial
information of the Company for the periods presented.
SUMMARY SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED MARCH 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets................................................ $419,136 $568,678 $736,384 $823,882 $1,149,483
Loans receivable, net....................................... 271,356 364,491 410,843 515,749 535,732
Loans held for sale......................................... 23,641 41,220 92,552 62,882 332,592
Total deposits.............................................. 334,361 386,353 458,458 557,724 778,975
Shareholders' equity........................................ 38,137 41,637 66,448 67,874 74,702
Net interest income......................................... 17,750 21,116 23,804 30,156 31,893
Non-interest income......................................... 9,984 7,282 10,853 12,911 16,349
Non-interest expense........................................ 17,746 20,164 24,468 34,901 35,391
Net income.................................................. 5,462 4,881 6,219 3,746 7,210
Bank branches............................................... 11 12 13 14 15
</TABLE>
3
<PAGE> 8
BUSINESS STRATEGY
LONG TERM GROWTH STRATEGY
Management believes the best way to maximize long-term shareholder value is
to continue to improve financial performance and operating efficiency and to
continue to grow market share in the metropolitan Atlanta area. Management
intends to continue to pursue allied businesses permitted by its unitary thrift
holding company status. The Company's long-term strategy is focused on
increasing shareholder value by creating competitive advantages in targeted
business niches which include community banking, mortgage banking and real
estate development.
Community Banking. Based on total assets as of March 31, 1998, the Bank is
one of the largest financial institutions headquartered in the metropolitan
Atlanta area. The Bank has a significant strategic opportunity as one of
Atlanta's leading community banks. Management believes that the Bank is well
positioned to continue to build franchise value by increasing market share in
the metropolitan Atlanta area. The Bank's asset size and legal lending limit per
borrower permit it to serve small and middle market customers more effectively
than many smaller Atlanta community banks. Management believes that the Bank's
competitive advantage is its ability to provide a full range of financial
products with personalized service and local decision making, which typically
are not available from financial institutions headquartered out-of-state.
Management utilizes this advantage to develop its relationship banking program
which concentrates on customers' unique needs. Additionally, management believes
that many local borrowers are being underserved as a result of the recent
acquisitions of many of Atlanta's banks and thrifts by large out-of-state banks
and that will allow the Bank to continue to build franchise value by increasing
market share in the metropolitan Atlanta area.
Over the past year, the Bank has incurred increased capital expenditures,
data processing costs, training expenses and consulting fees with the goal of
strategically building the infrastructure necessary to support future growth.
The Bank converted its core and branch processing systems to a data processing
environment comparable to that of commercial banks. These systems increase
capacity and provide enhanced customer information which allows the Bank to
identify its customers with the greatest profit improvement potential. Further,
management has undertaken a number of initiatives to improve core earnings,
including changing deposit mix to lower the cost of funds and rebidding
maintenance, courier, and communications contracts. Management believes these
initiatives will allow it to continue to improve operating efficiency and
customer service.
Mortgage Banking. The Company believes it creates a strategic advantage by
utilizing its experience and historic commitment to construction lending to
generate permanent mortgage loan originations. Because of the Company's
long-term participation in construction lending and its relationship with its
existing homebuilders, it has been able to develop a core business of permanent
mortgage originations. The Company has relationships with approximately 165
homebuilders in the Atlanta metropolitan area, but does not have any significant
loan concentration with any homebuilder or in any particular market area. Over
the past year, the Company continued to upgrade the origination and processing
systems used in its mortgage banking business to improve efficiencies of loan
originations and sales. The Company also is implementing an automated
underwriting system for its conforming mortgage loans to continue to improve
customer service by providing faster loan decisions. In September 1997, the
Company acquired a wholesale mortgage banking business to increase originations
and improve efficiencies of its mortgage banking operations. Currently, the
Company sells the majority of its mortgage servicing rights originated.
Real Estate Development. Management believes that the Company's experience
as a metropolitan Atlanta area real estate lender for over 40 years creates a
strategic advantage for its real estate development activities. Local market
knowledge and relationships with builders and developers give the Company a
unique position to create and evaluate real estate development opportunities.
Additionally, the Company's real estate investments and brokerage activities
have contributed increasing incremental income to the Company since 1995.
STRATEGIC BUSINESS PLAN
The Company reviews and updates its Strategic Business Plan quarterly. The
Company's current plan is focused on five basic areas: (i) improving financial
performance and operating efficiencies, (ii) continuing to grow market share in
metropolitan Atlanta, (iii) developing new sources of net income, (iv) utilizing
technology to enhance operating results and capitalize on new business
opportunities, and (v) being the "Bank of Choice" for the small business
community. See "Business Strategy -- Strategic Business Plan."
4
<PAGE> 9
PENDING LITIGATION
In November 1992, the Bank acquired certain assets from the Resolution
Trust Corporation, which included four mortgage loan origination facilities. The
Bank then entered into an Operating Agreement (the "Agreement") with two
individuals and a corporation controlled by them (collectively, the
"Plaintiffs"), to form the Prime Lending Division ("Prime"). Under the
Agreement, the individual Plaintiffs became employees of the Bank and Plaintiffs
compensation was to include a percentage of the net profits to be calculated
after allocating expenses and overhead to Prime. In mid-1997, a disagreement
arose with respect to the allocation of expenses to Prime, which led to the
filing by the Plaintiffs of a lawsuit on December 5, 1997 alleging that the Bank
had improperly calculated the profits due them under the Agreement since April
1997. The Bank maintains that its calculation of the profits and losses was
proper. In January 1998, the Bank terminated the Agreement with the Plaintiffs
"for cause."
The complaint as amended seeks, among other things (i) a declaration that
the Agreement was terminated "without cause" and that, pursuant to the
Agreement, the Plaintiffs have the right to purchase the assets of Prime at 75%
of fair market value; (ii) alleged unpaid profits from Prime's operations (in an
amount estimated by the Plaintiffs to equal approximately $450,000); (iii) a
determination that the term "assets," as used in connection with the Plaintiffs'
alleged purchase option in the Agreement, includes all loans carried as assets
on the books of the Bank that were originated by Prime (the "Prime Loans") and
that the Plaintiffs would not be required to assume or net against the Prime
Loans any corresponding liability incurred by the Bank in connection with the
Prime Loans; (iv) consequential damages in excess of $20 million, which
represents the Plaintiffs' assessment of the loss they suffered by the Bank's
refusal to sell to the Plaintiffs Prime's assets under Plaintiffs' definition of
"assets" (i.e., including such loans); and (v) unspecified punitive damages and
attorneys fees. The Bank strongly denies all of Plaintiffs' allegations,
including the Plaintiffs' allegation that they have the right to purchase the
assets of Prime. Further, the Bank specifically disputes Plaintiffs' contention
that all loans originated by Prime constitute "assets" of Prime.
The Bank believes that the Plaintiffs are not entitled to purchase the
Prime Loans and that the only assets that the Plaintiffs may be permitted to
purchase are the tangible and intangible assets of Prime. At March 31, 1998,
Prime's tangible assets had a collective book value estimated to be
approximately $1.2 million, which could be purchased at 75% of fair market value
under the Agreement. Although the Bank does not believe that Plaintiffs have the
contractual right to purchase the Prime Loans, the Bank contends that if the
court determines that the Plaintiffs do have a right to purchase the Prime
Loans, the Plaintiffs must assume the liabilities associated with such loans
(including funding expenses). The Agreement specifically provides that, if
Plaintiffs purchase the assets of Prime, they must "assume all obligations
associated with the [Prime Lending] Division."
If Plaintiffs are successful in obtaining a declaration that they are
entitled to purchase the assets of Prime (or if the Bank agrees to compromise
this case with the Plaintiffs), the Bank may cease originating permanent
mortgages and construction loans from the 11 Prime offices situated outside the
metropolitan Atlanta area. The Agreement provides that, if Plaintiffs purchase
the assets of Prime, the Bank shall refrain for two years from originating
conforming residential loans secured by property located within 25 miles of any
Prime office. The Company does not believe that such cessation of operations
would have a material adverse effect upon its or the Bank's business or
operations. Based on the Bank's calculations for the 12 months ending March 31,
1998, the Bank sold approximately $500 million in permanent single family
mortgage loans originated by Prime. However, as a result of expenses
attributable thereto, the Bank estimates that Prime's permanent mortgage
origination business incurred a pretax loss of $200,000. The Bank estimates that
during the same period construction loans originated by Prime have generated
pretax income of approximately $1.5 million. Pending the outcome of the
litigation, the Bank will continue to operate Prime's mortgage loan origination
business. In addition, the Bank believes it can replace loans originated by
Prime through its other existing operations, including the Wholesale Mortgage
Division of the Bank. SEE "RISK FACTORS -- RISK FACTORS REGARDING THE
COMPANY -- LITIGATION REGARDING MORTGAGE ORIGINATION DIVISION."
5
<PAGE> 10
EBI CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a Trust Agreement, dated as of July 2, 1998, executed by the Company, as
depositor, and the trustees of the Trust named therein (together with the
Property Trustee, the "Trustees"), and (ii) a Certificate of Trust filed with
the Delaware Secretary of State on July 2, 1998. 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 (as defined herein),
the rights of the Company as holder of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or otherwise
will be subordinated to the rights of the holders of the 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 and payments thereunder issued by the Company, and (iii)
engaging in only those other activities necessary, advisable, or incidental
thereto. The Subordinated Debentures 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 31 years, but may terminate earlier as provided
in the Trust Agreement. The Company and the Trust anticipate that the Trust will
be conditionally exempted from the reporting requirements of the Exchange Act.
The principal executive office of the Trust is 4305 Lynburn Drive, Tucker,
Georgia 30084-4441 and its telephone number at such address is (770) 908-6690.
6
<PAGE> 11
THE OFFERING
Securities Offered......... 1,000,000 Preferred Securities having a Liquidation
Amount of $25.00 per Preferred Security. The
Preferred Securities represent preferred
undivided beneficial interests in the assets of
the Trust, which assets will consist solely of
the Subordinated Debentures and payments
thereunder. The Company and the Trust have
granted the Underwriters an option, exercisable
within 30 days after the date of this Prospectus,
to purchase up to an additional 150,000 Preferred
Securities at the public offering price set forth
on the cover page of this Prospectus, solely to
cover over-allotments, if any.
Payment of Distributions... The Distributions payable on each Preferred
Security will be fixed at a rate per annum of
8.50% of the Liquidation Amount of $25.00 per
Preferred Security, will be cumulative, will
accrue from the date of 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, 1998. 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 Extended Interest Payment Period may end on a
day other than an Interest Payment Date or 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 to the
extent permitted by applicable law, since
interest will continue to accrue and compound on
the Subordinated Debentures) during any such
Extended Interest Payment Period. During an
Extended Interest Payment 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 Extended Interest
Payment Period and the payment of all amounts
then due, the Company may commence a new Extended
Interest Payment Period, subject to the foregoing
requirements. See "Description of the Preferred
Securities -- Distributions -- Extended Interest
Payment Period" and "Description of the
Subordinated Debentures -- Option to Extend
Interest Payment Period."
Should an Extended Interest Payment 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 "Material Federal Income
Tax Consequences -- Potential Extension of
Interest Payment Period and Original Issue
Discount."
Ranking.................... The Preferred Securities will rank pari passu, and
payments thereon will be made pro rata, with the
Common Securities, except as described
7
<PAGE> 12
under "Description of Preferred
Securities -- Subordination of Common
Securities." The Subordinated Debentures will be
unsecured and subordinate and junior in right of
payment to other debt of the Company to the
extent and in the manner set forth in the
Indenture. See "Description of the Subordinated
Debentures." The Guarantee will constitute an
unsecured obligation of the Company and will rank
subordinate and junior in right of payment to
other debt of the Company to the extent and in
the manner set forth in the Guarantee. See
"Description of the 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 the Subordinated Debentures --
Subordination."
Optional Redemption........ The Preferred Securities are subject to redemption,
in whole or in part, upon repayment of the
Subordinated Debentures at maturity or their
earlier redemption. Subject to Applicable Bank
Regulatory Authority approval (if such approval
is then required under applicable capital
guidelines or policies of the Applicable Bank
Regulatory Authority) the Subordinated Debentures
are redeemable prior to maturity at the option of
the Company (i) on or after September 30, 2003 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
Capital Event, Tax Event or an Investment Company
Event, in each case at a redemption price equal
to 100% of the principal amount of the
Subordinated Debenture, together with any accrued
but unpaid interest to the date fixed for
redemption (the "Redemption Price"). See
"Description of the Subordinated
Debentures -- Redemption or Exchange."
