<PAGE>
REGISTRATION NO. 333-
As filed with the Securities and Exchange Commission on April 28, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMMERCE SECURITY BANCORP, INC. CSBI CAPITAL TRUST I
(Exact name of registrant as (Exact name of registrant as
specified in charter) specified in charter)
DELAWARE DELAWARE
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
33-0720548 Applied for
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
6021 6719
(Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number)
24012 CALLE DE LA PLATA
LAGUNA HILLS, CA 92653
(714) 699-4344
(Address, including zip code, and telephone number,
including area code of registrant's principal
executive offices)
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ROBERT P. KELLER COPIES TO:
PRESIDENT AND CHIEF EXECUTIVE OFFICER MICHAEL K. KREBS, ESQ.
COMMERCE SECURITY BANCORP, INC. NUTTER, MCCLENNEN & FISH, LLP
24012 CALLE DE LA PLATA ONE INTERNATIONAL PLACE
LAGUNA HILLS, CA 92653 BOSTON, MA 02110-2699
(714) 699-4344 (617) 439-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered
pursuant in connection with the formation of a holding company and there is
compliance with general instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
--------------------------- ---------- --------- ----------------- ----------------
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<S> <C> <C> <C> <C>
11.75% Subordinated Capital Income
Securities, Series A of CSBI Capital Trust I.. $27,657,000 100% $27,657,000 $8,158.82
11.75% Junior Subordinated Debentures of
Commerce Security Bancorp, Inc.(2)............ -- -- -- --
Commerce Security Bancorp, Inc. Guarantee
with respect to Subordinated Capital Income
Securities, Series A (3)...................... -- -- -- --
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- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $27,657,000(4) 100% $27,657,000(5) $8,158.82
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Commerce Security Bancorp, Inc.'s 11.75% Junior Subordinated Debentures
(the "Junior Subordinated Debentures") were originally purchased by
CSBI Capital Trust I with the proceeds of the sale of the 11.75%
Subordinated Capital Income Securities, Series A (the "Capital
Securities"). No separate consideration will be received for the Junior
Subordinated Debentures distributed upon any liquidation of CSBI
Capital Trust I.
(3) No separation consideration will be received for the Commerce Security
Bancorp, Inc. Guarantee.
(4) This Registration Statement is deemed to cover the Junior Subordinated
Debentures, the rights of holders of Junior Subordinated Debentures
under the Indenture, the rights of holders of the Capital Securities
under the Declaration of Trust, the rights of holders of the Capital
Securities under the Guarantee and certain backup undertakings as
described herein.
(5) Such amount represents the Liquidation Amount of the Capital Securities
to be exchanged hereunder and the principal amount of Junior
Subordinated Debentures that may be distributed upon any liquidation of
CSBI Capital Trust I.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED APRIL 28, 1998
PRELIMINARY PROSPECTUS
OFFER FOR ALL OUTSTANDING
11 3/4% SUBORDINATED CAPITAL INCOME SECURITIES, SERIES A
IN EXCHANGE FOR
11 3/4% SUBORDINATED CAPITAL INCOME SECURITIES,
SERIES A WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
OF
CSBI CAPITAL TRUST I
Fully and unconditionally
guaranteed to the extent set forth herein by
COMMERCE SECURITY BANCORP, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., LOS ANGELES TIME, ON _________,
1998, UNLESS EXTENDED.
CSBI Capital Trust I, a statutory business trust formed under the laws
of the State of Delaware (the "Trust") and Commerce Security Bancorp, Inc., a
Delaware corporation, (the "Company"), hereby offer, upon the terms and subject
to the conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange up
to $27,657,000 aggregate Liquidation Amount (as defined herein) of its 11 3/4%
Subordinated Capital Income Securities, Series A (the "New Capital Securities"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for a like Liquidation Amount of its
outstanding 11 3/4% Subordinated Capital Income Securities, Series A (the "Old
Capital Securities"), of which $27,657,000 aggregate Liquidation Amount is
outstanding. Pursuant to the Exchange Offer, the Company is also exchanging its
guarantee of the payment of Distributions (as defined herein) and payments on
liquidation or redemption of the Old Capital Securities (the "Old Guarantee")
for a like guarantee of the New Capital Securities (the "New Guarantee") and all
of its 11 3/4% Junior Subordinated Debentures (the "Old Junior Subordinated
Debentures"), of which $28,513,000 aggregate principal amount is outstanding,
for like aggregate principal amount of its 11 3/4% Junior Subordinated
Debentures (the "New Junior Subordinated Debentures"), which New Guarantee and
New Junior Subordinated Debentures also have been registered under the
Securities Act. The Old Capital Securities, the Old Guarantee and the Old Junior
Subordinated Debentures are collectively referred to herein as the "Old
Securities" and the New Capital Securities, the New Guarantee and the New Junior
Subordinated Debentures are collectively referred to herein as the "New
Securities."
(CONTINUED ON THE NEXT PAGE)
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AN INVESTMENT IN THE CAPITAL SECURITIES INVOLVES A SIGNIFICANT DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 21 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES.
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THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
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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.
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The date of this Prospectus is -----------, 1998
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<PAGE>
(CONTINUED FROM COVER PAGE)
The terms of the New Securities are identical in all material respects
to the respective terms of the Old Securities, except that (i) the New
Securities have been registered under the Securities Act and therefore will not
be subject to certain restrictions on transfer applicable to the Old Securities,
(ii) the New Capital Securities will not provide for any increase in the
Distribution rate thereon, and (iii) the New Junior Subordinated Debentures will
not provide for any increase in the interest rate thereon.
The New Capital Securities are being offered for exchange in order to
satisfy certain obligations of the Company and the Trust under the Registration
Rights Agreement dated as of July 15, 1997 (the "Registration Rights Agreement")
among the Company, the Trust and the initial purchasers of the Old Capital
Securities. The New Junior Subordinated Debentures and the New Guarantee are
being offered for exchange under the Registration Rights Agreement. In the event
that the Exchange Offer is consummated, any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer and the New Capital
Securities issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Declaration of Trust.
The New Capital Securities and the Old Capital Securities (together,
the "Capital Securities"), represent undivided beneficial interests in the asset
of the Trust. The Company is the owner of all of the beneficial interests
represented by common securities of the Trust (the "Common Securities" and,
collectively with the Capital Securities, the "Trust Securities"). Wilmington
Trust Company is the Property Trustee (as defined herein) of the Trust. The
Trust exists for the sole purpose of issuing the Trust Securities, investing the
proceeds thereof in the Junior Subordinated Debentures and engaging in only
activities necessary or incidental thereto. The Junior Subordinated Debentures
will mature on June 6, 2027 (the "Stated Maturity"). The Capital Securities will
have a preference under certain circumstances with respect to cash distributions
and amounts payable on liquidation, redemption or otherwise over the Common
Securities. See "Description of the New Capital Securities -- Subordination of
Common Securities."
As used herein, (i) the "Indenture" means the Indenture between the
Company and Wilmington Trust Company, as trustee, (ii) the "Declaration of
Trust" means the Amended and Restated Declaration of Trust relating to the Trust
among the Company, as Depositor, Wilmington Trust Company, as Property Trustee
(the "Property Trustee"), Wilmington Trust Company as Delaware Trustee (the
"Delaware Trustee"), and the Regular Trustees named therein (collectively, with
the Property Trustee and Delaware Trustee, the "Issuer Trustees"), and (iii) the
"Guarantee" means the Guarantee relating to the Guarantee between the Company
and Wilmington Trust Company, as trustee (the "Guarantee Trustee"). In addition,
as the context may require, unless expressly stated otherwise, (i) "Capital
Securities" includes the Old Capital Securities and the New Capital Securities,
(ii) "Junior Subordinated Debentures" includes the Old Junior Subordinated
Debentures and the New Junior Subordinated Debentures and (iii) "Guarantee"
includes the Old Guarantee and the New Guarantee.
Holders of the Capital Securities are entitled to receive cumulative
cash distributions ("Distributions") accruing from July 1, 1997 and payable
quarterly in arrears on the 30th day of March, June, September and December of
each year (each, an "Interest Payment Date"), commencing September 30, 1997, at
the annual rate of 11 3/4% of the Liquidation Amount of the Capital Securities.
2
<PAGE>
The distribution rate and the distribution payment dates and other payment dates
for the New Capital Securities correspond to the distribution rate and the
distribution payment dates and other payment dates for the New Junior
Subordinated Debentures. The Company has guaranteed the payment of Distributions
and payments on liquidation of the Trust or redemption of the New Capital
Securities, but only in each case to the extent of funds held by the Trust, as
described herein (the "New Guarantee"). See "Description of New Guarantee." If
the Company does not make interest payments on the New Junior Subordinated
Debentures held by the Trust, the Trust will have insufficient funds to pay
Distributions on the New Capital Securities. The Company's obligations under the
Guarantee, taken together with its obligations under the New Junior Subordinated
Debentures and the Indenture, including its obligation to pay all costs,
expenses and liabilities of the Trust (other than with respect to the New
Capital Securities), constitute a full and unconditional guarantee of all of the
Trust's obligations under the New Capital Securities. The obligations of the
Company under the New Guarantee and the New Junior Subordinated Debentures are
subordinate and junior in right of payment to all Senior Indebtedness (as
defined in "Description of New Junior Subordinated Debentures -- Subordination"
herein) of the Company and are structurally subordinated to all liabilities and
obligations of the Company's subsidiaries. As of March 31, 1998 the Company had
approximately $540,000 of Senior Indebtedness outstanding and the Company's
consolidated subsidiaries had approximately $870.9 million of indebtedness and
other liabilities. The terms of the New Junior Subordinated Debentures and the
Indenture place no limitation on the amount of Senior Indebtedness that may be
incurred by the Company or on the amount of liabilities and obligations of the
Company's subsidiaries. See "Description of New Junior Subordinated Debentures
- -- Subordination."
The Company has the right to defer payment of interest thereon at any
time or from time to time for a period not exceeding 20 consecutive quarterly
periods (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures.
Accordingly, there could be multiple Extension Periods of varying lengths
throughout the term of the New Junior Subordinated Debentures. As a consequence
of any such extension, quarterly Distributions on the Capital Securities will be
deferred by the Trust during any such Extension Period. During any Extension
Period, interest on the New Junior Subordinated Debenture will accrue and
compound, and Distributions to which holders of the New Capital Securities are
entitled will accumulate and compound, in each case quarterly to the extent
permitted by applicable law at the rate of 11 3/4% per annum from the relevant
payment date for such Distributions, and holders of the New Capital Securities
will be required to accrue interest income for United States federal income tax
purposes prior to receipt of cash related to such interest income. See "Certain
United States Federal Income Tax Consequences -- Interest Income and Original
Issue Discount." Upon the termination of any Extension Period, the Company is
obligated to pay to the Trust the full amount of interest on the New Junior
Subordinated Debentures that has been accrued and not paid, whereupon the full
amount of the accumulated and unpaid Distributions will be paid to the holders
of Capital Securities. The Company and its subsidiaries are prohibited during
any Extension Period from (i) declaring or paying any dividend, interest or
other payment (whether in the nature of principal, interest or premium), in each
case in cash, on or with respect to any class of the Company's capital stock or
any other security of the Company that is PARI PASSU with or junior to the New
Junior Subordinated Debentures, (ii) making any payment with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks junior to or PARI PASSU with the Junior Subordinated
Debentures, or (iii) redeeming (or permitting any subsidiary of the Company to
purchase or acquire) any shares of the Company's capital stock other than in a
Permitted Redemption (as defined herein), including payments on securities
ranking PARI PASSU with
3
<PAGE>
or junior to the Capital Securities. See "Description of New Capital Securities
- -- Deferral of Distributions" and "Description of New Junior Subordinated
Debentures -- Extension Period."