No Rating.................. The Company does not expect the Preferred
Securities to be rated by any rating service, nor
is any other security issued by the Company so
rated.
Distribution of
Subordinated Debentures... The Company has the right at any time to terminate
the Trust and cause the Subordinated Debentures
to be distributed to holders of Preferred
Securities in liquidation of the Trust. See
"Description of the Preferred
Securities -- Redemption or Exchange" and
"Description of the Preferred
Securities -- Liquidation Distribution Upon
Termination."
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 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 (i) all Senior Debt, Subordinated Debt
and Additional Senior Obligations of the Company
8
<PAGE> 13
and (ii) all indebtedness of its subsidiaries. At
March 31, 1998, the Company and its subsidiaries
had total liabilities (excluding liabilities owed
to the Company) of approximately $1.1 billion. 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
which 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 under limited
circumstances. Specifically, if any Distributions
payable on the Preferred Securities are in
arrears for six quarterly periods, the holders of
the Preferred Securities, voting separately as a
class with any other preferred securities having
similar voting rights, will be entitled at the
next regular or special meeting of shareholders
of the Company to elect two directors to the
Board of Directors of the Company (such voting
rights will continue until such time as the
Distribution arrearage on the Preferred
Securities have been paid in full). The
affirmative consent of the holders of at least
66 2/3% of the outstanding Preferred Securities
will be required by the Trust for amendments to
the Trust Agreement that would affect adversely
the rights or privileges of the holders of the
Preferred Securities. See "Description of the
Preferred Securities -- Voting Rights; Amendment
of Trust Agreement."
ERISA Considerations....... Prospective purchasers should consider the
restrictions on purchase set forth under "ERISA
Considerations."
Form of Preferred
Securities............... The Preferred Securities will be represented by a
global certificate or certificates (each a
"Global Preferred Security") registered in the
name of Cede & Co., as nominee for The Depository
Trust Company ("DTC"). Beneficial interests in
the Preferred Securities will be evidenced by,
and transfers thereof will be effected only
through, records maintained by the participants
in DTC. Except under the limited circumstances
described herein, Preferred Securities in
certificated form (each a "Certificated Preferred
Security") will not be issued in exchange for
Global Preferred Securities. See "Description of
the Preferred Securities -- Form, Denomination,
Book-Entry Procedures and Transfer."
Absence of Market for the
Preferred Securities..... The Preferred Securities will be a new issue of
securities for which there currently is no
market. Although application has been made to
have the Preferred Securities listed on the
American Stock Exchange, subject to approval and
notice of issuance, there can be no assurance
that an active trading market in the Preferred
Securities will develop or if one does develop,
that it will be maintained. Accordingly, there
can be no assurance as to the development or
liquidity of any market for the Preferred
Securities.
American Stock Exchange
Listing Application...... The Preferred Securities have been approved for
listing on the American Stock Exchange under the
symbol EBS.Pr, subject to notice of issuance.
9
<PAGE> 14
Use of Proceeds............ The proceeds to the Trust from the sale of the
Preferred Securities offered hereby will be used
by the Trust to purchase the Subordinated
Debentures issued by the Company. The net
proceeds to the Company from the sale of
Subordinated Debentures are estimated to be
approximately $24.5 million ($28.3 million if the
Underwriters' over-allotment option is exercised
in full), after deducting the underwriting
commission and estimated offering expenses. The
Company intends to use the net proceeds as
follows: (i) approximately $10 million will be
contributed to the Bank to increase the Bank's
capital ratios to support growth, for working
capital and to increase the Bank's regulatory
capital from "adequately capitalized" to "well
capitalized" as defined by the OTS, and (ii) the
balance will be used to repay existing debt,
invest in investment grade preferred securities
of other issuers, and for general corporate
purposes. The precise amount and timing of the
application of such net proceeds used for such
corporate purposes will depend on the funding
requirements and availability of other funds to
the Company. Pending such application by the
Company, net proceeds may be temporarily invested
in short-term interest-bearing securities. The
portion of the net proceeds that the Company
contributes to the Bank will qualify as Tier 1 or
core capital of the Bank under the risk-based
capital guidelines of the OTS. See "Use of
Proceeds."
For additional information regarding the Preferred Securities, see "The
Trust," "Use of Proceeds," "Description of the Preferred Securities,"
"Description of the Subordinated Debentures," "Description of the Guarantee,"
"Relationship Among the Preferred Securities, the Subordinated Debentures and
the Guarantee," "Material Federal Income Tax Consequences," and "ERISA
Considerations."
RISK FACTORS
Prospective purchasers of the Preferred Securities should carefully
consider the risks in connection with this offering set forth under the caption
"Risk Factors," beginning on page 12.
10
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The summary below should be read in conjunction with the financial
information included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1998. See "Available Information," "Incorporation of Certain
Documents by Reference" and "Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED MARCH 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED RESULTS OF OPERATIONS:
Interest income...................................... $ 32,026 $ 39,618 $ 52,625 $ 63,785 $ 71,900
Interest expense..................................... 14,276 18,502 28,821 33,629 40,007
Net interest income.................................. 17,750 21,116 23,804 30,156 31,893
Provision for loan losses............................ 1,034 643 1,000 2,652 2,601
Noninterest income................................... 9,984 7,282 10,853 12,911 16,349
Noninterest expenses................................. 17,746 20,164 24,468 34,901 35,391
Income before income taxes........................... 8,954 7,591 9,189 5,514 10,250
Net income........................................... 5,462 4,881 6,219 3,746 7,210
PER COMMON SHARE:
Earnings per common share -- basic................... $ 1.40 $ 1.21 $ 1.46 $ 0.68 $ 1.27
Earnings per common share -- diluted................. 1.36 1.18 1.40 0.66 1.23
Dividends declared................................... 0.24 0.36 0.42 0.56 0.60
Book value per share................................. 9.54 10.25 12.03 11.99 13.03
Average common shares outstanding -- basic........... 3,889 4,032 4,251 5,528 5,691
Average common shares outstanding -- diluted......... 4,004 4,126 4,430 5,705 5,839
SELECTED BALANCE SHEET DATA:
Total assets......................................... $419,136 $568,678 $736,384 $823,882 $1,149,483
Securities available for sale........................ 36,730 33,160 105,988 96,921 104,736
Investment securities held to maturity............... 45,900 76,578 55,341 51,907 58,138
Loans held for sale.................................. 23,641 41,220 92,552 62,882 332,592
Loans receivable, net................................ 271,356 364,491 410,843 515,749 535,732
Reserve for loan losses.............................. 4,791 4,704 5,464 5,198 6,505
Investment in real estate............................ -- 6,620 12,962 25,828 27,595
Deposits............................................. 334,361 386,353 458,458 557,724 778,975
FHLB advances and other borrowings................... 31,394 120,688 174,337 153,805 240,855
Stockholders' equity................................. 38,137 41,637 66,448 67,874 74,702
PERFORMANCE RATIOS:
Return on average assets............................. 1.32% 1.01% 0.99% 0.49% 0.83%
Return on average equity............................. 16.31 12.33 13.32 5.55 10.00
Net interest margin -- taxable equivalent............ 4.59 4.81 4.20 4.37 4.11
Equity to assets..................................... 9.10 7.32 9.02 8.24 6.50
Efficiency ratio..................................... 63.99 71.01 70.60 81.04 73.36
ASSET QUALITY DATA:
Total non-accrual loans.............................. $ 1,890 $ 994 $ 6,317 $ 7,866 $ 7,948
Potential problem loans.............................. 2,652 2,963 4,329 2,503 4,009
Total non-accrual and problem loans.................. 4,542 3,957 10,646 10,369 11,957
Real estate owned, net............................... 1,273 1,139 1,344 2,074 2,947
Total problem assets................................. 5,815 5,096 11,990 12,443 14,904
Total problem assets/Total assets.................... 1.39% 0.90% 1.63% 1.51% 1.30%
Total problem assets/Loans receivable, net (plus
reserves).......................................... 2.11 1.38 2.88 2.39 2.75
Reserve for loan losses/Total problem assets......... 82.39 92.31 45.57 41.77 43.65
Ratio of net charge-offs to average loans............ 0.06 0.22 0.05 0.55 0.21
FIXED CHARGE COVERAGE RATIOS:
Ratio of earnings to fixed charges(1)
Excluding interest on deposits..................... 4.42x 2.81x 2.12x 1.63x 1.97x
Including interest on deposits..................... 1.62 1.41 1.32 1.16 1.25
CAPITAL RATIOS (TUCKER FEDERAL BANK):
Leverage capital..................................... 8.89% 6.56% 10.14% 6.72% 4.59%
Tier 1 capital....................................... 10.34 8.37 11.76 10.14 7.47
Total capital........................................ 11.53 9.44 12.65 11.08 8.31
</TABLE>
- ---------------
(1) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before tax plus fixed charges by fixed charges. Fixed
charges represent all interest expense and the interest factor in rent
expense (ratios are presented both excluding and including interest on
deposits). Interest expense (other than on deposits) includes interest on
federal funds purchased and securities sold under agreements to repurchase,
Federal Home Loan Bank advances, and other borrowed funds.
11
<PAGE> 16
RISK FACTORS
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following risk factors before purchasing the Preferred Securities offered
hereby. Certain statements in this Prospectus and documents incorporated herein
by reference are forward-looking. Such statements are identified by the use of
forward-looking words or phrases such as "intend," "will be positioned,"
"expects," is or are "expected," "anticipates," "anticipated," "may," "could,"
"should," "would" and "believe." These forward-looking statements are based on
the Company's current expectations. To the extent any of the information
contained or incorporated by reference in this Prospectus constitutes a
"forward-looking statement" as defined in Section 27A of the Securities Act and
Section 21E(i)(1) of the Exchange Act, the risk factors set forth below and in
the information incorporated herein by reference are cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statement. These considerations are
not intended to represent a complete list of the general or specific risks that
may affect the Preferred Securities, the Subordinated Debentures or the Company
and the Trust. It should be recognized that other risks may be significant,
presently or in the future.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
Preferred Securities are not Insured. The Preferred Securities are not
insured by the Bank Insurance Fund or the SAIF of the FDIC or by any other
governmental agency.
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. Because the Company is a holding company, the right
of the Company to participate in any distribution of assets of any of its
subsidiaries upon such subsidiary'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 that subsidiary, except to the extent that the Company may itself be
recognized as a creditor of that subsidiary. At March 31, 1998, the Company and
its subsidiaries had total liabilities of approximately $1.1 billion (excluding
liabilities owed to the Company). The Subordinated Debentures, therefore, will
be effectively subordinated to all existing and future liabilities of the
subsidiaries 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."
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.
The ability of the Trust to pay amounts due on the Preferred Securities is
solely dependent upon the Company's making payments on the Subordinated
Debentures as and when required.
Regulations limit the amount of dividends that may be paid by the Bank
without prior regulatory approval. As of March 31, 1998, the Bank could declare
no additional dividends to the Company without prior regulatory approval.
Federal and state regulatory agencies also have the authority to limit further
the Bank's payment of dividends based on other factors, such as the maintenance
of adequate capital for the Bank, which could reduce the amount of dividends
otherwise payable.
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
12
<PAGE> 17
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 Extended Interest Payment Period; provided that no Extended
Interest Payment 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 Trust Securities are entitled
will accumulate additional Distributions thereon at the rate of 8.50% per annum,
compounded quarterly, to the extent permitted by applicable law, from the
relevant payment date for such Distributions) during any such Extended Interest
Payment Period. During any such Extended Interest Payment 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 (other than the reclassification of any class of the
Company's capital stock into another class of 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 Extended
Interest Payment Period, the Company may further defer the payment of interest;
provided that no Extended Interest Payment Period may exceed 20 consecutive
quarters or extend beyond the Stated Maturity of the Subordinated Debentures.
Upon the termination of any Extended Interest Payment Period and the payment of
all interest then accrued and unpaid (together with interest thereon at the
annual rate of 8.50% compounded quarterly, to the extent permitted by applicable
law), the Company may elect to begin a new Extended Interest Payment 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
Extended Interest Payment Period. See "Description of the Preferred
Securities -- Distributions -- Extended Interest Payment Period" and
"Description of the Subordinated Debentures -- Option to Extend Interest Payment
Period."
Should an Extended Interest Payment Period occur, each holder of Preferred
Securities will be required to accrue and recognize income (in the form of
original issue discount) 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 "Material 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 Extended Interest Payment 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.
Capital Event; Tax 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 Capital Event, Tax Event or
Investment Company Event (whether occurring before or after September 30, 2003),
and, therefore, cause a mandatory redemption of the Preferred Securities.
"Capital Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters (which may be counsel to the Company) that the
Company cannot, or, within 90 days after the date of the opinion of such
counsel, will not be permitted by the applicable regulatory authorities, due to
a change in law, regulation, policy or guideline or interpretation or
application of law or regulation, policy or guideline, to
13
<PAGE> 18
account for the Preferred Securities as Tier 1 capital under the capital
guidelines or policies of the applicable bank regulatory authorities.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters (which may be counsel to the Company) to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such 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
Trust or the Company must request and receive an opinion with regard to such
matters within a reasonable period of time after the Company becomes aware of
the possible occurrence of any of the events described in clauses (i) through
(iii) above.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters (which may be counsel to the Company) 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.
In recent years, there have been several proposals to adopt legislation
which, if enacted and made applicable to the Subordinated Debentures, would
preclude the Company from deducting interest thereon. The most recent proposal
was made by the Clinton Administration on March 19, 1997. Such proposals have
not been adopted by Congress, but there can be no assurance that similar
proposals will not be adopted in the future and made applicable to the
Subordinated Debentures. Accordingly, there can be no assurance that any such
legislation will not result in a Tax Event which would permit the Company to
cause a mandatory redemption of the Preferred Securities before, or after,
September 30, 2003, at the Redemption Price.
In 1994, the Internal Revenue Service issued Notice 94-47. In this Notice,
the Internal Revenue Service stated that it was concerned with a series of
transactions in which instruments had been issued that were "designed to be
treated as debt for federal income tax purposes but as equity for regulatory,
rating agency, or financial accounting purposes." The Notice further stated that
"(u)pon examination, the Service will scrutinize instruments of this type to
determine if their purported status as debt for federal income tax purposes is
appropriate."
On April 6, 1998, Enron Corp. filed a Petition in the United States Tax
Court contesting the proposed disallowance by the Internal Revenue Service of a
deduction claimed by Enron Corp. relating to interest paid with respect to
certain instruments ("MIPS") issued in 1993 and 1994. The Tax Court has not
rendered an opinion on the deductibility of the interest paid by Enron Corp. The
Preferred Securities have certain characteristics that could be viewed as
similar to the MIPS involved in the Enron Corp. case.
There can be no assurance that a Tax Court opinion in the Enron Corp. case,
or any similar case, will not result in a Tax Event which would permit the
Company to cause a mandatory redemption of the Subordinated Debentures (which
shall cause a redemption of the Preferred Securities) before the stated maturity
at the Redemption Price.
Exchange of Preferred Securities for Subordinated Debentures. The Company
has the right at any time to dissolve, wind-up or terminate the Trust and cause
the Subordinated Debentures to be distributed to the holders of the Trust
Securities in exchange therefor in liquidation of the Trust. The Company will
have the
14
<PAGE> 19
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. See "Description of the Preferred Securities -- Redemption or
Exchange -- Capital Event, Tax Event 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
"Material 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, therefore, 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
reasonable best efforts to list the Subordinated Debentures on the American
Stock Exchange or such stock exchanges or inter-dealer quotation system, if any,
on which the Preferred Securities are then listed.
Rights Under the Guarantee. SunTrust Bank will act as Guarantee Trustee
and will hold the Guarantee for the benefit of the holders of the Preferred
Securities. SunTrust Bank also will act as Property Trustee and as Debenture
Trustee under the Indenture. Wilmington Trust Company will act as the Delaware
Trustee under the Trust Agreement. 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 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
15
<PAGE> 20
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 the Preferred Securities," "-- 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.
Limited Voting Rights. 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. If any Distributions payable on
the Preferred Securities are in arrears for six quarterly periods, the holders
of the Preferred Securities, voting separately as a class with any other
preferred securities having similar voting rights, will be entitled at the next
regular or special meeting of shareholders of the Company to elect two directors
to the Board of Directors of the Company (such voting rights will continue until
such time as the Distribution arrearage on the Preferred Securities have been
paid in full). The affirmative consent of the holders of at least 66 2/3% of the
outstanding Preferred Securities will be required by the Trust for amendments to
the Trust Agreement that would affect adversely the rights or privileges of the
holders of the Preferred Securities. 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 "-- Removal of the Trust Trustees."
Trading Price; Absence of Prior Market for the Preferred Securities. The
Preferred Securities may trade at prices that do not fully reflect the value of
accrued but unpaid interest with respect to the underlying Subordinated
Debentures. 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.
Such holder will recognize a capital loss to the extent the selling price (which
may not fully reflect the value of accrued but unpaid interest) is less than its
adjusted tax basis (which will include all accrued but unpaid interest). Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes. See "Material
Federal Income Tax Consequences -- Disposition of Preferred Securities."
There is no current public market for the Preferred Securities. Although
application has been made to have the Preferred Securities approved for
quotation on the American Stock Exchange, 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, the financial condition of the Company, investor perceptions of the
Company and general industry and economic conditions. In addition,
notwithstanding the registration of the Preferred Securities, holders who are
"affiliates" of the Company or the Trust as defined under Rule 405 of the
Securities Act may publicly offer for sale or resell the Preferred Securities
only in compliance with the provisions of Rule 144 under the Securities Act.
16
<PAGE> 21
RISK FACTORS RELATING TO THE COMPANY
Dependence on Primary Geographic Markets; Credit Risk, & Loan
Concentration. The financial condition of the Company is primarily dependent on
economic conditions in the Atlanta metropolitan area. The majority of deposits
gathered originate from the Company's Atlanta-based banking branches. Over the
past five years, the Company has experienced significant growth in its
construction, acquisition and development and permanent single-family
residential mortgage loan portfolios. The largest component of the Company's
loan portfolio is residential permanent mortgages held for sale. These loans are
originated through the Company's mortgage banking operations. As of March 31,
1998, these loans represented $332.6 million or 38% of the Company's net loan
portfolio. Of the total loans held for sale, $46.9 million were mortgages on
properties in the metropolitan Atlanta area, and $285.7 million were mortgages
on homes located outside of metropolitan Atlanta. The Company's portfolio of
single-family residential mortgage loans (held to maturity) was $193.0 million
at March 31, 1998, which is the second largest component of the loan portfolio
representing 22.0% of the Company's net loan portfolio.
Construction loans comprise the third largest component of the Company's
loan portfolio. At March 31, 1998, construction and acquisition and development
loans constituted 18.6% of the Company's loan portfolio and totaled $162.5
million. Construction and acquisition and development loans in the metropolitan
Atlanta area totaled $86.3 million or 9.9%, and $76.2 million or 8.8% of net
loans receivable, including loans held for sale, were loans on property located
outside of metropolitan Atlanta. Construction loans frequently involve greater
risks than permanent mortgage loans primarily due to (i) the credit worthiness
of construction borrowers in general, (ii) the potential risks associated with
securing permanent financing and (iii) general market conditions in the housing
industry.
While management believes the economy in metropolitan Atlanta is generally
healthy and has experienced above average growth, adverse changes in economic
conditions in metropolitan Atlanta could adversely impact the Company's growth
and financial performance. Although the Company's problem assets as a percentage
of total assets was 1.3% as of March 31, 1998, there is a risk that the quality
of the Company's loan portfolio could decline, particularly as a result of the
rapid growth in loans and the concentration of construction loans.
Reliance on Residential Mortgage Originations to Produce Fee Income. The
market for residential mortgages is highly volatile and an increase in interest
rates could have a material adverse effect on both non-interest income and
interest income and in the growth of the Company's residential mortgage
portfolio. In addition, a substantial portion of the Company's non-interest
income has been derived from gains on the sale of mortgage loans and mortgage
production fees consisting of proceeds from the sale of mortgage servicing
rights, gains on sale of mortgage loans, loan origination fees and discount
points. Due to the cyclical nature of residential mortgage originations, there
can be no assurance that the Company will be able to sustain recent levels of
gains on the sale of mortgage loans and mortgage production fees.
Litigation Regarding Mortgage Origination Division. Two individuals and a
corporation controlled by them who were formerly parties to an agreement with
the Bank for the operation of the Bank's Prime Lending Division have brought an
action against the Bank alleging violations of the agreement by the Bank. The
complaint, as now amended, seeks, among other things, (i) a declaration that the
Agreement was terminated "without cause" and that, pursuant to the Agreement,
the Plaintiffs have the right to purchase the assets of Prime at 75% of fair
market value; (ii) alleged unpaid profits from Prime's operations (in an amount
estimated by the Plaintiffs to equal approximately $450,000); (iii) a
determination that the term "assets," as used in connection with the Plaintiffs'
alleged purchase option in the Agreement, includes all loans carried as assets
on the books of the Bank that were originated by Prime (the "Prime Loans") and
that the Plaintiffs would not be required to assume or net against the Prime
Loans any corresponding liability incurred by the Bank in connection with the
Prime Loans; (iv) consequential damages in excess of $20 million, which
represents the Plaintiffs' assessment of the loss they suffered by the Bank's
refusal to sell to the Plaintiffs Prime's assets under Plaintiffs' definition of
"assets" (i.e., including such loans); and (v) unspecified punitive damages and
attorneys fees. An adverse decision could also result in the Bank ceasing
origination of permanent mortgages and construction loans from the 11 Prime
Lending Division offices outside the
17
<PAGE> 22
metropolitan Atlanta area and being contractually prohibited for two years from
originating conforming residential loans secured by property located within 25
miles of any Prime Lending Division office. A significant damage award could
have a material adverse effect on the financial condition of the Bank and,
correspondingly, the Company. See Business Strategy -- "Recent
Developments -- Pending Litigation."
Interest Rate Sensitivity. The profitability of the Company depends to a
large extent upon its net interest income, which is the difference between
interest income and interest expense. The net interest income of the Company
could be adversely affected if, for example, changes in market interest rates
resulted in the cost of interest-bearing liabilities increasing faster than the
increase in the yield on the interest-earning assets. Additionally, increasing
interest rates could have an adverse impact on house sales which could
negatively impact construction lending and permanent mortgage originations.
Holding Company Investments. As a unitary thrift holding company, the
Company is permitted to make investments which national bank holding companies
are not permitted to make. Those activities are concentrated in the Company's
two subsidiaries, EREA and EBCG. Approximately $27.6 million, or 2.4%, of the
Company's total assets as of March 31, 1998 were invested in six real estate
development projects in the metropolitan Atlanta area. The Company intends to
acquire and develop real estate on a limited basis in metropolitan Atlanta where
the zoning and market conditions are understood and the return is commensurate
with the risk taken. Real estate development also is subject to the associated
risk related to delays in the construction and development, lot absorption,
financing availability and failure of properties to perform as expected.
Additionally, EBCG has invested $10.7 million, or 0.9%, of Company's total
assets as of March 31, 1998 in mezzanine financing loans. Each of these loans
represents a second mortgage on a commercial real estate property. While the
returns expected from these investments are greater than traditional commercial
real estate loans, they are subject to the associated risk related to a higher
loan to value, construction occupancy and general economic conditions.
Status of the Company as a Thrift Holding Company. The Company is a legal
entity separate and distinct from its subsidiaries, although the principal
source of the Company's cash revenues is dividends from its subsidiaries. The
right of the Company to participate in the assets of any subsidiary upon the
subsidiary's liquidation, reorganization or otherwise (and thus the ability of
the holders of the Preferred Securities to benefit indirectly from any such
distribution) will be subject to the claims of the subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim. In addition, certain regulations limit the
amount of dividends that may be paid by the Bank without prior regulatory
approval. See "Business Strategy -- Recent Developments."
Competition. The Company's subsidiaries face substantial competition for
loans and deposits as well as other sources of funding in the communities they
serve. Competitors include other national and state banks, thrifts and trust
companies, insurance companies, mortgage banking operations, credit unions,
finance companies, money market funds and other financial and non-financial
companies which may offer products functionally equivalent to those offered by
the Company's subsidiaries. Many competing providers have greater financial
resources than the Company and offer services within and outside the market
areas served by the Company's subsidiaries.
18
<PAGE> 23
Developments in Technology. The market for financial services, including
banking services, is increasingly effected by advances in technology, including
developments in telecommunications, data processing, computers, automation,
internet-based banking, telebanking, debit cards and so-called "smart cards."