The New Junior Subordinated Debentures are not redeemable prior to June
6, 2007 unless a Regulatory Event, a Tax Event or an Investment Company Event
(each as defined herein, and each a "Special Event") has occurred. The New
Junior Subordinated Debentures are redeemable prior to maturity at the option of
the Company, subject to the receipt of any necessary prior approval of the Board
of Governors of the Federal Reserve System (the "Federal Reserve") (i) on or
after June 6, 2007, in whole or in part, at a redemption price equal to 105.875%
of the principal amount thereof on or after June 6, 2007, declining ratably on
each June 6 thereafter to 100% on or after June 6, 2017, plus accrued and unpaid
interest, if any, to the date of redemption, or (ii) at any time, in whole or in
part (subject to the limitations set forth below), following the occurrence of a
Special Event, at a redemption price equal to the greater of (x) 100% of the
principal amount of the New Junior Subordinated Debentures or (y) as determined
by a Quotation Agent (as defined herein), the sum of the present values of the
payments due under the New Junior Subordinated Debentures assuming a payment of
the principal amount thereof, and premium thereon, upon a redemption at the
election of the Company on June 6, 2007, together with scheduled payments of
interest from the date of the Special Redemption to such date, discounted to the
date of the Special Redemption on a quarterly basis (assuming a 360-day year
consisting of 30-day months) at a rate equal to the Special Redemption Discount
Rate (as defined herein), plus, in each case, accrued interest thereon to the
date of redemption. The Company may not effect a partial Special Redemption that
leaves less than $15 million in Principal Amount of New Junior Subordinated
Debentures outstanding. The New Capital Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the New Junior Subordinated
Debentures at maturity or its earlier redemption, in an amount equal to the
amount of the New Junior Subordinated Debentures maturing or being redeemed and
at a redemption price equal to the redemption price of such Junior Subordinated
Debentures, in each case plus accumulated and unpaid Distributions thereon to
the date of redemption. See "Description of New Capital Securities --
Redemption."
Upon the occurrence and continuation of a Special Event, the Company
will have the right, subject to the receipt of any necessary approval of the
Federal Reserve, to dissolve the Trust and to cause the New Junior Subordinated
Debentures to be distributed to the holders of Trust Securities in liquidation
of the Trust. See "Description of New Capital Securities -- Redemption."
In the event of the liquidation of the Trust, after satisfaction of the
claims of creditors of the Trust, if any, as provided by applicable law, the
holders of the New Capital Securities will be entitled to receive a liquidation
preference of $1,000 per New Capital Security plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of such amount in New Junior Subordinated Debentures as described
above. If such Liquidation Distribution (as defined herein) 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 New Capital Securities shall be paid on a pro rata basis. The
holder(s) of the Common Securities will be entitled to receive distributions
upon any such liquidation pro rata with the holders of the Capital Securities,
except that if an Indenture Event of Default (as defined herein) has occurred
and is continuing, the Capital Securities shall have a priority over the Common
Securities. See "Description of Capital Securities -- Liquidation Distribution
Upon Dissolution."
4
<PAGE>
The Company and the Trust are making the Exchange Offer of the New
Capital Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission (the "Commission")
as set forth in certain interpretive letters addressed to third parties in other
transactions. However, neither the Company nor the Trust has sought its own
interpretive letter and there can be no assurance that the staff of the Division
of Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on those interpretations by the staff of the Division of
Corporation Finance, and subject to the two immediately following sentences, the
Company and the Trust believe that New Capital Securities issued pursuant to
this Exchange Offer in exchange for Old Capital Securities may be offered for
resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Capital Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Capital Securities. However, any
holder of Old Capital Securities who is an "affiliate" of the Company or the
Trust or who intends to participate in the Exchange Offer for the purpose of
distributing New Capital Securities, or any broker-dealer who purchased the Old
Capital Securities from the Trust to resell pursuant to Rule 144A under the
Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (i) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (ii) will not be permitted or entitled to
tender such Old Capital Securities in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Capital Securities
acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Capital Securities for New Capital Securities,
then such broker-dealer must deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales of such New Capital
Securities.
Each holder of Old Capital Securities who wishes to exchange Old
Capital Securities for New Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company or the
Trust, (ii) any New Capital Securities to be received by it are being acquired
in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Capital Securities, and (iv) if such
holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such New Capital Securities. In addition, the Company and the Trust may
require such holder, as a condition to such holder's eligibility to participate
in the Exchange Offer, to furnish to the Company and the Trust (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13-d3 under the Securities Exchange Act of 1934, as amended)
on behalf of whom such holder holds the Capital Securities to be exchanged in
the Exchange Offer. Each broker-dealer that receives New Capital Securities for
its own account pursuant to the Exchange Offer must acknowledge that it acquired
the Old Capital Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Capital Securities. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. Based on the
5
<PAGE>
position taken by the staff of the Division of Corporation Finance in the
interpretive letters referred to above, the Company and the Trust believe that
those broker-dealers, if any, who acquired Old Capital Securities for their own
accounts, as a result of market-making activities or other trading activities
("Participating Broker-Dealers"), may fulfill their prospectus delivery
requirements with respect to the New Capital Securities received upon exchange
of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, and to the
limitations described herein under "The Exchange Offer -- Resale of New Capital
Securities," the Company and the Trust have agreed that this Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Capital Securities for a
period ending 180 days after the Registration Statement of which this prospectus
constitutes a part is declared effective. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Company or the Trust
may not rely on such interpretive letters and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. See "The Exchange Offer -- Resales of New Capital
Securities."
In that regard, each Participating Broker-Dealer who surrenders Old
Capital Securities pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal, that, upon receipt of notice from the
Company or the Trust of the occurrence of any event or the discovery of any fact
which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreements, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Company or the Trust has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company or the Trust has given notice that the sale of the New Capital
Securities (or the new Guarantee or the New Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
Prior to the Exchange Offer, there has been no public market for the
Old Capital Securities, and the Company is not aware of any secondary market for
the Old Capital Securities. The New Capital Securities will be a new issue of
securities for which there currently is not market. There can be no assurance as
to the development or liquidity of any market for the New Capital Securities.
Neither the Company nor the Trust currently intends to apply for listing of the
New Capital Securities on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
6
<PAGE>
Any Old Capital Securities not tendered and accepted in the Exchange
Offer will remain outstanding and will be entitled to all the same rights and
will be subject to the same limitations applicable thereto under the Declaration
of Trust (except for those rights which terminate upon consummation of the
Exchange Offer). Following consummation of the Exchange Offer, the holders of
Old Capital Securities will continue to be subject to all of the existing
restrictions upon transfer thereof and neither the Company nor the Trust will
have any further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Capital Securities held by them. To the extent that Old Capital Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Capital Securities could be adversely affected. See "Risk Factors
- -- Consequences of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., Los Angeles time, on __________, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Company and the Trust (in which case the term "Expiration
Date" shall mean the latest date and time to which the Exchange Offer is
extended). Tenders of Old Capital Securities may be withdrawn at any time on
or prior to the Expiration Date. The Exchange Offer is not conditioned upon
any minimum Liquidation Amount of Old Capital Securities being tendered for
exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company or the Trust and to the terms
and provisions of the Registration Rights Agreement. The Company is obligated
to pay all expenses of the Exchange Offer. See "The Exchange Offer -- Fees
and Expenses." Each New Capital Security will pay cumulative Distributions
from the most recent Distribution Date on the Old Capital Securities
surrendered in exchange for such New Capital Securities, or if no
Distributions have been paid on such Old Capital Securities, from __________,
1998. Holders of the Old Capital Securities whose Old Capital Securities are
accepted for exchange will not receive accumulated Distributions on such Old
Capital Securities for any period from and after the last Distribution Date
on such Old Capital Securities prior to the original issue date of the New
Capital Securities or, if no such Distributions have been paid, will not
receive any accumulated Distribution on such Old Capital Securities, and will
be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after such Distribution Date or, if
no such interest has been paid or duly provided for, from and after
__________, 1998. This Prospectus, together with the Letter of Transmittal,
is being sent to all registered holders of Old Capital Securities as of
__________, 1998.
Neither the Company nor the Trust will receive any cash proceeds from
the issuance of the new Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
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<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF.
------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance with Section 15(d) thereof files reports and other information with
the Securities and Exchange Commission (the "Commission"). Such reports and
other information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Chicago Regional Office, Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661; and New York Regional Office, 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission also
maintains a Web site (http://www.sec.gov) that contains reports, proxy
statements and other information regarding the Company.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not believe such financial
statements would be material to holders of the Capital Securities because (i)
all of the voting securities of the Trust will be owned, directly or indirectly,
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 its assets and investing the
proceeds thereof in Junior Subordinated Debentures issued by the Company, and
(iii) the obligations of the Trust under the Capital Securities are guaranteed
by the Company to the extent described herein. See "Relationship Among the
Capital Securities, the Junior Subordinated Debentures and the Guarantee."
This Prospectus constitutes a part of a registration statement on Form
S-4 (the "Registration Statement") filed by the Company and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the New
Securities. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to
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<PAGE>
the copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K, as amended, for the fiscal
year ended December 31, 1997, the Company's Current Report on Form 8-K/A dated
August 6, 1997 and the Company's Current Report on Form 8-K dated April 10,
1998, previously filed by the Company with the Commission, are incorporated by
reference in this Prospectus and shall be deemed to be a part hereof.
Each document or report filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated or
deemed to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of 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.
As used herein, the terms "Prospectus" and "herein" mean this
Prospectus, including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein do not purport to
be complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document. The
Company will provide without charge to any person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference herein (other than exhibits
not specifically incorporated by reference into the texts of such documents).
Requests for such documents should be directed to: Commerce Security Bancorp,
Inc., Attn. Curt A Christianssen, 24012 Calle de la Plata, Suite 150, Laguna
Hills, California 92653
9
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and is subject
to, the more detailed information and financial statements contained elsewhere
and incorporated by reference in this Prospectus. Holders of Old Capital
Securities are urged to read this Prospectus in its entirety.
CSBI CAPITAL TRUST I
CSBI Capital Trust I (the "Trust") is a statutory business trust formed
under the Delaware Business Trust Act, as amended, pursuant to a declaration of
trust (the "Declaration") and the filing of a certificate of trust with the
Secretary of State of the State of Delaware. The Company holds Common Securities
in an aggregate Liquidation Amount of at least 3% of the Trust's total capital.
The Capital Securities and the Common Securities are referred to collectively as
the "Trust Securities." The Trust used all the proceeds derived from the
issuance of the Trust Securities to purchase the Old Junior Subordinated
Debentures, and accordingly, the assets of the Trust consist solely of the Old
Junior Subordinated Debentures. Upon completion of the Exchange Offer, the
assets of the Trust will consist solely of the New Junior Subordinated
Debentures. The Trust exists for the exclusive purpose of (i) issuing the Trust
Securities and effecting the Exchange Offer for the New Capital Securities, (ii)
investing the gross proceeds of the Trust Securities in the Old Junior
Subordinated Debentures, (iii) exchanging the Old Junior Subordinated Debentures
for the New Junior Subordinated Debentures, and (iv) engaging in only those
other activities necessary or incidental thereto. Because the New Junior
Subordinated Debentures will be the sole assets of the Trust, payments under the
New Junior Subordinated Debentures will be the sole revenues of the Trust. All
of the Common Securities of the Trust will be owned by the Company.
COMMERCE SECURITY BANCORP, INC.
Commerce Security Bancorp, Inc. ("CSBI" or the "Company") is a Delaware
corporation and registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"). Through its bank subsidiary, Eldorado
Bank, the Company offers commercial banking products and services to small- and
medium-sized businesses and retail customers from 17 full service branches
located primarily in the Orange County, San Diego County and Sacramento areas of
California. The Company's products include commercial, consumer and real estate
loans, a full range of deposit products and other non-deposit banking services,
as well as small equipment leases and single-family residential mortgages. As of
December 31, 1997, the Company had total assets of $902.4 million, total
deposits of $765.2 million and total shareholders' equity of $94.7 million.
A key element of the Company's strategic plan focuses on building
profitability through acquisitions of community banks primarily, but not
exclusively, in and around its Southern California base, including banks which
are or recently were in troubled condition, and seeking to increase the earnings
of the banks it has acquired through a combination of expense reduction
programs, merger synergies, improvements in asset quality and strengthening of
capital position. Since September 1995, the Company has completed three
acquisitions increasing the Company's assets by over $840 million, including the
acquisition (the "Eldorado Acquisition"), completed on June 6, 1997, of Eldorado
Bancorp ("Eldorado") and its bank subsidiary, Eldorado Bank, a community bank
based in Tustin, California with approximately $400 million in total assets.
Effective June 30, 1997, the Company consolidated via mergers into Eldorado Bank
the respective operations of its other bank
10
<PAGE>
subsidiaries (as so consolidated, the "Bank"). The Old Capital Securities were
originally issued to finance a portion of the purchase price for the Eldorado
Acquisition.
The Company's principal place of business is 24012 Calle de la Plata,
Suite 150, Laguna Hills, CA 92653; and its telephone number at that address is
(714) 699-4344.
RECENT OPERATING RESULTS
For the quarter ended March 31, 1998, the Company reported net
income of $1.7 million, diluted earnings per common share of $0.07 and basic
earnings per common share (before the dilutive effect of stock options) of
$0.08 compared with net income of $434,000, diluted earnings per common share
of $0.04 and basic earnings per common share of $0.04 for the same period of
1996.
The Company had total assets at March 31, 1998 of $1.0 billion
compared to $902 million at December 31, 1997, and total loans and deposits
of $702 million and $824 million, respectively, at March 31, 1998 compared
with $615 million and $765 million, respectively, at December 31, 1997. As of
March 31, 1998, the Company's Tier 1 leverage capital ratio and total
risk-weighted capital ratio were 7.0% and 10.0%, respectively.
For more information about the Company, reference is made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
incorporated herein by reference. See "Available Information" and "Incorporation
of Certain Documents by Reference."
11
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER . . . . . . . Up to $27,657,000 aggregate Liquidation
Amount of New Capital Securities are
being offered in exchange for a like
aggregate Liquidation Amount of Old
Capital Securities. The Company will
issue, promptly after the Expiration
Date, $1,000 Liquidation Amount of New
Capital Securities in exchange for each
$1,000 Liquidation Amount of outstanding
Old Capital Securities tendered and
accepted in connection with the Exchange
Offer. The Company and the Trust are
making the Exchange Offer in order to
satisfy obligations under the
Registration Rights Agreement relating
to the Old Capital Securities. For a
description of the procedures for
tendering Old Capital Securities, see
"The Exchange Offer -- Procedures for
Tendering Old Capital Securities."
EXPIRATION DATE . . . . . . . . . . 5:00 p.m., Los Angeles times, on ,
1998(such time on such date being
hereinafter called the "Expiration
Date") unless the Exchange Offer is
extended by the Company and the
Trust (in which case the term
"Expiration Date" shall mean the
latest date and time to which the
Exchange Offer is extended). See
"The Exchange Offer -- Expiration
Date; Extensions; Amendments."
CONDITIONS TO THE
EXCHANGE OFFER . . . . . . . . . The Exchange Offer is subject to certain
conditions, which may be waived by the
Company and the Trust in their sole
discretion. The Exchange Offer is not
conditioned upon any minimum Liquidation
Amount of Old Capital Securities being
tendered. See "The Exchange Offer --
Conditions to the Exchange Offer." The
Company and the Trust reserve the right
in their sole and absolute discretion,
subject to applicable law, at any time
and from time to time, (i) to delay the
acceptance of the Old Capital Securities
for exchange, (ii) to terminate the
Exchange Offer if certain specified
conditions have not been satisfied,
(iii) to extend the Expiration Date of
the Exchange Offer and retain all Old
Capital Securities tendered pursuant to
the Exchange Offer, subject, however, to
the right of holders of Old Capital
Securities to withdraw their tendered
Old Capital Securities, or (iv) to waive
any condition or otherwise amend the
terms of the Exchange Offer in any
respect. See "The Exchange Offer --
Expiration Date; Extensions;
Amendments."
EXCHANGE AGENT . . . . . . . . . . The exchange agent with respect to the
Exchange Offer is the Wilmington Trust
Company (the "Exchange Agent"). The
addresses, and telephone and facsimile
numbers of the Exchange Agent are set
forth in "The Exchange Offer -- Exchange
Agent" and in the Letter of Transmittal.
12
<PAGE>
WITHDRAWAL RIGHTS . . . . . . . . Tenders of Old Capital Securities may be
withdrawn at any time on or prior to the
Expiration Date by delivering a written
notice of such withdrawal to the
Exchange Agent in conformity with
certain procedures set forth below under
"The Exchange Offer -- Withdrawal
Rights."
PROCEDURES FOR TENDERING
OLD CAPITAL SECURITIES . . . . . Tendering holders of Old Capital
Securities must complete and sign a
Letter of Transmittal in accordance with
the instructions contained therein and
forward the same by mail, facsimile or
hand delivery, together with any other
required documents, to the Exchange
Agent, together with the Old Capital
Securities to be tendered or in
compliance with the specified procedures
for guaranteed delivery of Old Capital
Securities. Holders of Old Capital
Securities registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee are urged to
contact such person promptly if they
wish to tender Old Capital Securities
pursuant to the Exchange Offer. See "The
Exchange Offer -- Procedures for
Tendering Old Capital Securities."
Letters of Transmittal and certificates
representing Old Capital Securities
should not be sent to the Company or to
the Trust. Such documents should only be
sent to the Exchange Agent. Questions
regarding how to tender and requests for
information should be directed to the
Exchange Agent. See "The Exchange Offer
-- Exchange Agent."
RESALES OF
NEW CAPITAL SECURITIES . . . . The Company and the Trust are making the
Exchange Offer in reliance on the
position of the staff of the Division of
Corporation Finance of the Commission as
set forth in certain interpretive
letters addressed to third parties in
other transactions. However, neither the
Company nor the Trust has sought its own
interpretive letter and there can be no
assurance that the staff of the Division
of Corporation Finance of the Commission
would make a similar determination with
respect to the Exchange Offer as it has
in such interpretive letters to third
parties. Based on those interpretations
by the staff of the Division of
Corporation Finance, and subject to the
two immediately following sentences, the
Company and the Trust believe that New
Capital Securities issued pursuant to
this Exchange Offer in exchange for Old
Capital Securities may be offered for
resale, resold and otherwise transferred
by a holder thereof (other than a holder
who is a broker-dealer) without further
compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that such New
Capital Securities are acquired in the
ordinary course of such holder's
business and that such holder is not
participating, and has no arrangement or
understanding with any person to
participate, in a
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<PAGE>
distribution (within the meaning of the
Securities Act) of such New Capital
Securities. However, any holder of Old
Capital Securities who is an "affiliate"
of the Company or the Trust or who
intends to participate in the Exchange
Offer for the purpose of distributing
the New Capital Securities, or any
broker-dealer who purchased the Old
Capital Securities from the Trust to
resell pursuant to Rule 144A or any
other available exemption under the
Securities Act, (a) will not be able to
rely on the interpretations of the staff
of the Division of Corporation Finance
of the Commission set forth in the
above-mentioned interpretive letters,
(b) will not be permitted or entitled to
tender such Old Capital Securities in
the Exchange Offer and (c) must comply
with the registration and prospectus
delivery requirements of the Securities
Act in connection with any sale or other
transfer of such Old Capital Securities
unless such sale is made pursuant to an
exemption from such requirements. In
addition, as described below, if any
broker-dealer holds Old Capital
Securities acquired for its own account
as a result of market-making or other
trading activities and exchanges such
Old Capital Securities for New Capital
Securities, then such broker-dealer must
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resales of such New
Capital Securities. Each holder of Old
Capital Securities who wishes to
exchange Old Capital Securities for New
Capital Securities in the Exchange Offer
will be required to represent that (i)
it is not an "affiliate" of the Company
or the Trust, (ii) any New Capital
Securities to be received by it are
being acquired in the ordinary course of
its business, (iii) it has no
arrangement or understanding with any
person to participate in a distribution
(within the meaning of the Securities
Act) of such New Capital Securities, and
(iv) if such holder is not a
broker-dealer, such holder is not
engaged in, and does not intend to
engage in, a distribution (within the
meaning of the Securities Act) of such
New Capital Securities. Each
broker-dealer that receives New Capital
Securities for its own account pursuant
to the Exchange Offer must acknowledge
that it acquired the Old Capital
Securities for its own account as the
result of market-making activities or
other trading activities and must agree
that it will deliver a prospectus
meeting the requirements of the
Securities Act in connection with any
resale of such New Capital Securities.
The Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. Based on the position
taken by the staff of the Division of
Corporation Finance in the interpretive
letters referred to above, the Company
and the Trust believe that those
broker-dealers, if any, who acquired Old
Capital Securities for their own
accounts as a result of market-making
activities or other trading activities
14
<PAGE>
("Participating Broker-Dealers") may
fulfill their prospectus delivery
requirements with respect to the New
Capital Securities received upon
exchange of such Old Capital Securities
(other than Old Capital Securities which
represent an unsold allotment from the
original sale of the Old Capital
Securities) with a prospectus meeting
the requirements of the Securities Act,
which may be the prospectus prepared for
an exchange offer so long as it contains
a description of the plan of
distribution with respect to the resale
of such New Capital Securities.