The ability of the Company to compete successfully in its markets may depend on
the extent to which it is able to exploit such technological changes.
Additionally, the Bank is responsible for ensuring that its in-house processing
and service providers and software vendors are fully compliant with the year
2000 requirements. The Bank has identified and developed plans for all mission
critical applications including those provided by third party vendors; however,
additional expenses may be incurred if problems are encountered which were not
previously identified. The ability of the Company to compete successfully in its
markets may depend on the extent to which it is able to exploit technological
changes and test and modify its systems as required to meet the challenges of
the year 2000. There can be no assurance that the development of these or any
other new technologies or the Company's success or failure in anticipating or
responding to such developments will materially affect the Company's business,
financial condition and operating results. Based upon the year 2000 plan
developed by management, the Company expects that it will require less than $1
million in additional capital expenditures to be fully compliant with year 2000
requirements.
19
<PAGE> 24
THE COMPANY
The Company is a unitary savings and loan holding company which owns and
operates the Bank, EREA and EBCG. The Company has grown total assets to $1.1
billion at March 31, 1998, making it one of the largest financial institutions
headquartered in metropolitan Atlanta. The Bank is a federally chartered stock
savings and loan association organized in 1956 and based in Tucker, Georgia, a
suburb of Atlanta. The Bank serves the metropolitan Atlanta area through 15 full
service banking offices. As a unitary thrift holding company, the Company is
permitted, under current regulations, to engage in activities in which bank
holding companies may not legally engage. To capitalize on this advantage, the
Company formed EREA in 1991 to perform real estate brokerage and development
activities and formed EBCG in 1997 to provide mezzanine financing that is not
readily available from traditional commercial banking sources.
Growth in the metropolitan Atlanta area and ongoing consolidation of the
financial services industry have resulted in significant recent increases in
loans, deposits and customers at the Bank. In February 1996, the Company sold
1,435,000 shares of common stock, raising $21.5 million of additional capital to
support growth in deposits and permitted investments by the Company. The Company
also has benefited from industry consolidation by hiring experienced banking
executives and acquiring surplus local branches. On March 26, 1997, the Company
acquired Southern Crescent Financial Corp and its wholly owned subsidiary,
Southern Crescent Bank, with total assets of $150 million and four full-service
branches in the rapidly growing markets of the south metropolitan Atlanta area.
Simultaneously, Southern Crescent Bank was merged with and into the Bank. The
acquisition also enhanced the Company's commercial lending capabilities. Since
the Company's last offering, total assets have grown from $558 million at
December 31, 1995 to $1.1 billion at March 31, 1998, or 105.9%. Deposits have
grown from $332 million to $779 million, or 134.6%, and the Company's total loan
portfolio, which includes loans held for sale, has increased from $381 million
to $868 million, or 128.2%.
BUSINESS STRATEGY
LONG TERM GROWTH STRATEGY
Management believes the best way to maximize long-term shareholder value is
to continue to improve financial performance and operating efficiency and to
continue to grow market share in the metropolitan Atlanta area. Management
intends to continue to pursue allied businesses permitted by its unitary thrift
holding company status. The Company's long-term strategy is focused on
increasing shareholder value by creating competitive advantages in targeted
business niches which include community banking, mortgage banking and real
estate development.
Community Banking. Based on total assets as of March 31, 1998, the Bank is
one of the largest financial institutions headquartered in the metropolitan
Atlanta area. The Bank has a significant strategic opportunity as one of
Atlanta's leading community banks. Management believes that the Bank is well
positioned to continue to build franchise value by increasing market share in
the metropolitan Atlanta area. The Bank's asset size and legal lending limit per
borrower permit it to serve small and middle market customers more effectively
than many smaller Atlanta community banks. The Bank's competitive advantage is
its ability to provide a full range of financial products with personalized
service and local decision making, which typically are not available from
financial institutions headquartered out of state. Additionally, management
believes that many local borrowers are being underserved as a result of the
recent acquisitions of many of Atlanta's banks and thrifts by large out-of-state
banks and that the Bank will continue to build franchise value by increasing
market share in the metropolitan Atlanta area.
Mortgage Banking. The Company creates a strategic advantage by utilizing
its experience and historic commitment to construction lending to generate
permanent mortgage loan originations. Because of the Company's long-term
participation in construction lending and its relationships with its existing
homebuilders, it has been able to develop a core business of permanent mortgage
originations. The Company has relationships with approximately 165 homebuilders
in the Atlanta metropolitan area but does not have any significant loan
concentration with any homebuilder or in any particular market area. Over the
past year, the
20
<PAGE> 25
Company has been upgrading the origination and processing systems used in its
mortgage banking business to improve customer service and the efficiencies of
loan originations and sales. Management is implementing an automated
underwriting system for its conforming mortgage loans to continue to improve
customer service by providing faster loan decisions. In September 1997, the
Company acquired a wholesale mortgage banking business to increase loan
originations and improve efficiencies of its mortgage banking operations. The
Company sells the majority of its mortgage loans, with servicing released to
third party investors.
Real Estate Development. The Company's experience as a metropolitan
Atlanta area real estate lender for over 40 years creates a strategic advantage
for its real estate development activities. Local market knowledge and
relationships with builders and developers give the Company a unique position to
create and evaluate real estate development opportunities. Additionally, the
Company's real estate investments and brokerage activities have contributed
increasing incremental income to the Company since 1995.
STRATEGIC BUSINESS PLAN
The Company reviews and updates its Strategic Business Plan quarterly.
Having reached $1.1 billion in assets, the Company has the capability to provide
a broad array of financial services to consumers and small and medium sized
businesses that consider personalized service and local decision making to be an
important component of a banking relationship. The Company's plan is focused
upon five basic principles:
Improving Financial Performance and Operating Efficiencies. The Company's
ability to increase market share in the rapidly growing metropolitan Atlanta
area has produced dynamic growth in total assets. Continued rapid growth,
however, has impacted operating efficiencies. To mitigate this impact and
provide for future growth, the Bank has converted its core and branch processing
systems to a data processing environment comparable to that of commercial banks.
Therefore, over the past year, the Company has incurred increased capital
expenditures, data processing costs, training expenses and consulting fees with
the goal of strategically building the infrastructure necessary to support
future growth. This system increases capacity and provides enhanced customer
information.
Management has undertaken a number of initiatives to improve core earnings.
These initiatives are designed to continue to improve customer service and
operating efficiency while increasing fee income and controlling expenses and
include:
- Changing the deposit mix by emphasizing demand deposit accounts, which
has the effect of lowering the cost of funds and increasing fee income.
The Bank intends to cross-sell borrowers to increase their demand deposit
accounts and require multiple account relationships in order to earn a
higher interest rate on certificates of deposit.
- Converting the core and branch processing systems from off-site data
processing systems to on-site data processing systems. The conversion was
completed in February 1998, at which time the Bank changed to a new item
processing environment to provide increased capacity to service
transaction accounts and allow branch staff to more effectively serve
business customers. The systems use a data warehouse to analyze customer
profitability information for front line employees and provide the
foundation of the Bank's relationship management program.
- Developing new products to increase fee income from existing customers.
These initiatives include a plan to offer insurance products to builders,
small businesses and mortgage customers.
- Acquiring a wholesale mortgage banking operation to increase loan
origination volume, increase the efficiency of mortgage banking
operations and add diversity to the Bank's sources of mortgage loans. The
acquisition occurred in September 1997 and has included implementation of
technology and operating systems such as an automated underwriting
system. These technology and operating improvements are now being
implemented in the retail mortgage operation.
- Implementing initiatives to improve efficiency and control noninterest
expense. Management has initiated cost control measures by renegotiating
communications, facilities maintenance and courier
21
<PAGE> 26
contracts to take advantage of increased size. Additionally, management
is developing a new branch staffing model to achieve improved branch
efficiencies.
- Developing an extensive profitability analysis for each line of business
and office. For the year ending March 31, 1998, a number of offices did
not cover their costs of operation. Management has identified those
offices which currently are not able to meet profitability goals and has
instituted a plan designed to increase overall profitability.
Continuing to Grow Market Share in Metropolitan Atlanta. Management
believes that consolidation in the banking industry is causing an increasing
number of customers to consider local decision making an important issue in
choosing a financial institution. The Bank will use personalized service in a
traditional branch setting to position itself as a leading community bank in the
metropolitan Atlanta banking market. The Bank's new data warehouse provides
customer and household profitability information that enhances its ability to
cross-sell the Bank's services and increase its overall profitability.
The Company is pursuing three approaches to increase market share. First,
it intends to sell more products to its existing customers through its
relationship banking program. Management is utilizing enhanced customer
information and is training employees to search for opportunities to provide
financial solutions to the Bank's customers and is enhancing the products and
services offered to existing mortgage and deposit customers. Second, it is
developing new customers in its existing markets through an aggressive marketing
communications and direct mail program. Third, it is continuing to evaluate
opportunities to expand market share through acquisitions.
The following table sets forth information regarding total deposits at June
30 of each of the years reported for the metropolitan Atlanta, Georgia market
and for the Bank. At March 31, 1998 deposits for the Bank were $779 million, or
34.5% greater than deposits at June 30, 1997 as reported by the Federal Deposit
Insurance Corporation.
<TABLE>
<CAPTION>
METROPOLITAN ATLANTA DEPOSIT DATA COMPOUND
AT JUNE 30, ANNUAL
----------------------------------------------- GROWTH
1993 1994 1995 1996 1997 RATE
------- ------- ------- ------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Metropolitan Atlanta Deposits........... $35,682 $36,956 $39,312 $42,178 $45,501 6.27%
Deposits of the Bank.................... 271 353 403 502 579 20.90
Market Share of the Bank................ .76 .96 1.03 1.19 1.27 13.70
</TABLE>
Developing New Sources of Income. The Company will continue to pursue
allied businesses permitted by its unitary thrift holding company status. The
Company formed EBCG last year to provide financing to borrowers that have the
potential for significant growth, adequate collateral coverage and experienced
management teams with significant equity ownership. Management will focus on
making loans with equity features and will identify investment opportunities
through the Bank's customer base as well as a referral network comprised of
venture capitalists, investment bankers, attorneys and accountants. As of March
31, 1998, the Company has invested $10.7 million in mezzanine financing for
twelve affiliated LLC's that operate extended stay hotels.
EREA recently formed Eagle Residential Realty to market lots in the
Company's developments. EREA continues to identify investment opportunities as a
result of its local market knowledge in metropolitan Atlanta. EREA's
contribution to the Company's income has steadily increased since 1995.
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<PAGE> 27
The following table summarizes the activities of EREA for the periods
presented.
<TABLE>
<CAPTION>
REAL ESTATE ACTIVITY
AS OF AND FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment in real estate.................................. $ 0 $ 6,620 $12,962 $25,828 $27,595
Gain on sales of investments in real estate................ 0 0 697 1,377 2,160
Real estate commissions, (net)............................. 176 143 165 405 510
Rental income.............................................. 0 0 0 353 773
</TABLE>
Utilizing Technology to Enhance the Company's Operating Results and
Capitalize on New Business Opportunities. The Company converted its data and
check processing systems from a traditional thrift system to a system comparable
to a commercial bank. The data processing systems provide significant capacity
for future growth and enhance the Company's ability to provide timely and cost
efficient customer service. The new processing systems use a data warehouse to
identify customers with the highest profit improvement potential and allow
relationship managers to identify financial products which may be offered to
existing customers to increase the Bank's profitability. The Company will use
technology to implement alternate product delivery methods by expanding its call
center, providing cash management products for small businesses and implementing
automatic underwriting in its mortgage and retail lending operation. The long
term plan contemplates the addition of PC Banking capabilities.
The Company is implementing an integrated mortgage banking loan origination
system. This system together with the automated underwriting system will be
fully operational in the Bank's wholesale mortgage banking group and will be
implemented throughout its retail mortgage group. This new system will increase
efficiency of the retail and wholesale groups and can significantly reduce the
time and number of documents required to process mortgage loans.
Being the "Bank of Choice" for the Small Business Community. Personal
relationships and local decision-making are important considerations to small
and medium sized businesses. The Company's size allows it to offer a full range
of products and services to business customers with a level of personal service
that exceeds service provided by larger financial institutions. The Company
recruited experienced bankers to expand its Small Business Administration
("SBA") and commercial lending areas and to offer a complete array of financing
including SBA guaranteed loans, asset based loans to finance receivables and
inventory, plant and headquarters expansion, as well as to identify mezzanine
financing opportunities for rapidly growing businesses.