Accordingly, this Prospectus, as it may
be amended or supplemented from time to
time, may be used by a Participating
Broker-Dealer in connection with resales
of New Capital Securities received in
exchange for Old Capital Securities
where such Old Capital Securities were
acquired by such Participating
Broker-Dealer for its own account as a
result of market-making or other trading
activities. Subject to certain
provisions set forth in the Registration
Rights Agreement and to the limitations
described below under "The Exchange
Offer -- Resale of New Capital
Securities," the Company and the Trust
have agreed that this Prospectus, as it
may be amended or supplemented from time
to time, may be used by a Participating
Broker-Dealer in connection with resales
of such New Capital Securities for a
period ending 180 days after the
Registration Statement of which this
Prospectus constitutes a part is
declared effective. See "Plan of
Distribution." Any Participating
Broker-Dealer who is an "affiliate" of
the Company or the Trust may not rely on
such interpretive letters and must
comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
resale transaction. See "The Exchange
Offer -- Resales of New Capital
Securities.
USE OF PROCEEDS . . . . . . . . . . Neither the Company nor the Trust will
receive any cash proceeds from the
issuance of the New Capital Securities
offered hereby. See "Use of Proceeds."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES; BENEFIT PLAN
CONSIDERATIONS . . . . . . . . . . Holders of Old Capital Securities should
review the information set forth under
"Certain Federal Income Tax
Consequences" and "Benefit Plan
Considerations" prior to tendering Old
Capital Securities in the Exchange
Offer.
THE NEW CAPITAL SECURITIES
SECURITIES OFFERED . . . . . . . . . Up to $27,657,000 aggregate Liquidation
Amount of the Trust's 11 3/4%
Subordinated Capital Income Securities,
Series A (Liquidation Amount of $1,000
per Capital Security) which have been
registered under the Securities Act. The
terms of the New Capital Securities are
identical in all material respects to
the terms
15
<PAGE>
of the Old Capital Securities, except
that the New Capital Securities have
been registered under the Securities Act
and therefore are not subject to certain
restrictions on transfer applicable to
the Old Capital Securities and will not
provide for any increase in the
Distribution rate thereon. See "The
Exchange Offer -- Purpose of the
Exchange Offer," "Description of the New
Capital Securities" and "Description of
the Old Securities." The Holders of the
New Capital Securities 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.
DISTRIBUTIONS . . . . . . . . . . . . Holders of the New Capital Securities
will be entitled to receive cumulative
cash distributions at an annual rate of
11 3/4% of the liquidation amount of
$1,000 per New Capital Security,
accruing from the date of original
issuance and payable quarterly in
arrears on the 30th day of March, June,
September and December of each year
commencing on September 30, 1998. The
distribution rate and the distribution
and other payment dates for the New
Capital Securities will correspond to
the interest rate and interest and other
payment dates on the New Junior
Subordinated Debentures. See
"Description of New Capital Securities."
THE NEW JUNIOR SUBORDINATED
DEBENTURES . . . . . . . . . . . . The Trust invested the proceeds from the
issuance of the Old Capital Securities
and Common Securities in an equivalent
amount of Old 11 3/4% Junior
Subordinated Debentures of the Company.
The Trust will exchange its Old Junior
Subordinated Debentures for the New
Junior Subordinated Debentures in
connection with the Exchange Offer. The
New Junior Subordinated Debentures will
mature on June 6, 2027. The New Junior
Subordinated Debentures rank subordinate
and junior in right of payment to all
Senior Indebtedness (as defined herein)
of the Company. In addition, the
Company's obligations under the New
Junior Subordinated Debentures are
structurally subordinated to all
existing and future liabilities and
obligations of its subsidiaries. See
"Risk Factors -- Ranking of Subordinated
Obligations Under the Guarantee and the
Junior Subordinated Debentures," "Risk
Factors -- Limited Liquidity to Pay
Interest and Other Expenses; Prohibition
on Dividends by the Bank to the Company
Without Prior Regulatory Approval;
Structural Subordination" and
"Description of the New Junior
Subordinated Debentures --
Subordination."
EXTENSION PERIODS . . . . . . . . . The Company has the right under the New
Junior Subordinated Debentures to defer
payment of interest thereon at any time
or from time to time for a period not
exceeding 20 consecutive quarterly
periods (each, an "Extension Period"),
provided that no
16
<PAGE>
Extension Period may extend beyond the
Stated Maturity of the New Junior
Subordinated Debentures. Accordingly,
there could be multiple Extension
Periods of varying lengths throughout
the term of the New Junior Subordinated
Debentures. During an Extension Period,
interest on the New Junior Subordinated
Debentures will continue to accrue (and
the amount of Distributions to which
holders of New Capital Securities are
entitled will accumulate) at the rate of
11 3/4% per annum, compounded quarterly.
During an Extension Period, holders of
New Capital Securities will be required
to include their pro rata share of such
accrued and unpaid interest on the New
Junior Subordinated Debentures in their
gross income for United States federal
income tax purposes even though the cash
payments attributable thereto have not
been made. Upon the termination of any
Extension Period, the Company is
obligated to pay to the Trust the full
amount of interest on the New Junior
Subordinated Debentures that has been
accrued and not paid and, upon receipt
of such interest, the Trust is obligated
to pay to the holders of the Trust
Securities all Distributions that have
been accumulated and not paid. Upon the
payment in full of all such accrued and
unpaid amounts, together with all
amounts on the New Junior Subordinated
Debentures then due on any Interest
Payment Date, the Company may elect to
begin a new Extension Period subject to
the foregoing requirements. The Company
is prohibited from taking certain
actions during any Extension Period,
including payments on or redemptions or
purchases of securities ranking pari
passu with or junior to the New Junior
Subordinated Debentures. See
"Description of the New Capital
Securities," "Description of the New
Junior Subordinated Debentures -- Option
to Extend Interest Payment Period" and
"Certain United States Federal Income
Tax Consequences -- Interest Income and
Original Issue Discount."
NEW GUARANTEE . . . . . . . . . . Payment of Distributions on the New
Capital Securities and payments on
liquidation of the Trust or the
redemption of New Capital Securities,
are guaranteed by the Company pursuant
to the New Guarantee to the extent the
Trust has funds available therefor. If
the Company does not make principal or
interest payments on the New Junior
Subordinated Debentures, the Trust will
not have sufficient funds to make
Distributions on the New Capital
Securities, in which event the New
Guarantee shall not apply to such
Distributions until the Trust has
sufficient funds available therefor. The
Company's obligations under the New
Guarantee, taken together with its
obligations under the New Junior
Subordinated Debentures and the
Declaration, including its obligation to
pay all costs, expenses and liabilities
of the Trust (other than with respect to
the Trust Securities), constitute a full
and unconditional guarantee of all of
the Trust's obligations under
17
<PAGE>
the New Capital Securities. See
"Description of the New Guarantee" and
"Relationship Among the New Capital
Securities, the New Junior Subordinated
Debentures and the New Guarantee." The
obligations of the Company under the New
Guarantee are subordinated and junior in
right of payment to all Senior
Indebtedness of the Company. See "Risk
Factors -- Ranking of Subordinated
Obligations Under the Guarantee and the
Junior Subordinated Debentures" and
"Description of the New Guarantee."
OPTIONAL REDEMPTION . . . . . . . The New Junior Subordinated Debentures
are not redeemable prior to June 6, 2007
except upon the occurrence of a
Regulatory Capital Event, a Tax Event or
an Investment Company Event (each as
defined below). On and after June 6,
2007, the New Junior Subordinated
Debentures are redeemable, in whole or
in part, at the election of the Company,
subject to the prior approval of the
Federal Reserve if then required under
applicable capital guidelines or
policies. Upon any such redemption of
the New Junior Subordinated Debentures
(an "Optional Redemption"), New Capital
Securities and Common Securities having
an equivalent aggregate Liquidation
Amount will be redeemed by the Trust on
a pro rata basis. The price at which the
New Junior Subordinated Debentures, and
therefore the New Capital Securities,
may be so redeemed (the "Redemption
Price") in the event of an Optional
Redemption includes a redemption premium
in the event that the date of such
redemption is on or before June 5, 2017.
See "Description of the New Capital
Securities -- Redemption" and
"Description of the New Junior
Subordinated Debentures -- Redemption."
SPECIAL REDEMPTION . . . . . . . . The New Junior Subordinated Debentures
may also be redeemed either before or
after June 6, 2007, subject to the prior
approval of the Federal Reserve if then
required under applicable capital
guidelines or policies, in the event of
a Special Event. Any such redemption may
be in whole or in part, except that no
such partial redemption may reduce the
aggregate Liquidation Amount of the
Trust Securities then outstanding to
less than $15.0 million. See
"Description of the New Capital
Securities -- Redemption" and
"Description of the New Junior
Subordinated Debentures -- Redemption."
LIQUIDATION OF THE TRUST . . . . . Upon the occurrence and continuation of
a Regulatory Capital Event, Tax Event or
Investment Company Event, the Company
will have the right, subject to any
necessary prior approval of the Federal
Reserve, to dissolve the Trust and cause
the New Junior Subordinated Debentures
to be distributed to the holders of the
New Capital Securities and the Common
Securities in liquidation
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<PAGE>
of the Trust. See "Description of the
New Capital Securities -- Redemption."
In the event of the liquidation of the
Trust, after satisfaction of the claims
of creditors of the Trust, if any, as
provided by applicable law, the holders
of the New Capital Securities will be
entitled to receive a liquidation amount
of $1,000 per New Capital Security plus
accumulated and unpaid Distributions
thereon to the date of payment, which
may be in the form of a distribution of
such amount in New Junior Subordinated
Debentures as described above. If such
Liquidation Distribution (as defined
herein) can be paid only in part because
the Trust has insufficient assets
available to pay in full the aggregate
Liquidation Distribution, the amounts
payable by the Trust on the New Capital
Securities will be paid on a pro rata
basis. The holder(s) of the Common
Securities will be entitled to receive
distributions upon any such liquidation
pro rata with the holders of the New
Capital Securities, except that if an
Indenture Event of Default has occurred
and is continuing, the New Capital
Securities shall have a priority over
the Common Securities. See "Description
of the New Capital Securities --
Liquidation Distribution Upon
Dissolution."
ABSENCE OF MARKET FOR THE
NEW CAPITAL SECURITIES . . . . . . The New Capital Securities will be a new
issue of securities for which there
currently is no market. Accordingly,
there can be no assurance as to the
development or liquidity of any market
for the New Capital Securities. The
Trust and the Company do not intend to
apply for listing of the New Capital
Securities on any securities exchange or
for quotation through the National
Association of Securities Dealers
Automated Quotation System.
19
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED OPERATIONS
Net interest income before
provision for possible loan
and lease loss $32,881 $11,708 $2,817 $2,861 $ 2,994
Provision for possible loan
and lease loss 1,495 515 295 583 1,085
--------- ---------- -------- -------- ---------
Net interest income after provision
for possible loan and lease loss 31,386 11,193 2,522 2,278 1,909
Net non-interest expense 24,784 10,371 3,595 3,267 3,885
-------- -------- ----- ------- --------
Income (loss) before income taxes
and extraordinary item 6,602 822 (1,073) (989) (1,976)
Income taxes provision (benefit) 3,612 (1,503) (443) - -
--------- -------- ----- ---------- ------------
Income (loss) before
extraordinary item 2,990 2,325 (630) (989) (1,976)
Extraordinary item: Forgiveness of
indebtedness net of $443,000
income taxes - - 625 - -
--------- -------- ----- ---------- ------------
Net income (loss) 2,990 $ 2,325 $ (5) $ (989) $(1,976)
--------- -------- ----- ---------- ------------
--------- -------- ----- ---------- ------------
Per share data (1):
Weighted Average shares outstanding
Basic 14,813,125 5,300,773 268,198 53,728 53,728
Dilutive 17,269,302 5,300,773 268,198 53,728 53,728
Basic:
Income (loss) before
extraordinary item $.15 $.44 $(2.35) $(18.41) $(36.78)
Extraordinary item - - 2.33 - -
--------- -------- ----- ---------- ------------
Income (loss) per share $.15 $.44 $(0.02) $(18.41) $(36.78)
Dilutive:
Income (loss) before
extraordinary item $.13 $.44 $(2.35) $(18.41) $(36.78)
Extraordinary item - - 2.33 - -
--------- -------- ----- ---------- ------------
Income (loss) per share $.13 $.44 $(0.02) $(18.41) $(36.78)
CONSOLIDATED FINANCIAL POSITION
Total assets $902,355 $437,060 $55,905 $57,686 $61,916
Total loans, net 605,883 320,958 38,338 45,492 48,179
Total intangibles 66,769 10,736 - - -
Total deposits 765,203 383,031 51,431 55,876 59,651
Total long-term debt 27,657 537 537 1,894 1,894
Total shareholders' equity (deficit) 94,736 40,772 3,541 (948) 41
SELECTED FINANCIAL RATIOS
Return on average common equity(2) 4.15% 11.23% nm(2) nm(2) (201.43)%
Return on average assets 0.42% 0.96% (0.01)% (1.61)% (2.97)%
Average equity to average assets 10.21% 8.56% (0.14)% (0.09)% 1.47 %
Dividend payout ratio -- -- -- -- --
</TABLE>
- ----------------------------
(1) Share and per share amounts have been retroactively restated to reflect
change in presentation of Earnings Per Share discussion contained in Note 1
to the Company's consolidated financial statements from its Annual Report
on Form 10-K for the year ended December 31, 1997, incorporated by
reference herein. See "Available Information" and "Incorporation of
Certain Documents by Reference."
(2) Return on average common equity is not meaningful as the average common
equity for 1995 and 1994 was negative.
20
<PAGE>
RISK FACTORS
HOLDERS OF THE OLD CAPITAL SECURITIES SHOULD CAREFULLY REVIEW THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY
CONSIDER THE FOLLOWING MATTERS. UNLESS AS OTHERWISE STATED OR THE CONTEXT
OTHERWISE REQUIRES IN THE RISK FACTORS SET FORTH BELOW, THE NEW CAPITAL
SECURITIES AND THE OLD CAPITAL SECURITIES WILL BE REFERRED TO AS THE "CAPITAL
SECURITIES" AND THE NEW JUNIOR SUBORDINATE DEBENTURES AND THE OLD JUNIOR
SUBORDINATE DEBENTURES WILL BE REFERRED TO AS THE "JUNIOR SUBORDINATED
DEBENTURES." TO THE EXTENT ANY OF THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS CONSTITUTES A "FORWARD-LOOKING STATEMENT" AS
DEFINED IN SECTION 21E(i)(l) OF THE EXCHANGE ACT, THE RISK FACTORS SET FORTH
BELOW ARE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENT.
CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED IN THIS PROSPECTUS SHALL HAVE
THE RESPECTIVE MEANINGS SET FORTH IN THE SUMMARY.
LIMITED LIQUIDITY TO PAY INTEREST AND OTHER EXPENSES; PROHIBITION ON DIVIDENDS
BY THE BANK TO THE COMPANY WITHOUT PRIOR REGULATORY APPROVAL; STRUCTURAL
SUBORDINATION
The Company currently has virtually no cash or other liquid assets
available at the holding company level and does not anticipate accumulating
any significant amount of cash or liquid assets in the foreseeable future.
The Company's estimated cash needs over the twelve-month period ending
December 31, 1998, include approximately $3.4 million for the payment of
interest on the Junior Subordinated Debentures, approximately $1.3 million
for the payment of dividends on the Series B Preferred Stock and
approximately $400,000 for other operating expenses. As a holding company,
the ability of the Company to make such payments of interest on the Junior
Subordinated Debentures and to fund the payment of such other obligations
will be dependent upon the receipt of dividends and other distributions from
the Bank, which, as of the date of this Prospectus, is the Company's sole
banking subsidiary. There are various regulatory restrictions on the ability
of the Bank to pay dividends or make other payments to the Company, as
described below, which currently prohibit the Bank from paying dividends to
the Company without the prior approval of California and federal bank
regulatory authorities.
Dividends payable by the Bank are restricted under California law to
the lesser of the Bank's retained earnings, or the Bank's net income for the
latest three fiscal years, less dividends previously declared during that
period, or, with the approval of the California Department of Financial
Institutions (the "DFI"), to the greater of the retained earnings of the Bank,
the net income of the Bank for its last fiscal year or the net income of the
Bank for its current fiscal year. In connection with the Eldorado Acquisition,
Eldorado Bank paid a dividend of $14 million, which exceeded the Bank's net
income for the latest three fiscal years. As a result, the Bank currently may
not pay any dividends without the prior approval of the DFI. The DFI may, in its
discretion, approve the payment of such dividends as long as the amount does not
exceed the greater of the Bank's retained earnings (approximately $3.5 million
as of December 31, 1997), the net income of the Bank for its last fiscal year
(approximately $5.9 million for the year ended December 31, 1997), and the net
income of the Bank for its current fiscal year. In addition, under Federal
Reserve regulations, the Bank may not pay a dividend without prior Federal
Reserve approval if (i) it would exceed the Bank's undivided profits as reported
in its most recent Report of Condition and Income (approximately $3.5 million as
of December 31, 1997), or (ii) the total of all dividends declared in one year
exceeds the total of the Bank's net income for that year plus the retained net
income for the preceding two calendar years. Under the second of those tests,
the Bank is currently prohibited from paying any
21
<PAGE>
dividends without the prior approval of the Federal Reserve. There can be no
assurance that the DFI and the Federal Reserve will approve the payment of any
dividend by the Bank to the Company, regardless of amount or the Bank's
earnings, and any such failure to approve a dividend payment likely would
preclude the Company from paying interest on the Junior Subordinated Debentures
on a current basis. See "-- Supervision and Regulation" below.
The payment of dividends on capital stock by the Bank may also be
limited by other factors, including applicable regulatory capital requirements
and broad enforcement powers of the federal and state regulatory agencies. Both
the Federal Reserve and the DFI have broad authority to prohibit the Company and
the Bank from engaging in practices which the banking agency considers to be
unsafe or unsound. It is possible, depending upon the financial condition of the
Bank or the Company and other factors, that the applicable regulator may assert
that the payment of dividends or other payments by the Bank is an unsafe or
unsound practice and, therefore, implement corrective action to address such a
practice.
In addition to the foregoing, the right of the Company to participate
in any distribution of assets of any subsidiary, including the Bank, upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution),
will be subject to the prior claims of creditors of that subsidiary, except to
the extent that any claims of the Company as a creditor of such subsidiary may
be recognized as such. Accordingly, the Old Capital Securities are, and the New
Capital Securities will be effectively subordinated to all existing and future
liabilities of the Bank and any other subsidiary of the Company, and holders of
the Capital Securities should look only to the assets of the Company for
payments on the Capital Securities. Claims on the Bank by creditors other than
the Company include long-term debt and substantial obligations in respect of
federal funds purchased, securities sold under repurchase agreements and certain
other short-term borrowings, as well as deposit liabilities. As of December 31,
1997, the Bank had indebtedness and other liabilities of approximately $767.5
million.
LIMITED OPERATING HISTORY OF THE COMPANY
Since Dartmouth Capital Group, L.P. acquired control of the Company in
September 1995, the business and operations of the Company have changed
substantially. Between September 1995 and the present, the Company has acquired
three additional banks with a total of over $840 million in assets, which has
resulted in a fifteenfold increase in the Company's assets between September 30,
1995 and June 30, 1997, including the June 6, 1997 Eldorado Acquisition, which
by itself nearly doubled the Company's assets. Each of those acquisitions was
accounted for as a purchase, and accordingly the operating results of each
acquired company are included in the Company's financial statements only from
the date of acquisition. As a result, the historical financial performance of
the Company is of limited relevance in predicting future operating results.
RISKS RELATED TO GOODWILL
As of December 31, 1997, the Company had total combined
assets of approximately $902.4 million, of which $66.8 million, or 7.4% of total
assets and 70.5% of total shareholders' equity, was goodwill. At such date, the
Company's ratios of tangible common equity to assets and tangible
total equity to assets were 1.81% and 3.10%, respectively, which were
substantially below the average ratios for banking organizations in the
Company's peer group (although the Company meets all regulatory capital
requirements for being classified as "well
22
<PAGE>
capitalized," having a Tier 1 Leverage Ratio of 6.59%). See "Capitalization."
There can be no assurance that the value of such goodwill will ever be realized
by the Company. The goodwill will be amortized on a straight-line basis over
varying periods. The Company intends to amortize the goodwill related to the
Eldorado Acquisition over a 20-year period. The Company evaluates on a regular
basis whether events and circumstances have occurred that indicate all or a
portion of the carrying amount of goodwill may no longer be recoverable, in
which case an additional charge to earnings would become necessary. Although, as
of the date of this Prospectus, the net unamortized balance of goodwill on the
Company's balance sheet was not considered to be impaired, any such future
determination requiring the write-off of a significant portion of unamortized
goodwill could have a material adverse effect on the Company's results of
operations.