RECENT DEVELOPMENTS
Pending Litigation. In November 1992, the Bank acquired certain assets
from the Resolution Trust Corporation, which included four mortgage loan
origination facilities. The Bank then entered into an Operating Agreement (the
"Agreement") with two individuals and a corporation controlled by them
(collectively, the "Plaintiffs"), to form the Prime Lending Division ("Prime").
Under the Agreement, the individual Plaintiffs became employees of the Bank, and
the Plaintiffs' compensation was to include a percentage of the net profits to
be calculated after allocating expenses and overhead to Prime. In mid-1997, a
disagreement arose with respect to the allocation of expenses to Prime, which
led to the filing by the Plaintiffs of a lawsuit on December 5, 1997 alleging
that the Bank had improperly calculated the profits due them under the Agreement
since April 1997. In January 1998, the Bank terminated the Agreement with the
Plaintiffs "for cause." The Bank also maintains that its calculation of the
profits and losses was proper.
The complaint as amended seeks, among other things (i) a declaration that
the Agreement was terminated "without cause" and that, pursuant to the
Agreement, the Plaintiffs have the right to purchase the assets of Prime at 75%
of fair market value; (ii) alleged unpaid profits from Prime's operations (in an
amount estimated by the Plaintiffs to equal approximately $450,000); (iii) a
determination that the term "assets," as used in connection with the Plaintiffs'
alleged purchase option in the Agreement, includes all loans carried as assets
on the books of the Bank that were originated by Prime (the "Prime Loans") and
that the Plaintiffs would not be required to assume or net against the Prime
Loans any corresponding liability incurred by the
23
<PAGE> 28
Bank in connection with the Prime Loans; (iv) consequential damages in excess of
$20 million, which represents the Plaintiffs' assessment of the loss they
suffered by the Bank's refusal to sell to the Plaintiffs Prime's assets under
Plaintiffs' definition of "assets" (i.e., including such loans); and (v)
unspecified punitive damages and attorneys fees. The Bank strongly denies all of
Plaintiffs' allegations, including the Plaintiffs' allegation that they have the
right to purchase the assets of Prime. Further, the Bank specifically disputes
Plaintiffs' contention that all loans originated by Prime constitute "assets" of
Prime.
The Bank believes that the Plaintiffs are not entitled to purchase the
Prime Loans and that the only assets that the Plaintiffs may be permitted to
purchase are the tangible and intangible assets of Prime. At March 31, 1998,
Prime's tangible assets had a collective book value estimated to be
approximately $1.2 million, which could be purchased at 75% of fair market value
under the Agreement. Although the Bank does not believe that Plaintiffs have the
contractual right to purchase the Prime Loans, the Bank contends that if the
court determines that the Plaintiffs do have a right to purchase the Prime
Loans, the Plaintiffs must assume the liabilities associated with such loans
(including funding expenses). The Agreement specifically provides that, if
Plaintiffs purchase the assets of Prime, they must "assume all obligations
associated with the [Prime Lending] Division."
If Plaintiffs are successful in obtaining a declaration that they are
entitled to purchase the assets of Prime (or if the Bank agrees to compromise
this case with the Plaintiffs), the Bank may cease originating permanent
mortgages and construction loans from the 11 Prime offices situated outside the
metropolitan Atlanta area. The Agreement provides that, if Plaintiffs purchase
the assets of Prime, the Bank shall refrain for two years from originating
conforming residential loans secured by property located within 25 miles of any
Prime office. The Company does not believe that such cessation of operations
would have a material adverse effect upon its or the Bank's business or
operations. Based on the Bank's calculations for the 12 months ending March 31,
1998, the Bank sold approximately $500 million permanent single family mortgage
loans originated by Prime. However, as a result of expenses attributable
thereto, the Bank estimates that Prime's permanent mortgage origination business
incurred a pretax loss of $200,000. The Bank estimates that during the same
period construction loans originated by Prime have generated pretax income of
approximately $1.5 million. Pending the outcome of the litigation, the Bank will
continue to operate Prime's mortgage loan origination business. In addition, the
Bank believes it can replace loans originated by Prime through its other
existing operations, including the Wholesale Mortgage Division of the Bank.
Pending Legislation. On May 13, 1998, the House of Representatives passed
the Financial Services Act of 1998, H.R. 10, originally introduced in early 1997
by Representative Jim Leach, Chairman of the Banking Company of the United
States House of Representatives. Pursuant to the Act, existing unitary thrift
holding companies prior to March 31, 1998 could continue to engage in all
activities which were permitted prior to the Act. Activities of the Company in
connection with real estate development and related activities are permissible
for a unitary thrift under the current law and as amended by the Act but would
not be permissible for a bank holding company. The Act also would provide for
(1) creation of financial holding companies which under certain circumstances
may engage in a broad variety of financial services activities not permitted for
banking holding companies under the current law and (2) for broader insurance
and securities powers for financial institutions, subject to the implementation
of regulations.
Stockholder Proposal. On March 18, 1998, the Company received written
notice from J.C. Serrato, Jr., M.D., a beneficial owner of Common Stock of the
Company, of his intent to present a proposal at the next Annual Meeting of
Stockholders of the Company. The stockholder proposal for inclusion in the
Company's 1998 Proxy Statement "recommends that the Board of Directors of the
Company take steps to achieve a sale, merger or other acquisition of the
Company." The Board of Directors unanimously opposes the current proposal and
has recommended that the shareholders vote against it. J.C. Serrato, Jr., M.D.
has made two previous proposals, the first in 1993 involved a proposal to elect
a slate of two directors in opposition to the slate of directors proposed by the
Board of Directors of the Company and a second proposal in 1994 recommending the
Board of Directors eliminate the Shareholder Protection Rights Agreement.
Neither proposal was approved by the stockholders of the Company.
24
<PAGE> 29
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. All future
reports of the Company filed under the Exchange Act will (i) present the Trust
Securities issued by the Trust on the balance sheet as a separate line item
entitled "Guaranteed Preferred Beneficial Interests in the Company's
Subordinated Debentures," (ii) 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 (iii) include in a footnote to the financial
statements disclosure that the Company owns all of the Common Securities of the
Trust, the sole assets of the Trust are the Subordinated Debentures, and 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.
USE OF PROCEEDS
The proceeds to the Trust from the sale of the Preferred Securities offered
hereby will be used by the Trust to purchase the Subordinated Debentures issued
by the Company. The net proceeds to the Company from the sale of Subordinated
Debentures are estimated to be approximately $24.5 million ($28.3 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting commission and estimated offering expenses. The Company intends to
use the net proceeds as follows: (i) approximately $10 million will be
contributed to the Bank to increase the Bank's capital ratios to support growth,
provide working capital and increase the Bank's regulatory capital from
"adequately capitalized" to "well capitalized" as defined by the OTS, and (ii)
the balance will be used to repay existing debt, invest in investment grade
preferred securities of other issuers and for general corporate purposes. The
precise amount and timing of the application of such net proceeds used for such
corporate purposes will depend on the funding requirements and availability of
other funds to the Company. Pending such application by the Company, net
proceeds may be temporarily invested in short-term interest-bearing securities.
The portion of the net proceeds that the Company contributes to the Bank will
qualify as Tier 1 or core capital to the Bank under the risk-based capital
guidelines of the OTS.
Indebtedness of $4.2 million with a weighted average interest rate of 8.5%,
which matures in November 1999, will be repaid with no prepayment penalty. The
debt was incurred to purchase land currently being developed for one of the
Company's real estate projects. The Company may invest a portion of the proceeds
in investment grade preferred equity securities which offer tax benefits through
a dividend received deduction. These investments will be purchased to provide
future liquidity and a tax benefit which increases the taxable equivalent yield.
Preferred stock investments will be considered "held for sale" enabling the
Company to sell the securities to fund the future growth of its subsidiaries.
Investments will be made only in accordance with the Company's Investment Policy
and concentrations in a single issuer will not exceed 5% of stockholder's
equity. Market conditions which drive the availability of investment
opportunities and the Company's investment policy limitations may restrict the
funds used to invest in this type of security.
25
<PAGE> 30
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1998, and as adjusted to give effect to the
consummation of the offering of the Preferred Securities offered hereby and the
application of the net proceeds thereof as if the sale of the Preferred
Securities had been consummated on March 31, 1998. The following data should be
read in conjunction with the financial information included in the documents
incorporated by reference. See "Incorporation of Certain Documents by Reference"
and "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
-------------------------------
AS ADJUSTED FOR
PREFERRED SECURITIES
ACTUAL ISSUANCE
-------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total long-term debt........................................ $115,520 $115,520
Guaranteed preferred beneficial interests in the Company's
subordinated debentures................................... 0 25,000
Shareholders' equity:
Common stock; $1.00 par value; 10,000,000 authorized
shares; 6,037,100 shares issued........................ 6,037 6,037
Additional paid in capital.................................. 37,336 37,336
Unrealized gain on securities available for sale............ 838 838
Retained earnings........................................... 32,028 32,028
Employee stock ownership trust note payable................. (165) (165)
Unamortized restricted stock................................ (296) (296)
Treasury stock (301,800 shares at cost)..................... (1,076) (1,076)
-------- --------
Total shareholders' equity.................................. 74,702 74,702
-------- --------
Total capitalization.............................. $190,222 $215,222
======== ========
</TABLE>
26
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
The summary below should be read in conjunction with the financial
information included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1998. See "Available Information," "Incorporation of Certain
Documents by Reference" and "Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED MARCH 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED RESULTS OF OPERATIONS:
Interest income...................................... $ 32,026 $ 39,618 $ 52,625 $ 63,785 $ 71,900
Interest expense..................................... 14,276 18,502 28,821 33,629 40,007
Net interest income.................................. 17,750 21,116 23,804 30,156 31,893
Provision for loan losses............................ 1,034 643 1,000 2,652 2,601
Noninterest income................................... 9,984 7,282 10,853 12,911 16,349
Noninterest expenses................................. 17,746 20,164 24,468 34,901 35,391
Income before income taxes........................... 8,954 7,591 9,189 5,514 10,250
Net income........................................... 5,462 4,881 6,219 3,746 7,210
PER COMMON SHARE:
Earnings per common share -- basic................... $ 1.40 $ 1.21 $ 1.46 $ 0.68 $ 1.27
Earnings per common share -- diluted................. 1.36 1.18 1.40 0.66 1.23
Dividends declared................................... 0.24 0.36 0.42 0.56 0.60
Book value per share................................. 9.54 10.25 12.03 11.99 13.03
Average common shares outstanding -- basic........... 3,889 4,032 4,251 5,528 5,691
Average common shares outstanding -- diluted......... 4,004 4,126 4,430 5,705 5,839
SELECTED BALANCE SHEET DATA:
Total assets......................................... $419,136 $568,678 $736,384 $823,882 $1,149,483
Securities available for sale........................ 36,730 33,160 105,988 96,921 104,736
Investment securities held to maturity............... 45,900 76,578 55,341 51,907 58,138
Loans held for sale.................................. 23,641 41,220 92,552 62,882 332,592
Loans receivable, net................................ 271,356 364,491 410,843 515,749 535,732
Reserve for loan losses.............................. 4,791 4,704 5,464 5,198 6,505
Investment in real estate............................ -- 6,620 12,962 25,828 27,595
Deposits............................................. 334,361 386,353 458,458 557,724 778,975
FHLB advances and other borrowings................... 31,394 120,688 174,337 153,805 240,855
Stockholders' equity................................. 38,137 41,637 66,448 67,874 74,702
PERFORMANCE RATIOS:
Return on average assets............................. 1.32% 1.01% 0.99% 0.49% 0.83%
Return on average equity............................. 16.31 12.33 13.32 5.55 10.00
Net interest margin -- taxable equivalent............ 4.59 4.81 4.20 4.37 4.11
Equity to assets..................................... 9.10 7.32 9.02 8.24 6.50
Efficiency ratio..................................... 63.99 71.01 70.60 81.04 73.36
ASSET QUALITY DATA:
Total non-accrual loans.............................. $ 1,890 $ 994 $ 6,317 $ 7,866 $ 7,948
Potential problem loans.............................. 2,652 2,963 4,329 2,503 4,009
Total non-accrual and problem loans.................. 4,542 3,957 10,646 10,369 11,957
Real estate owned, net............................... 1,273 1,139 1,344 2,074 2,947
Total problem assets................................. 5,815 5,096 11,990 12,443 14,904
Total problem assets/Total assets.................... 1.39% 0.90% 1.63% 1.51% 1.30%
Total problem assets/Loans receivable, net (plus
reserves).......................................... 2.11 1.38 2.88 2.39 2.75
Reserve for loan losses/Total problem assets......... 82.39 92.31 45.57 41.77 43.65
Ratio of net charge-offs to average loans............ 0.06 0.22 0.05 0.55 0.21
FIXED CHARGE COVERAGE RATIOS:
Ratio of earnings to fixed charges(1)
Excluding interest on deposits..................... 4.42x 2.81x 2.12x 1.63x 1.97x
Including interest on deposits..................... 1.62 1.41 1.32 1.16 1.25
CAPITAL RATIOS (TUCKER FEDERAL BANK):
Leverage capital..................................... 8.89% 6.56% 10.14% 6.72% 4.59%
Tier 1 capital....................................... 10.34 8.37 11.76 10.14 7.47
Total capital........................................ 11.53 9.44 12.65 11.08 8.31
</TABLE>
- ---------------
(1) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before tax plus fixed charges by fixed charges. Fixed
charges represent all interest expense and the interest factor in rent
expense (ratios are presented both excluding and including interest on
deposits). Interest expense (other than on deposits) includes interest on
federal funds purchased and securities sold under agreements to repurchase,
Federal Home Loan Bank advances, and other borrowed funds.