PRIOR LOSSES AT SUBSIDIARY BANKS; AGREEMENTS WITH REGULATORS
Prior to the Company's consolidation of its subsidiaries effective June
30, 1997, the Company had four bank subsidiaries: Commerce Security Bank
("CSB"), Eldorado Bank, Liberty National Bank ("Liberty") and San Dieguito
National Bank ("San Dieguito"). During the past several years, the operating
results of CSB, Eldorado Bank, Liberty and San Dieguito have been adversely
affected by increases in nonperforming assets and other factors. Eldorado Bank
incurred a loss in 1993, Liberty incurred losses in 1993 and 1994, and San
Dieguito incurred losses in each of 1993, 1994 and 1995. Although CSB did not
incur losses during the three-year period ended December 31, 1995, CSB incurred
losses in 1996 and during each month of the six-month period ended June 30,
1997. Those losses were attributable to a number of factors, including high
levels of nonperforming assets, reliance on high-cost brokered deposits and
excessive overhead costs. While the Company believes that substantial progress
has been made toward resolving these problems, and the Bank has reported profits
in each quarter during the past nine months, there can be no assurance that
these problems have been fully resolved or that the Company's profitability will
not be adversely affected by these factors or others in the future. As a
consequence of their poor financial performance during those periods, each of
CSB, Liberty and San Dieguito was required to enter into a memorandum of
understanding with its supervising regulators. As of the date of this
Prospectus, neither the Company nor the Bank is subject to any memoranda of
understanding or other extraordinary supervisory agreement with any regulatory
authority, although the Company did make certain commitments to the Federal
Reserve in connection with the Eldorado Acquisition. Among other things, those
commitments provide that the Company will not redeem, retire or repurchase any
of its preferred stock, incur any debt or pay dividends on Common Stock without
the prior approval of the Federal Reserve.
RISKS RELATED TO GROWTH STRATEGY
The Company expects that its strategic plan following the offering of
the New Capital Securities will continue to involve active and substantial
efforts to acquire or enter into business combinations with other financial
institutions. Such acquisitions entail inherent risks, certain of which are
discussed elsewhere in this Prospectus. Discussions with a view toward such
transactions may be ongoing with one or more institutions, although the Company
is not, as of the date of this Prospectus, subject to a definitive agreement or
a letter of intent to acquire or combine with any other company.
23
<PAGE>
DEPENDENCE ON CHIEF EXECUTIVE OFFICER
The Company depends heavily on the services of Robert P. Keller, the
President and Chief Executive Officer of the Company and the Chief Executive
Officer of the Bank. The loss of Mr. Keller's services could have a material
adverse effect on the Company. Mr. Keller is subject to an employment agreement
with a term expiring September 30, 1999, which term automatically will extend
for another year unless notice is given at least one year prior to the
expiration date of the Agreement.
COMPETITION
There can be no assurance that the Company will be able to compete
effectively in the market that it serves. There is intense competition in
California and elsewhere in the United States in attracting and retaining
deposit accounts, and in making loans to small businesses and other borrowers.
The Company experiences competition for deposit accounts primarily from other
commercial banks, savings institutions, credit unions, insurance companies and
money market and other mutual funds. With respect to the origination of loans
and leases, the Company's primary competitors include other commercial banks,
mortgage companies and savings institutions. Many of those competitors have
greater financial, marketing and name recognition than the Company, and operate
on a statewide or nationwide basis that may give them opportunities to realize
greater efficiencies and economies of scale than the Company.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability is primarily dependent on its net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans, and its interest expense on interest-bearing liabilities,
such as deposits. Financial institutions such as the Bank are affected by
changes in general interest rate levels and by other economic factors. A
significant increase in interest rates could adversely affect economic activity
and the real estate markets in California and thereby reduce the demand for the
Company's loans. In addition, the Company is exposed to interest rate risk,
which arises from mismatches between repricing or maturity characteristics of
assets and liabilities. Although the Company has structured its assets and
liabilities in an effort to mitigate the impact of changes in interest rates on
its income and portfolio value, there can be no assurance that the Company will
not experience a material adverse effect on its net interest income or the net
value of its assets in a changing rate environment. Fluctuations in interest
rates are not predictable or controllable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-K, incorporated herein by reference. See "Available
Information" and "Incorporation of Certain Documents by Reference."
PRODUCT CONCENTRATION
The Company is a relatively undiversified financial institution. The
Company's business primarily consists of attracting deposits through the Bank
and using deposits to invest in loans, short-term investment securities and
other permitted investments, with a particular emphasis on loans and other
products for the small business customer.
The Company makes a significant percentage of its loans and derives a
significant percentage of its revenue under the loan programs of the U.S. Small
Business Administration (the "SBA"). In
24
<PAGE>
recent years, Congress has considered proposals to reduce substantially the
scope of various SBA programs, the level of funding for the SBA and the
attractiveness of the programs that the SBA may offer. Statutory or regulatory
changes in those loan programs that reduce the availability of such loans, make
them less attractive to borrowers or make them less profitable for lenders could
have a material adverse effect on the Company's volume of originations and
servicing of such loans, and its revenue derived from such sources. For
additional information regarding the Company's SBA lending, see the Company's
1997 Annual Report of Form 10-K for the year ended December 31, 1997 that is
incorporated by reference herein. See "Available Information" and "Incorporation
of Certain Documents by Reference."
GEOGRAPHIC CONCENTRATION
Substantially all of the Company's business is located in California.
As a result, the Company's financial condition and operating results are subject
to changes in economic conditions in that region. In the mid-1990s, California
experienced a significant and prolonged downturn in its economy, which adversely
affected financial institutions, including the Company and its predecessors,
whose operations are concentrated in that part of the state. Although the
general economy in California has recovered substantially from that prolonged
recession, the Company's financial condition and operating results are subject
to changes in economic conditions in that region. Moreover, there can be no
assurance that conditions will not worsen in the future and that such
deterioration will not have a material adverse effect on the Company's financial
condition or results of operations.
In addition, a substantial portion of the Company's assets consist of
loans secured by real estate in California. Historically, this area has
experienced on occasion significant natural disasters, including earthquakes,
brushfires and, recently, flooding attributed to the weather phenomenon known as
"El Nino." Accordingly, the availability of insurance for losses from such
catastrophes is limited. The occurrence of one or more such catastrophes could
impair the value of the collateral for the Company's real estate secured loans
and have a material adverse effect on the Company's financial condition and
results of operations.
YEAR 2000 COMPLIANCE
The "Year 2000" issue refers generally to the inability of information
systems to recognize and process properly date-sensitive information as the year
2000 approaches. Although the Year 2000 issues affects most companies, the issue
is particularly material to businesses such as financial service companies like
the Company and its subsidiaries that are engaged in data-intensive operations.
The Company believes that the plans developed to date by the Bank for addressing
the Year 2000 issue will result in timely and adequate modifications of the
Bank's systems and technology. Although final costs have yet to be determined,
the Company estimates that the total costs incurred by the Bank during the four
year period 1998 to 2000 will be approximately $250,000, and none of those costs
are expected to materially affect the Company's results of operations in any one
reporting period. Actual results could vary significantly from such estimates
once detailed test plans are developed, however. In addition, the Company's
credit risk associated with its borrowers may increase as a result of problems
such borrowers may have in resolving their own Year 2000 issues. Lastly, bank
regulatory agencies, as part of their supervisory function, have recently issued
guidance under which they are assessing and will assess Year 2000 readiness. The
failure of a financial institution, such as the Company, to take appropriate
steps to address deficiencies in its Year 2000 project management
25
<PAGE>
process may result in one or more regulatory enforcement actions which could
have a material adverse effect on such institution. Such actions may include the
imposition of civil money penalties, or result in the delay or denial of
regulatory applications.
SUPERVISION AND REGULATION
The Company and the Bank operate in a highly regulated environment and
are subject to supervision and examination by various federal and state
regulatory agencies. The Company, as a bank holding company, is subject to
regulation and supervision primarily by the Federal Reserve, and the Bank, as a
California-chartered commercial bank, is subject to supervision and regulation
primarily by the Federal Reserve and the DFI, and secondarily, by the Federal
Deposit Insurance Corporation (the "FDIC"). Federal and California laws and
regulations govern numerous matters including maintenance of adequate capital
and financial condition, permissible types, amounts and terms of extensions of
credit and investments, permissible non-banking activities, the level of
reserves against deposits, and restrictions on dividend payments. The federal
and state regulatory agencies possess extensive discretion and powers to prevent
or remedy unsafe or unsound practices or violations of law by banks and bank
holding companies. The Company and the Bank also undergo periodic examinations
by one or more regulatory agencies, which may subject them to changes in asset
valuations, in amounts of required loss allowances and in operating restrictions
resulting from the regulators' judgments based on information available to them
at the time of their examination. The Bank's operations are also subject to a
wide variety of state and federal consumer protection and similar statues and
regulations. Those and other restrictions limit the manner in which the Company
and the Bank may conduct business and obtain financing. The laws and regulations
to which the Company and the Bank are subject can and do change significantly
from time to time, and such changes could materially affect the Company's
business, financial condition and operating results. See "Supervision and
Regulation" in the Company's Annual Report on Form 10-K, incorporated herein by
reference. See "Available Information" and Incorporation of Certain Documents by
Reference."
In addition, the commercial banking business is affected not only by
general economic conditions, but also by the monetary policies of the Federal
Reserve. Changes in monetary policies may affect the interest rates the Bank
must offer to attract deposits and the interest rates it must charge on its
loans, as well as the manner in which it offers deposits and makes loans. These
monetary policies have had, and are expected to continue to have, significant
effects on the operating results of commercial banks, including the Bank. See
"-- Potential Impact of Changes in Interest Rates" above.
RISKS RELATED TO SERIES B PREFERRED STOCK
The Company has outstanding shares of Series B Preferred Stock having
an aggregate liquidation preference of approximately $11.7 million. The terms of
the Series B Preferred Stock provide that the holders will be paid quarterly
cash dividends at a rate of 11.0% per annum, although a failure of the Company
to declare and pay such dividends in cash does not, except in limited
circumstances, give rise to any liability by the Company. See "Description of
Capital Stock -- Preferred Stock" in the Company's Current Report on Form 8-K
dated April 10, 1998, incorporated by reference herein. See "Available
Information" and "Incorporation of Certain Documents by Reference." Certain
other rights, however, accrue to the holders of the Series B Preferred Stock if
quarterly dividends thereon are not paid in cash, giving the Company an economic
incentive to pay
26
<PAGE>
such cash dividends. While the Company's dividends on the Series B Preferred
Stock are subordinate to the payment of interest on the Junior Subordinated
Debentures and no such dividends may be paid during any Extension Period, the
payment of dividends on the Series B Preferred Stock will constitute an
additional demand on the Company's cash flow and retained earnings. See "--
Limited Liquidity to Pay Interest and Other Expenses; Prohibition on Dividends
by the Bank to the Company Without Prior Regulatory Approval; Structural
Subordination" above.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The ability of the Trust to pay amounts due on the Capital Securities
is dependent solely upon the Company making payments on the Junior Subordinated
Debentures as and when required. In addition, holders of Capital Securities may
receive the Junior Subordinated Debentures on termination of the Trust.
Accordingly, prospective purchasers of Capital Securities should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein.