27
<PAGE> 32
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a Trust Agreement, dated as of July 2, 1998, executed by the Company, as
depositor, the administrative trustees and the Delaware Trustee 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 July 2,
1998. The initial Trust Agreement will be amended and restated in its entirety
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part and as so amended and restated is referred to
herein as the "Trust Agreement". The Trust Agreement will be qualified as an
indenture under 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 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 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,
convenient, or incidental thereto. The Subordinated Debentures 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 31 years, but may terminate
earlier as provided in the Trust Agreement. The principal executive office of
the Trust is 4305 Lynburn Drive, Tucker, Georgia 30084 and its telephone number
is (770) 908-6400.
The number of the Trustees will, pursuant to the Trust Agreement, initially
be four. Two of the trustees, C. Jere Sechler, Jr., Chairman, President and
Chief Executive Officer, and Richard B. Inman, Jr., Treasurer and Secretary, of
the Company, will be administrative trustees (the "Administrative Trustees").
The third trustee, the Property 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. SunTrust Bank,
Atlanta, a state chartered trust company organized under the laws of Georgia
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, SunTrust Bank, Atlanta, also will act as trustee under the
Guarantee (the "Guarantee Trustee") and as Debenture Trustee (as defined herein)
under the Indenture. The fourth 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
noninterest-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 the 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."
28
<PAGE> 33
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities and the Common 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 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 and the Trust
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, the Trust Act, 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 Administrative 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 in certain circumstances with
respect to Distributions and amounts payable on redemption, liquidation or
otherwise over the Common Securities, 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 be limited to $25,000,000 aggregate
Liquidation Amount outstanding (or $28,750,000 if the underwriters'
over-allotment option described under the heading "Underwriting" is exercised by
the Underwriters). 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, liquidation
or otherwise of such Preferred Securities when the Trust does not have funds on
hand available to make such payments. The Guarantee Trustee will hold the
Guarantee for the benefit of the Holders of the Preferred Securities. See
"Description of the Guarantee."
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."
DISTRIBUTIONS
Payment of Distributions. Distributions on each Preferred Security will be
payable at the annual rate of 8.50% of the stated Liquidation Amount of $25.00,
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 the date of original issuance. The first Distribution Date for
the Preferred Securities will be September 30, 1998. The amount of Distributions
payable for any period will be computed on the basis of a 360- day year of
twelve 30-day months. Except as provided in the following sentence, the amount
of interest payable for any period shorter than a full quarterly period for
which interest is computed will be computed on the basis of the actual number of
days elapsed in such period. 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
29
<PAGE> 34
without any additional Distributions, interest or other payment in respect of
any such delay), in each case 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 Sunday, or a day on which banking institutions in the
City of Atlanta, Georgia are authorized or required by law, executive order or
regulation to remain closed or a day on which the corporate trust office of the
Property Trustee or the Debenture Trustee is closed for business.
Extended Interest Payment Period. The Company has the right under the
Indenture, so long as no Event of Default has occurred and is continuing, to an
Extended Interest Payment Period which, if exercised, would defer quarterly
Distributions on the Preferred Securities during any such Extended Interest
Payment Period. Distributions to which holders of the Preferred Securities are
entitled will accumulate additional Distributions thereon at the rate per annum
of 8.50% thereof, compounded quarterly from the relevant Distribution Date (to
the extent permitted by applicable law). "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 not
exceeding 20 consecutive quarters and no Extended Interest Payment Period may
extend beyond the Stated Maturity of the Subordinated Debentures. During any
such Extended Interest Payment 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 (other
than the reclassification of any class of the Company's capital stock into
another class of 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 Extended Interest Payment
Period, the Company may further defer the payment of interest; provided that
such Extended Interest Payment Period may not exceed 20 consecutive quarters,
end on a day other than an Interest Payment Date or extend beyond the Stated
Maturity of the Subordinated Debentures. Upon the termination of any such
Extended Interest Payment Period and the payment of all amounts then due, the
Company may elect to begin a new Extended Interest Payment 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 Extended Interest Payment
Period, but the Company may prepay at any time all or any portion of the
interest accrued during an Extended Interest Payment 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 Paying Agent (who initially
will be 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."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register of holders of the Preferred Securities on
the relevant record dates, which date will be the 15th day of the month in which
the relevant Distribution Date occurs. Subject to any applicable laws and
regulations and the provisions of the Trust Agreement, each such payment will be
made as described above under "-- Distributions -- Payment of Distributions."
30
<PAGE> 35
REDEMPTION OR EXCHANGE
General. The Subordinated Debentures will mature on the Stated Maturity.
The Company will have the right to redeem the Subordinated Debentures (i) on or
after September 30, 2003, 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 Capital Event, a Tax Event, or an Investment Company Event. A
redemption or repayment at the Stated Maturity of the Subordinated Debentures
would cause a mandatory redemption of a Like Amount (as defined herein) of the
Preferred Securities and Common Securities at the Redemption Price. The Company
will not have the right to purchase the Subordinated Debentures, in whole or in
part, from the Trust until after September 30, 2003, except if a Capital Event,
a Tax Event, or an Investment Company Event has occurred and is continuing. If a
partial redemption of the Subordinated Debentures would result in the delisting
of the Preferred Securities issued by the Trust from the American Stock Exchange
or any national securities exchange or other organization on which the Preferred
Securities are then listed, the Company will not be permitted to effect such
partial redemption and may only redeem the Subordinated Debentures in whole. 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 the 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 of the Trust Securities, upon not less than 30 nor more than 60 days'
notice (the "Redemption") equal to the aggregate Liquidation Amount of such
Trust Securities plus accumulated 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.
Distribution of Subordinated Debentures. The Company will have the right
at any time to dissolve, wind-up or terminate 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
Termination."
Capital Event, Tax Event or Investment Company Event Redemption. If a
Capital Event, a Tax 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 Capital Event,
Tax Event or Investment Company Event. In the event a Capital Event, a Tax 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
causes a mandatory redemption of such Trust Securities or to liquidate the Trust
and cause Subordinated Debentures to be distributed to holders of such Trust
Securities in liquidation of the Trust as described below under "-- Liquidation
Distribution Upon Termination," 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, assessments 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
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(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 $25.00 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."
If the Trust gives a notice of redemption in respect of its Preferred
Securities, then the Property Trustee, to the extent funds are available, will
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 and any
Distribution payable on or prior to the Redemption Date, but without interest,
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 that 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 except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of 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 has not and is
not continuing to exercise its right to defer interest payments, 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
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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.
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 $25.00 or an integral
multiple of $25.00 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $25.00. 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.
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 has been cured, waived or otherwise eliminated. Until
any such Events of Default under the Trust Agreement with respect to the
Preferred Securities have 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 Trust Securities will have the right to direct the
Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The Company will have the right at any time to dissolve, wind-up or
terminate the Trust and cause the Subordinated Debentures to be distributed to
the holders of the Trust Securities.
If the Company, while a holder of Common Securities, dissolves the Trust
prior to the Stated Maturity of the Subordinated Debentures and the dissolution
of the Trust is deemed to constitute the redemption of capital instruments by
the Applicable Bank Regulatory Authority under its risk-based capital guidelines
or policies, the dissolution of the Trust by the Company may be subject to the
prior approval of the Applicable Bank Regulatory Authority. Moreover, any
changes in applicable law or changes in the Applicable Bank
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Regulatory Authority's risk-based capital guidelines or policies could impose a
requirement on the Company that it obtain the prior approval of the Applicable
Bank Regulatory Authority to dissolve the Trust.
Pursuant to the Trust Agreement, the Trust will automatically terminate
upon expiration of its term and will terminate earlier on the first to occur of
(i) certain events of bankruptcy, dissolution or liquidation of the Company,
(ii) the distribution of a Like Amount of the Subordinated Debentures to the
holders of its Trust Securities, if the Company, as depositor, has given 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.
Upon expiration or early termination as described in clause (i), (ii) or
(iv) of the preceding paragraph or upon the end of its term, 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
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on 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."
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 "Material 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 liquidate 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."
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. Accordingly, the Preferred Securities that an investor may purchase, or
the Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Preferred Securities offered hereby.
LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Preferred
Securities in the event of any liquidation of the Trust is $25.00 per Preferred
Security plus accrued and 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
Termination."
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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 receipt by the Property Trustee of notice
of the occurrence of any Event of Default, 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.
If a Debenture Event of Default has occurred and is continuing, the Trust
Securities will have a preference over the Common Securities upon termination of
the Trust. See "-- Liquidation Distribution Upon Termination." The existence of
an Event of Default does not entitle the holders of Preferred Securities to
accelerate the maturity thereof.
REMOVAL OF THE 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
right is 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 the 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 the extent
required by law, to act as separate trustee of any such Trust Property, in
either case with such
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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 the 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 corporation or other 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 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 Securities are then listed, if any
(including, if applicable, the American Stock Exchange, (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. Notwithstanding the
foregoing, the Trust will not 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 "Removal of the Trustees " and as
otherwise required by the Trust Act and the Trust Agreement, the holders of the
Preferred Securities will have no voting rights.
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If any Distributions payable on the Preferred Securities are in arrears for
six quarterly periods, the holders of the Preferred Securities, voting
separately as a class with any other preferred securities having similar voting
rights, will be entitled at the next regular or special meeting of the
shareholders of the Company to elect two directors to the Board of Directors of
the Company. Such voting rights will continue until such time as the
Distribution arrearage on the Preferred Securities has been paid in full. The
affirmative consent of the holders of at least 66 2/3% of the outstanding
Preferred Securities will be required by the Trust for amendments to the Trust
Agreement that would affect adversely the rights or privileges of the holders of
the Preferred Securities.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee, the Delaware 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 the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement (provided 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 such amendments of the 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) 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 continue to be classified as a
grantor trust and 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
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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.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Preferred Securities to be issued in the offering may be transferred or
exchanged in the manner and at the offices described below.
The Preferred Securities to be issued in the offering initially will be
represented by one or more Preferred Securities in registered, global form
(collectively, the "Global Preferred Securities"). The Global Preferred
Securities will be deposited upon issuance with the Property Trustee as
custodian for The Depository Trust Company ("DTC"), and registered in the name
of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC, as described below.
Except as set forth below, the Global Preferred Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Preferred
Securities may not be exchanged for certificated Preferred Securities except in
the limited circumstances described under "-Exchange of Book-Entry Preferred
Securities for Certificated Preferred Securities" below. In addition, transfer
of beneficial interests in the Global Preferred Securities will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
Depository Procedures. DTC has advised the Trust and the Company that DTC
is a limited-purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants") and to facilitate
the clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Preferred Securities, DTC will
credit the accounts of Participants on behalf of purchasers of the Preferred
Securities with portions of the Liquidation Amount of the Global Preferred
Securities and (ii) ownership of such interests in the Global Preferred
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Preferred Securities).
Investors in the Global Preferred Securities may hold their interests
therein directly through DTC if they are Participants in such system, or
indirectly through organizations which are Participants in such system. All
interests in a Global Preferred Security may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in certificated form of securities that they own.
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Consequently, the ability to transfer beneficial interests in a Global
Preferred Security to such persons will be limited to that extent. Because DTC
can act only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Preferred Security to pledge such interest to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the transferability
of the Preferred Securities, see "Exchange of Book -- Entry Preferred Securities
for Certificated Preferred Securities."
Except as described below, owners of interests in the Global Preferred
Securities will not have Preferred Securities registered in their name, will not
receive physical delivery of certificated Preferred Securities and will not be
considered the registered owners or holders thereof under the Trust Agreement
for any purpose.
Payments in respect of the Global Preferred Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Preferred Securities, including the Global Preferred Securities, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Property
Trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Preferred Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Preferred Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Trust and the Company that its current practice, upon receipt of any
payment in respect of securities such as Preferred Securities, is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in Liquidation Amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Preferred Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Property Trustee, the Trust or the Company. Neither the Trust nor the
Company nor the Property Trustee will be liable for any delay by DTC or any of
its Participants in identifying the beneficial owners of the Preferred
Securities, and the Trust or the Company and the Property Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Preferred Securities only at the direction
of one or more Participants to whose account with DTC interests in the Global
Preferred Securities are credited and only in respect of such portion of the
Liquidation Amount of the Preferred Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Trust Agreement, DTC reserves the right to exchange the Global
Preferred Securities for certificated Preferred Securities and to distribute
such Preferred Securities to its Participants.
The information in this section concerning DTC and book-entry systems has
been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
Exchange of Book-Entry Preferred Securities for Certificated Preferred
Securities. A Global Preferred Security is exchangeable for certificated
Preferred Securities if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depository for the Global Preferred Security and the
Company thereupon fails to appoint a successor depository within 90 days or (y)
has ceased to be a clearing agency registered under the Exchange Act and the
Company thereupon fails to appoint a successor depository within 90 days, (ii)
the Company in its sole discretion elects to cause the issuance of the Preferred
Securities in certificated form or (iii) there shall have occurred and be
continuing an Event of Default. In all cases, certificated Preferred Securities
delivered in exchange for any Global Preferred Security or beneficial interests
therein will
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be registered in the names, and issued in any approved denominations, requested
by or on behalf of DTC (in accordance with its customary procedures).
PAYMENT AND PAYING AGENTS
Payments in respect of the Preferred Securities held in global form shall
be made to DTC, which shall credit the relevant accounts at DTC on the
applicable Distribution Dates or, in respect of the Preferred Securities that
are not held by DTC, such payments shall be made by check mailed to the address
of the holder entitled thereto as such address shall appear on the register. 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
Administrative Trustees, Property Trustee and the Company. In the event that the
Property Trustee no longer is the paying agent for the Preferred Securities, the
Property Trustee will appoint a successor (which must be a bank or trust company
reasonably 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, after such Event of
Default, must exercise the same degree of care and skill as a prudent Person
would exercise or use in the conduct of his or her own affairs. Subject to the
Trust Agreement, and if 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 (the "Certificate of
Trust") or the Trust Agreement, that the Company and the Administrative Trustees
determine in their discretion to be necessary or desirable for such purposes, so
long as such action does not materially adversely affect the interests of the
holders of the related Preferred Securities.
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.
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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 July 29, 1998, between the Company and SunTrust
Bank, Atlanta, the Debenture Trustee (the "Indenture"). 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 $25,773,196 (or $29,639,175 if the over-allotment 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 8.50% of the principal amount thereof, payable quarterly in arrears on
the Interest Payment Date beginning September 30, 1998, 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 15th
day of the last month of the calendar quarter. It is anticipated that, until the
liquidation, if any, 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
Trust 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. Except as provided in
the following sentence, the amount of interest payable for any period shorter
than a full quarterly period for which interest is computed, will be computed on
the basis of the actual number of days elapsed in such period. 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), in each case with the same force
and effect as if made on the date such payment was originally due and payable.
Accrued interest that is not paid on the applicable Interest Payment Date will
bear additional interest on the amount thereof (to the extent permitted by law)
at the rate per annum of 8.50% 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
September 30, 2028, the Stated Maturity.
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 any subsidiary, including the Bank, upon any such subsidiary'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 claim of creditors of such subsidiary, except to the extent that the
Company may itself be recognized as a creditor of such subsidiary. At March 31,
1998, the Company and its Subsidiaries had total liabilities (excluding
liabilities owed to the Company) of approximately $1.1 billion. The Subordinated
Debentures will, therefore, be effectively subordinated to all existing and
future liabilities of the subsidiaries, 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."
In addition, as the Company is a non-operating holding company, almost all
of the operating assets of the Company are owned by the Company's subsidiaries.
The Company relies primarily on dividends from such subsidiaries to meet its
obligations for payment of principal and interest on its outstanding debt
obligations, if
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any, and corporate expenses. The Bank is subject to certain restrictions imposed
by federal law on any extensions of credit to, and certain other transactions
with, the Company and certain other affiliates, and on investments in stock or
other securities thereof. Such restrictions prevent the Company and such other
affiliates from borrowing from the Bank unless the loans are secured by various
types of collateral. Further, such secured loans, other transactions and
investments by the Bank are generally limited in amount as to the Company and as
to each of such other affiliates to 10% of the Bank's capital and surplus and as
to the Company and all of such other affiliates to an aggregate of 20% of the
Bank's capital and surplus. In addition, payment of dividends to the Company by
the Bank is subject to ongoing review by the OTS and is subject to various
statutory limitations and in certain circumstances requires prior approval by
banking regulatory authorities. Under current regulations, at March 31, 1998,
the Bank could not declare additional dividends to the Company without prior
regulatory approval. Federal regulatory agencies also have the authority to
limit further the Bank's payment of dividends based on other factors, such as
the maintenance of adequate capital for the Bank, which could reduce the amount
of dividends otherwise payable.
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 Event of Default has occurred and
is continuing to defer the payment of interest at any time, or from time to
time, for an Extended Interest Payment 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 Extended Interest
Payment Period may extend beyond the Stated Maturity of the Subordinated
Debentures. At the end of each Extended Interest Payment Period, the Company
must pay all interest then accrued and unpaid (together with interest thereon at
the annual rate of 8.50%, compounded quarterly, to the extent permitted by
applicable law). During an Extended Interest Payment 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 "Material Federal Income Tax Consequences -- Potential Extension of Interest
Payment Period and Original Issue Discount."
During any such Extended Interest Payment 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 (other than the reclassification of any class of the Company's capital
stock into another class of 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 Extended
Interest Payment Period, the Company may further defer the payment of interest;
provided that no Extended Interest Payment Period may exceed 20 consecutive
quarters or extend beyond the Stated Maturity of the Subordinated Debentures.
Upon the termination of any such Extended Interest Payment Period and the
payment of all amounts then due on any Interest Payment Date, the Company may
elect to begin a new Extended Interest Payment Period subject to the above
requirements. No interest will be due and payable during an Extended Interest
Payment Period, except at the end thereof, but the Company may prepay at any
time all or any portion of the interest accrued during an Extended Interest
Payment Period. 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 Extended Interest Payment Period not less than
one Business Day 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 Extended Interest Payment Period, or (ii) the
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date the Trust is required to give notice of the record date, or the date such
Distributions are payable, to the American Stock Exchange (or other applicable
self-regulatory organization) or to holders of the Preferred Securities, but in
any event at least one Business Day prior to such record date. Subject to the
foregoing, there is no limitation on the number of times that the Company may
elect to begin an Extended Interest Payment 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 Additional Interest on the Subordinated
Debentures 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.
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Subordinated Debentures prior
to maturity (i) on or after September 30, 2003, in whole at any time or in part
from time to time, or (ii) at any time in whole (but not in part), for cash
within 180 days following the occurrence of a Capital Event, a Tax Event or an
Investment Company Event, in each case at a redemption price equal to the
accrued and unpaid interest in the Subordinated Debentures so redeemed to the
date fixed for redemption, plus 100% of the principal amount thereof. The
proceeds of any such redemption will be used by the Trust to redeem the
Preferred Securities. If a partial redemption of the Subordinated Debentures
would result in the delisting of the Preferred Securities issued by the Trust
from the American Stock Exchange or any national securities exchange or other
organization on which the Preferred Securities are then listed, the Company will
not be permitted to effect such partial redemption and may only redeem the
Subordinated Debentures in whole.
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.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -- Liquidation
Distribution Upon Termination," under certain circumstances involving the
termination 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. 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 American Stock Exchange, or
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 Preferred
Securities Guarantee, or (iii) the Company has given notice of its election of
an Extended Interest Payment Period as provided in the Indenture with respect to
the Subordinated Debentures and has not rescinded such notice, or such Extended
Interest Payment Period, or any extension thereof, is continuing, the Company
will not (a) 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 (other than the reclassification of any class of the
Company's capital stock into another class of capital stock), (b) 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
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Debentures (other than payments under the Preferred Securities Guarantee), or
(c) 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, or reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, 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.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such Person, 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 for 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
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as a result of subordination provisions to which such Debt is subject, and (v)
any 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. For purposes of this definition, "claim" 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 indebtedness
constituting Senior Debt, Subordinated Debt and 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. The Company and
its subsidiaries had total liabilities (excluding liabilities owed to the
Company) of approximately $1.1 billion as of March 31, 1998.
FORM, REGISTRATION AND TRANSFER
If the Subordinated Debentures are distributed to the holders of the
Preferred Securities issued in the Offering, the Subordinated Debentures may be
represented by one or more global certificates registered in the name of Cede &
Co. as the nominee of DTC. The depository arrangements for such Subordinated
Debentures are expected to be substantially similar to those in effect for the
Preferred Securities issued in the Offering. For a description of DTC and the
terms of the depository arrangements relating to payments, transfers, voting
rights, redemptions and other notices and other matters, see "Description of the
Preferred Securities -- Form, Denomination, Book -- Entry Procedures and
Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Subordinated Debentures
will be made initially at the office of the Debenture Trustee in Atlanta,
Georgia, 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 thereto as
such address appears in the register of holders of the Subordinated Debentures,
or (ii) by wire 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, and each place of payment for the Subordinated
Debentures. Notwithstanding the foregoing, so long as the holder of any
Subordinated Debentures is the Property Trustee, the payment of the principal of
and interest (including compounded interest and Additional Interest, if any) on
such Subordinated Debentures held by the Property Trustee may be made at such
place and to such account as may be designated by the Property Trustee.
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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 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 general unsecured creditor, only to the Company for
payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee initially 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), at the office of
the registrar. 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. 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 and making any
other change that does not materially adversely affect the rights of any holder
of Subordinated Debentures. 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, and in certain cases all, of the aggregate Liquidation
Amount of the Preferred Securities.
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 Extended Interest Payment 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
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(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
As described in "Description of the Preferred Securities -- Events of
Default; Notice," the occurrence of a Debenture Event of Default will also
constitute an Event of Default in respect of the Trust Securities.
The holders of 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.
The Indenture provides that the Debenture Trustee may withhold notice of a
Debenture Event of Default from the holders of the Subordinated Debentures
(except a Debenture Event of Default in payment of principal of, or of interest
on, the Subordinated Debentures) if the Debenture Trustee considers it in the
interest of such holders to do so.
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 Direct Action 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. 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 Trust Agreement 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 except under the
circumstances described in the preceding paragraph. See "Description of the
Preferred Securities -- Events of Default; Notice."
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
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Person expressly assumes by supplemental indenture the Company's obligations on
the Subordinated Debentures issued under the Indenture, and (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 as
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 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.
GOVERNING LAW
The Indenture and the Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Georgia.
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.
SunTrust Bank, the Debenture Trustee, may serve from time to time as
trustee under other indentures or trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
SunTrust Bank and its affiliates.
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) to use reasonable efforts to
cause the Trust to remain a business trust, except in connection with (a) a
distribution of Subordinated Debentures to the holders of the Preferred
Securities in liquidation of the Trust, (b) the redemption of all the Trust
Securities, or (c) 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 and (iv) to use reasonable efforts
to cause each holder of Trust Securities to be treated as owning a beneficial
interest in the Subordinated Debentures.
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DESCRIPTION OF THE GUARANTEE
The Preferred Securities 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 Preferred Securities
Guarantee will be qualified as an indenture under the Trust Indenture Act. The
Guarantee Trustee will act as indenture trustee under the Preferred Securities
Guarantee for purposes of complying with the provisions of the Trust Indenture
Act. The Guarantee Trustee, SunTrust Bank, Atlanta, 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 Company and the Trust believe that the obligations of the Company under
the Guarantee, the Trust Agreement, the Subordinated Debentures and the
Indenture, taken together, fully, irrevocably and unconditionally guarantee all
of the Trust's obligations under 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 Trust's obligations under the Preferred Securities. See
"Relationship Among the Preferred Securities, the Subordinated Debentures and
the Guarantee."