The obligations of the Company under the Junior Subordinated Debentures
and the Guarantee are unsecured and rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. As of the date of this
Prospectus, the Company had approximately $540,000 of Senior Indebtedness
outstanding, and neither the Indenture between the Company and Wilmington Trust
Company as trustee thereunder (the "Indenture") under which the Junior
Subordinated Debentures were issued, nor the Guarantee contains any limitation
on the Company's ability to incur additional Senior Indebtedness in the future.
OPTION TO DEFER INTEREST PAYMENTS; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES
The Company has the right under the Junior Subordinated Debentures and
the Indenture to defer the payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each Extension Period, provided
that no Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. During an Extension Period, interest on the Junior
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of Capital Securities are entitled will accumulate) at the rate
of 11 3/4% per annum, compounded quarterly. Upon the termination of any
Extension Period, the Company is obligated to pay to the Trust the full amount
of interest on the Junior Subordinated Debentures that has been accrued and not
paid and, upon receipt of such interest, the Trust is obligated to pay to the
holders of the Trust Securities all Distributions that have been accumulated and
not paid. Upon the payment in full of all such accrued and unpaid amounts,
together with all amounts on the Junior Subordinated Debentures then due on any
Interest Payment Date, the Company may elect to begin a new Extension Period
subject to the foregoing requirements. There is no limitation on the number of
times that the Company may elect to begin an Extension Period. During any such
Extension Period, neither the Company nor any of its Subsidiaries may (i)
declare or pay any dividend or distribution on, or redeem, repurchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (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 to the Junior 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 junior to or PARI PASSU
with the Junior Subordinated Debentures, other than in a Permitted Redemption or
in certain other circumstances. As defined in the Indenture,
27
<PAGE>
a Permitted Redemption means a redemption of Class B Common Stock of the Company
from any person that (x) owns less than 1% of the then-outstanding shares of the
Company's Class B Common Stock and (y) is not then, and has not been within the
12 months preceding such date, an officer or director of the Company; provided
that a redemption or repurchase of Class B Common Stock shall not constitute a
Permitted Redemption if the cumulative amount of all Permitted Redemptions
(through and including the proposed redemption) exceeds $2.5 million. See
"Description of the New Capital Securities -- Distributions" and "-- Deferral of
Interest and Distributions."
Should an Extension Period occur, a holder of Capital Securities will
be required to accrue income for United States federal income tax purposes (in
the form of original issue discount) in respect of its pro rata share of the
Junior Subordinated Debentures held by the Trust. As a result, a holder of
Capital Securities will be required to include such income in gross income for
United States federal income tax purposes in advance of the receipt of cash, and
will not receive the cash related to such income from the Trust if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain United States Federal Income Tax Consequences --
Interest Income and Original Issue Discount" and "-- Sales of Capital
Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise its right
to defer payments of interest in the future, the market price of the Capital
Securities is likely to be adversely affected. A holder that disposes of its
Capital Securities during an Extension Period, therefore, might not receive the
same return on its investment as a holder that continues to hold its Capital
Securities. In addition, as a result of the existence of the Company's right to
defer interest payments, the market price of the Capital Securities (which
represent preferred beneficial interests in the Trust) may be more volatile than
the market prices of other similar securities as to which the issuer does not
have such right to defer interest payments.
SPECIAL EVENTS; SPECIAL REDEMPTION
Upon the occurrence and continuation of a Regulatory Capital Event, Tax
Event or Investment Company Event (as defined herein) (each, a "Special Event"),
the Company has the right to redeem the Junior Subordinated Debentures and
thereby cause a mandatory redemption of the Capital Securities before, as well
as on or after, June 6, 2007 at the Special Redemption Price. The exercise of
such redemption right is subject to the Company having received prior approval
from the Federal Reserve to do so if then required under applicable capital
guidelines or policies. Any such Special Redemption may be in whole or in part,
except that no partial Special Redemption may be effected which leaves
outstanding less than $15,000,000 in aggregate principal amount of the Junior
Subordinated Debentures. See "Description of the New Capital Securities --
Special Redemption."
The term "Regulatory Capital Event" means the Company's delivery of an
opinion of counsel experienced in such matters to the effect that, as a result
of the occurrence of any amendment to, or change (including any announced
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Capital Securities, there is more than an
insubstantial risk that the Company will not be entitled to treat all or any
material portion of the investment represented by the Capital Securities as
"Tier 1 Capital" (or the then equivalent thereof)
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<PAGE>
for purposes of the capital adequacy guidelines of the federal bank regulatory
agency(ies) then having jurisdiction over the Company.
The term "Tax Event" means the receipt by the Trust of an opinion of
counsel with a recognized tax practice, or an opinion of a nationally recognized
accounting firm, to the effect that, as a result of any amendment to, or change
(including any announced proposed change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision, agency or
authority thereof, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, 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 Junior Subordinated Debentures or
subject to more than a DE MINIMIS amount of other taxes, duties, assessments or
other governmental charges, or (ii) interest payable by the Company on the
Junior Subordinated Debentures is not, or within 90 days of such opinion will
not be, deductible by the Company for United States federal income tax purposes.
The term "Investment Company Event" means the receipt by the Trust of
an opinion of counsel 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 (a "Change in 1940 Act Law"), 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, which Change in 1940 Act Law becomes effective
on or after the date of original issuance of the Capital Securities.
See "-- Possible Tax Law Changes Affecting the Capital Securities"
below for a discussion of certain prior legislative proposals that, if
reproposed and adopted, could give rise to a Tax Event, which may permit the
Company to cause a Special Redemption of the Capital Securities prior to June 6,
2007.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
Prior to the issuance of the Old Capital Securities, proposals had been
made by the Clinton Administration and in Congress that would deny an issuer an
interest deduction, for United States federal income tax purposes, on certain
instruments with characteristics similar to the Junior Subordinated Debentures.
There can be no assurance, that future legislation will not adversely affect the
ability of the Company to deduct interest on the Junior Subordinated Debentures
or otherwise affect the tax treatment of the transactions described herein. If
such legislation were enacted it could give rise to a Tax Event which would
permit the Company to cause a redemption of the Capital Securities as described
more fully under "Description of the New Junior Subordinated Debentures --
Redemption." See "Description of the New Capital Securities -- Redemption --
Special Redemption Upon Occurrence of Special Event," and "Certain United States
Federal Income Tax Consequences -- Proposed Tax Law Changes."
RIGHTS UNDER THE GUARANTEE; RIGHTS TO ENFORCE THE JUNIOR SUBORDINATED DEBENTURES
The Guarantee guarantees to the holders of the Capital Securities the
following payments, to the extent not paid by the Trust: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Trust has funds on hand available therefor at such time, (ii)
the redemption price with respect to any Capital Securities called for
redemption, to the extent
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<PAGE>
that the Trust has funds on hand available therefor at such time, and (iii) upon
a voluntary or involuntary termination, winding-up or liquidation of the Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Capital Securities), the lesser of (a) the aggregate of the Liquidation Amount
and all accrued and unpaid Distributions to the date of payment to the extent
that the Trust has funds on hand available therefor at such time and (b) the
amount of assets of the Trust remaining available for distribution to holders of
the Capital Securities. The holders of not less than a majority in interest of
the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available in respect of the Guarantee.
In the event that the Company fails to make a payment required under the
Guarantee, any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust or any other person or
entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Trust would lack funds for the
payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, in the event an Indenture Event of Default shall have occurred and be
continuing and such event is attributable to the failure of the Company to pay
interest on or principal of the Junior Subordinated Debentures on the applicable
payment date, then a holder of Capital Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of any amounts payable in respect of the Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Capital Securities held by such holder (a "Direct Action"). In connection with
such Direct Action, the Company will have a right of subrogation under the
Indenture to the extent of any payment made by the Company to the holders of
Capital Securities in the Direct Action. Except as described herein, holders of
Capital Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures or assert
directly any other rights in respect of the Junior Subordinated Debentures. See
"Description of the New Capital Securities -- Enforcement of Certain Rights of
Holders of New Capital Securities." The Declaration provides that each holder of
Capital Securities by acceptance thereof agrees to the provisions of the
Guarantee and the Declaration.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities or the Declaration,
the exercise of the Guarantee and the exercise of the Trust's rights as holder
of the Junior Subordinated Debentures (including those relating to modification,
waiver and enforcement of the terms of the Junior Subordinated Debentures).
Holders of Capital Securities will not be entitled to vote to appoint, remove or
replace the Property Trustee or the Delaware Trustee (each as defined herein),
and such voting rights are vested exclusively in the holder of the Common
Securities, except upon the occurrence of certain limited events. See
"Description of the New Capital Securities -- Voting Rights; Amendment of the
Declaration."
MARKET PRICES
There can be no assurance as to the market prices for Capital
Securities. Accordingly, the Capital Securities that an investor may purchase
pursuant to the offer made hereby may trade at a discount to the price that such
investor paid. As a result of the existence of the Company's right to
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<PAGE>
defer interest payments, the market price of the Capital Securities (which
represent beneficial ownership interests in the Trust) may be more volatile than
the market prices of other debt securities that are not subject to such optional
deferrals. See "-- Option to Defer Interest Payments; Tax Consequences; Market
Price Consequences," above.
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption therefrom or in a transaction not subject thereto, and
in each case in compliance with certain other conditions and restrictions. Old
Capital Securities which remain outstanding after consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Company and the Trust do not intend to register under
the Securities Act any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable).
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a single
series of Capital Securities under the Trust Agreement and, accordingly, will
vote together as a single class for purposes of determining whether holders of
the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Declaration of Trust. See
"Description of the New Capital Securities."
The Company has agreed that, if the Exchange Offer is not consummated
within 30 days of the date of this Prospectus, cash penalty amounts may be
payable by the Company to the holders of the Old Capital Securities. See
"Description of the Old Securities" and "The Exchange Offer."
ABSENCE OF A PUBLIC MARKET
The Old Capital Securities were issued to, and the Company believes are
currently owned by, a relatively small number of beneficial owners. The Old
Capital Securities have not been registered under the Securities Act and are
subject to restrictions on transferability to the extent that they are not
exchanged for the New Capital Securities. See "-- Consequences of a Failure to
Exchange Old Capital Securities" above. Although the New Capital Securities will
generally be permitted to be resold or otherwise transferred by the holders (who
are not affiliates of the Company or the Trust) without compliance with the
registration requirements under the Securities Act, they will constitute a new
issue of securities with no established trading market. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Capital Securities or the Old Capital Securities or as to the liquidity
of or the trading market for the New Capital Securities or the Old Capital
Securities. If an active public market does not develop, the market price and
liquidity of the New Capital Securities may be adversely affected.
If a public trading market develops for the New Capital Securities,
future trading prices of such securities will depend on many factors, including,
among other things, prevailing interest rates,
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<PAGE>
results of operations and the market for similar securities. Depending on
prevailing interest rates, the market for similar securities and other factors,
including the financial condition of the Company, the New Capital Securities may
trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Company or the Trust may publicly offer for sale or
resell the New Capital Securities only in compliance with the provisions of Rule
144 under the Securities Act.