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.
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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 or entity). 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 of any
subsidiary, including the Bank, upon such subsidiaries' liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
subsidiary, except to the extent the Company may itself be recognized as a
creditor of that subsidiary. 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 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 registered 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. After default
with respect to the Guarantee, the Guarantee Trustee will exercise its rights
and powers under the Guarantee using 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.
For information concerning the relationship between SunTrust Bank, the
Guarantee Trustee, and the Company, see "Description of the Subordinated
Debentures -- Information Concerning the Debenture Trustee."
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon (i)
full payment of the Redemption Price of the Preferred Securities, (ii) full
payment of the amounts payable upon liquidation of the Trust, or (iii)
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 Georgia.
EXPENSE AND LIABILITIES 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 a 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 would be 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
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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.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF 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 under the Indenture, the Trust
Agreement or the Guarantee. 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 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 have 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 preferred undivided beneficial interests
in the assets of the Trust. The Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in Subordinated Debentures.
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 TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation 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 after satisfaction of liabilities to creditors as required by
applicable law, the Liquidation Distribution in cash. See "Description of the
Preferred Securities -- Liquidation Distribution Upon Termination." 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, 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Long Aldridge & Norman LLP, counsel to the Company and
the Trust the following discussion summarizes the material United States federal
income tax considerations that may be relevant to the purchasers of Preferred
Securities. This summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), regulations thereunder and
current administrative rulings and court
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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 (i) are individual citizens or residents of the United States,
corporations and partnerships created or organized in or under the laws of the
United States or any political subdivision thereof, an estate--the income of
which is includible in its gross income for United States federal income tax
purposes without regard to its source, or a trust if a court within the Untied
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust ("U.S. Holders"), and (ii) who acquire
Preferred Securities on their original issue at their offering price and hold
Preferred Securities as capital assets. The discussion does not address persons
who are not U.S. Holders or all the tax consequences that may be relevant to
U.S. 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.
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.
In 1994, the Internal Revenue Service issued Notice 94-47. In this Notice,
the Internal Revenue Service stated that it was concerned with a series of
transactions in which instruments had been issued that were "designed to be
treated as debt for federal income tax purposes but as equity for regulatory,
rating agency, or financial accounting purposes." The Notice further stated that
"(u)pon examination, the Service will scrutinize instruments of this type to
determine if their purported status as debt for federal income tax purposes is
appropriate."
On April 6, 1998, Enron Corp. filed a Petition in the United States Tax
Court contesting the proposed disallowance by the Internal Revenue Service of a
deduction claimed by Enron Corp. relating to interest paid with respect to
certain instruments ("MIPS") issued in 1993 and 1994. The Tax Court has not
rendered an opinion on the deductibility of the interest paid by Enron Corp. The
Preferred Securities have certain characteristics that could be viewed as
similar to the MIPS involved in the Enron Corp. case.
There can be no assurance that a Tax Court opinion in the Enron Corp. case,
or any similar case, will not result in a Tax Event which would permit the
Company to cause a mandatory redemption of the Subordinated Debentures (which
shall cause a redemption of the Preferred Securities) before the stated maturity
at the Redemption Price. 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.
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CLASSIFICATION OF THE TRUST
With respect to the Preferred Securities, Long Aldridge & Norman LLP,
counsel to the Company and the Trust, has rendered its opinion generally to the
effect that, under then current law and assuming full compliance with the terms
of the Trust Agreement and Indenture, 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 each
holder will be required to include in its gross income each item of income or
gain with respect to its allocable share of the Subordinated Debentures.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
The Company's option to extend the interest payment period on the
Subordinated Debentures may cause the indebtedness to be issued with original
issue discount ("OID"). Under Treasury regulations (the "Regulations"), a
contingency that stated interest will not be timely paid that is "remote" will
be ignored in determining whether such debt instrument is issued with OID. As a
result of the terms and conditions of the Subordinated Debentures that prohibit
certain payments with respect to the Company's capital stock and indebtedness if
the Company elects to extend interest payment periods, the Company believes that
the likelihood of its exercising its option to defer payments is remote. Based
on the foregoing, the Company intends to take the position that the Subordinated
Debentures will not be considered to be issued with OID at the time of their
original issuance, and accordingly, a holder of Preferred Securities should
include in gross income such holder's allocable share of interest on the
Subordinated Debentures in accordance with its own method of tax accounting.
There can be no assurance, however, that the Internal Revenue Service will
not successfully contest the Company's position. If the Internal Revenue Service
were successful in such a contention, then all of the stated interest payments
on the Subordinated Debentures would be treated as OID. In such case, the
holders of the Preferred Securities would be required to include OID in income
on an economic accrual basis regardless of whether any interest is actually paid
or their method of tax accounting, but would not be required to report actual
payments of interest as taxable income.
If Company exercises its option to defer any payment of interest, the
Subordinated Debentures would at the time of such exercise be treated as issued
with OID, and all stated interest thereafter payable on the Subordinated
Debentures would be treated as OID. In such event, the holders of the Preferred
Securities would be required to account for the OID as stated in the immediately
preceding paragraph. Consequently, a holder of Preferred Securities would be
required to include in gross income OID even though the Company would not make
any actual interest payments during an Extended Interest Payment Period.
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 Termination," 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
aggregate tax basis in the Subordinated Debentures received in the liquidation
equal to such holder's aggregate tax basis in the Preferred Securities
immediately before the
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<PAGE> 59
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 were to occur based on 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 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 Termination."
DISPOSITION OF PREFERRED SECURITIES
A holder of Preferred Securities that sells Preferred Securities will
recognize gain or loss equal to the difference between its adjusted tax basis
for the Preferred Securities and the amount realized on the sale of such
Preferred Securities. A Preferred Security holder's adjusted tax basis for the
Preferred Securities generally will be its initial purchase price. However, if
the Subordinated Debentures are deemed to have been issued initially with OID,
or OID results due to the Company's deferral of any interest payment, a
Preferred Security holder's adjusted tax basis for the Preferred Securities
generally will be its initial purchase price, increased by OID previously
included in such holder's gross income to the date of disposition and decreased
by distributions and other payments received on the Preferred Securities since
the date the Subordinated Debentures are deemed to have OID. Such gain or loss
generally will be a capital gain or loss (except to the extent any amount
realized is treated as a payment of accrued interest with respect to such
holder's pro rata share of the Subordinated Debentures) and will be a
short-term, mid-term or long-term capital gain or loss depending on the length
of time the Preferred Securities have been held.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder that disposes of its Preferred Securities
between record dates for payments of distributions thereon will 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. To the extent the selling price is less than the
holder's adjusted tax basis (which basis will include, in the form of OID, all
accrued but unpaid interest), 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.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Interest paid on the Subordinated Debentures, or the amount of OID on the
Subordinated Debentures, if applicable, deemed 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 ("IRS") 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 U.S. federal income tax liability
provided the required information is provided to the IRS.
THE U.S. 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,
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<PAGE> 60
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S.
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 such as Prohibited Transaction
Class Exemption ("PTCE") 84-14 (an exemption for certain transactions determined
by an independent qualified professional asset manager), PTCE 91-38 (an
exemption for certain transactions involving bank collective investment funds),
PTCE 90-1 (an exemption for certain transactions involving insurance company
pooled separate accounts), PTCE 95-60 (an exemption for transactions involving
certain insurance company general accounts) or PTCE 96-23 (an exemption for
certain transactions determined by an in-house asset manager). 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.
In addition, a Plan fiduciary considering the purchase of Preferred
Securities should be aware that the assets of the Trust may be considered "plan
assets" for ERISA purposes. Therefore, to avoid certain prohibited transactions
under ERISA and the Code that could thereby result, each investing Plan, by
purchasing the Preferred Securities, will be deemed to have directed the Trust
to invest in the Subordinated Debentures and to have appointed the Property
Trustee.
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<PAGE> 61
UNDERWRITING
Pursuant to the Underwriting Agreement, the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
subject to the terms and conditions thereof, the Underwriters named below,
acting through Interstate/Johnson Lane Corporation, Morgan Keegan & Company,
Inc., and Sterne Agee & Leach, Inc., as representatives of the several
Underwriters (the "Representatives"), have severally agreed to purchase from the
Trust the number of Preferred Securities set forth below opposite their
respective names.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Interstate/Johnson Lane Corporation......................... 450,000
Morgan Keegan & Company, Inc................................ 450,000
Sterne, Agee & Leach, Inc................................... 100,000
---------
Total............................................. 1,000,000
---------
</TABLE>
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.
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. After the initial public offering,
the public offering price 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 of such proceeds, an amount in
immediately available funds of $.95 per Preferred Security (or $950,000 in the
aggregate or $1,092,500 if the Underwriters' over-allotment option is exercised
in full) for the accounts of the several Underwriters.
The offering of the Preferred Securities is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
The Trust has granted the Underwriters an option to purchase up to an
additional 150,000 Preferred Securities at the initial public offering price.
Such option, which expires 30 days from the date of this Prospectus, may be
exercised solely to cover over-allotments made in connection with the sale of
Preferred Securities offered hereby. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Preferred Securities to be purchased by it shown in the table above bears to the
total and the Trust will be obligated pursuant to the option, to sell such
shares to the Underwriters. If purchased, the Underwriters will sell such
additional shares on the same terms as those on which the shares are being
offered.
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 and the Company will issue and sell Subordinated
Debentures to the Trust in an aggregate principal amount equal to the total
aggregate Liquidation Amount of the additional Common Securities being purchased
and the additional Preferred Securities being purchased pursuant to the option.
During a period of 120 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 exchange 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
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<PAGE> 62
the Preferred Securities (except for the Subordinated Debentures and the
Preferred Securities offered hereby).
The Preferred Securities have been approved for quotation on the American
Stock Exchange, subject to notice of issuance. 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 and
controlling persons, if any, against certain liabilities, including liabilities
under the Securities Act, or will contribute to payments that the Underwriters
or any such controlling persons may be required to make in respect thereof.
VALIDITY OF SECURITIES
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 will be passed upon by Richards, Layton & Finger, P.A., special Delaware
counsel. Certain legal matters for the Company and the Trust, including the
validity of the Guarantee and the Subordinated Debentures will be passed upon
for the Company and the Trust by Long Aldridge & Norman LLP, counsel to the
Company and the Trust. Certain legal matters will be passed upon for the
Underwriters by Sutherland, Asbill & Brennan LLP. Long Aldridge & Norman LLP and
Sutherland, Asbill & Brennan LLP will rely on the opinion of Richards, Layton &
Finger, P.A. with regard to matters pertaining to Delaware law. Certain matters
relating to United States federal income tax considerations will be passed upon
for the Company by Long Aldridge & Norman LLP.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries,
as of March 31, 1998 and 1997 and for each of the three years in the period
ended March 31, 1998 incorporated by reference in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports.
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<PAGE> 63
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, EBI CAPITAL TRUST I OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR EBI
CAPITAL TRUST I SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 1
Incorporation of Certain Documents by
Reference........................... 1
Prospectus Summary.................... 3
Risk Factors.......................... 12
The Company........................... 20
Business Strategy..................... 20
Accounting Treatment.................. 25
Use of Proceeds....................... 25
Capitalization........................ 26
Selected Consolidated Financial
Data................................ 27
The Trust............................. 28
Description of the Preferred
Securities.......................... 29
Description of the Subordinated
Debentures.......................... 41
Description of the Guarantee.......... 49
Expense and Liabilities Agreement..... 51
Relationship among the Preferred
Securities, the Subordinated
Debentures and the Guarantee........ 51
Material Federal Income Tax
Consequences........................ 52
ERISA Considerations.................. 56
Underwriting.......................... 57
Validity of Securities................ 58
Experts............................... 58
</TABLE>
------------------------------------------------------
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1,000,000
PREFERRED SECURITIES
EBI CAPITAL TRUST I
8.50% CUMULATIVE TRUST
PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
(EAGLE BANCSHARES, INC. LOGO)
-------------------
PROSPECTUS
-------------------
INTERSTATE/JOHNSON LANE
CORPORATION
MORGAN KEEGAN & COMPANY, INC.
STERNE, AGEE & LEACH, INC.
July 24, 1998
------------------------------------------------------
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