Each broker-dealer that receives New Capital Securities for its own
account in exchange for Old Capital Securities, where such Old Capital
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. See
"The Exchange Offer" and "Plan of Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Trust of such Old Capital Securities, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of the Old Capital Securities desiring to tender such Old Capital
Securities in exchange for New Capital Securities should allow sufficient time
to ensure timely delivery. The Trust is under no duty to give notification of
defects or irregularities with respect to the tenders of Old Capital Securities
for exchange. See "The Exchange Offer."
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<PAGE>
USE OF PROCEEDS
OLD CAPITAL SECURITIES. The net proceeds from the issuance of the Old
Capital Securities were utilized to fund a portion of the Eldorado Acquisition
and related transaction expenses, and, to enable the Company and its bank
subsidiaries to satisfy applicable regulatory capital requirements upon
completion of the Eldorado Acquisition.
NEW CAPITAL SECURITIES. Neither the Company nor the Trust will receive
any cash proceeds from the issuance of the New Capital Securities offered
hereby. The New Capital Securities will be exchanged for Old Capital Securities
in like Liquidation Amounts which will be retired and cancelled.
RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's consolidated ratios of earnings to fixed charges and
consolidated ratios of earnings to combined fixed charges and preferred stock
dividends for each of the periods indicated are set forth below.
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Ratios of earnings to fixed charges:
Including interest on deposits................................... 1.32
Excluding interest on deposits................................... 3.67
Ratios of earnings to combined fixed charges and preferred stock dividend
requirements:
Including interest on deposits................................... 1.27
Excluding interest on deposits................................... 2.83
</TABLE>
For purposes of computing the ratios of both earnings to fixed charges
and earnings to combined fixed charges and preferred stock dividend
requirements, earnings represent net income plus applicable income taxes and
fixed charges. Fixed charges, excluding interest on deposits, represent interest
expense (except interest on deposits), capitalized interest and the interest
factor included in rents. Fixed charges, including interest on deposits,
represent all interest expense, capitalized interest, and the interest factor
included in rents. Combined fixed charges and preferred stock dividend
requirements, excluding interest on deposits, represent interest expense (except
interest paid on deposits), capitalized interest, the interest factor included
in rents and an amount equal to the pre-tax earnings required to meet applicable
preferred stock dividend requirements. Combined fixed charges and preferred
stock dividend requirements, including interest on deposits, represent all
interest expense, capitalized interest, the interest factor included in rents,
and an amount equal to the pre-tax earnings required to meet applicable
preferred stock dividend requirements.
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<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Trust will be
included in the consolidated financial statements of the Company. The New
Capital Securities will be presented as a liability in the consolidated balance
sheet of the Company as a separate line item under the caption "Subordinated
Debentures" and appropriate disclosures about the New Capital Securities, the
New Guarantee and the New Junior Subordinated Debentures will be included in the
notes to the consolidated financial statements. For financial reporting
purposes, the Company will record Distributions payable on the New Capital
Securities as an interest expense in its consolidated statements of income.
REGULATORY TREATMENT
The Company is required by the Federal Reserve to maintain certain
levels of capital for bank regulatory purposes. The Company expects that the New
Capital Securities will be treated as Tier 1 capital of the Company for such
purposes. See "Supervision and Regulation" in the Company's Annual Report on
Form 10-K, incorporated herein by reference. See "Available Information" and
"Incorporation of Certain Documents by Reference."
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<PAGE>
CAPITALIZATION
Set forth below is a table showing the Company's capitalization and
regulatory capital ratios as of December 31, 1997.
<TABLE>
<CAPTION>
As of
December 31, 1997
-----------------
(Dollars in thousands)
<S> <C>
Mandatory Convertible Debentures(1)........................................... $ 537
Guaranteed preferred beneficial interests in
the Company's Junior Subordinated Debentures............................... 27,657
Shareholders' equity:
Preferred Stock, Series B; 116,600 shares authorized,
116,593 shares issued and outstanding................................. 11,659
Preferred Stock, Series E; 40,000 shares authorized,
none issued and outstanding........................................... --
Preferred Stock, undesignated series; 1,343,400 shares
authorized, none issued and outstanding............................... --
Voting Special Common Stock, par value $.01; 4,825,800 shares
authorized, 4,402,868 shares issued and outstanding................... 44
Non-Voting Special Common Stock, par value $.01; 4,825,800 shares
authorized, 422,850 shares issued and outstanding..................... 4
Class B Common Stock, par value $.01; 35,000,000 shares
authorized, 13,521,679 shares issued and outstanding.................. 135
Class C Common Stock, par value $.01; 15,000,000 shares
authorized, none issued and outstanding............................... --
Additional paid-in capital................................................. 83,855
Retained earnings (deficit)................................................ 524
Unearned compensation...................................................... (1,509)
Unrealized gain on securities available for sale........................... 24
----------
Total shareholders' equity............................................ 94,736
----------
Total capitalization.......................................................... $122,930
----------
----------
Capital ratios:
Tier 1 Leverage Ratio...................................................... 6.59%
Tier 1 Risk-Weighted Ratio................................................. 8.85%
Total Risk-Weighted Ratio.................................................. 10.18%
</TABLE>
- -----------------------
(1) The Company's Mandatory Convertible Debentures were redeemed on March 27,
1998.
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<PAGE>
THE TRUST
The Trust is a statutory business trust formed under the Delaware
Business Trust Act, as amended, pursuant to the Declaration and the filing of a
certificate of trust with the Secretary of State of the State of Delaware. The
Company holds Common Securities in an aggregate Liquidation Amount of at least
3% of the Trust's total capital. The Trust used all the proceeds derived from
the issuance of the Trust Securities to purchase the Old Junior Subordinated
Debentures, and accordingly the assets of the Trust consist solely of the Old
Junior Subordinated Debentures. Upon completion of the Exchange Offer, the Trust
will consist solely of the New Junior Subordinated Debentures. The Trust exists
for the exclusive purpose of (i) issuing the Trust Securities and effecting the
Exchange Offer for the New Capital Securities, (ii) investing the gross proceeds
of the Trust Securities in the Old Junior Subordinated Debentures, (iii)
exchanging the Old Junior Subordinated Debentures for the New Junior
Subordinated Debentures, and (iv) engaging in only those other activities
necessary or incidental thereto.
Pursuant to the Declaration and as of the date of purchase of Capital
Securities by the initial purchaser thereof, there are five trustees (the
"Trustees") for the Trust. Three of the Trustees (the "Regular Trustees") are
individuals who are employees or officers of, or who are affiliated with, the
Company. The fourth Trustee must be an entity that maintains its principal place
of business in the State of Delaware and otherwise meets the requirements of
applicable law (the "Delaware Trustee"). Wilmington Trust Company has served as
Delaware Trustee since the initial date of purchase of the Old Capital
Securities and will so serve until removed or replaced by the holder of the
Common Securities. From and after the initial date of purchase of the Old
Capital Securities, the fifth Trustee under the Declaration will be a financial
institution that is unaffiliated with the Company (the "Property Trustee").
Wilmington Trust Company currently serves as the Property Trustee and will so
serve until removed or replaced by the holder of the Common Securities.
Wilmington Trust Company has served as trustee under the Guarantee will also act
as trustee under the New Guarantee (the "Guarantee Trustee").
Pursuant to the Declaration, the Property Trustee will hold title to
the New Junior Subordinated Debentures for the benefit of the holders of the
Trust Securities, and will have the power to exercise all rights, powers and
privileges with respect to the New Junior Subordinated Debentures under the
Indenture (as defined below) as the holder of the New Junior Subordinated
Debentures. In addition, unless the Property Trustee has appointed the Company
or a third party to act as Paying Agent with respect to the Distributions due on
the Trust Securities (which appointment of the Company must be terminated upon
the demand of the holders of a majority in Liquidation Amount of the Trust
Securities), the Property Trustee will also maintain exclusive control of a
segregated bank account (the "Property Account") to hold all payments made in
respect of the Junior Subordinated Debentures for the benefit of the holders of
the Trust Securities.
The Company, as the holder of all the Common Securities, has the right
to appoint, remove or replace any of the Trustees and to increase or decrease
the number of Trustees, provided that the number of Trustees shall be at least
three; and provided further that at least one Trustee shall be a Delaware
Trustee, at least one Trustee shall be a Property Trustee and at least one
Trustee shall be a Regular Trustee.
The Company has agreed in the Indenture to pay, as borrower, all fees
and expenses related to the organization and operations of the Trust (including
any taxes, duties, assessments or
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<PAGE>
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States or any other domestic taxing authority upon the Trust), and
is responsible for all debts and obligations of the Trust (other than with
respect to the New Capital Securities).
The rights of the holders of the New Capital Securities, including
economic rights, rights to information and voting rights, are set forth in the
Declaration and the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), the terms of which are incorporated therein by reference. See
"Description of the New Capital Securities." The Declaration and the New
Guarantee also incorporate by reference the terms of the Trust Indenture Act.
The location of the principal executive office of the Trust is c/o
Commerce Security Bancorp, Inc., 24012 Calle de la Plata, Suite 150, Laguna
Hills, CA 92653; and its telephone number at that address is (714) 699-4344.
THE COMPANY
CSBI is a Delaware corporation and registered bank holding company
under the BHC Act. Through its bank subsidiary, Eldorado Bank, the Company
offers commercial banking products and services to small- and medium-sized
businesses and retail customers from 17 full service branches located primarily
in the Orange County, San Diego County and Sacramento areas of California. The
Company's products include commercial, consumer and real estate loans, a full
range of deposit products and other non-deposit banking services, as well as
small equipment leases and single-family residential mortgages. As of December
31, 1997, the Company, on a consolidated basis, had total assets of $902.4
million, total deposits of $765.2 million and total shareholders' equity of
$94.7 million.
A key element of the Company's strategic plan focuses on building
profitability through acquisitions of community banks primarily, but not
exclusively, in and around its Southern California base, including banks which
are or recently were in troubled condition, and seeking to increase the earnings
of the banks it has acquired through a combination of expense reduction
programs, merger synergies, improvements in asset quality and strengthening of
capital position. Since September 1995, the Company has completed three
acquisitions increasing the Company's assets by over $840 million, Eldorado
Acquisition completed on June 6, 1997. Effective June 30, 1997, the Company
consolidated via mergers into the Bank the respective operations of its other
subsidiaries. The Old Capital Securities were originally issued to finance a
portion of the purchase price for the Eldorado Acquisition.
The Company's principal place of business is 24012 Calle de la Plata,
Suite 150, Laguna Hills, CA 92653; and its telephone number at that address is
(714) 699-4344.
RECENT DEVELOPMENTS
For the quarter ended March 31, 1998, the Company reported net income
of $1.7 million, diluted earnings per common share of $0.07 and basic earnings
per common share (before the dilutive effect of stock options) of $0.08 compared
with net income of $434,000, diluted earnings per common share of $0.04 and
basic earnings per common share of $0.04 for the same period of 1996.
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<PAGE>
The Company had total assets at March 31, 1998 of $1.0 billion
compared to $902 million at December 31, 1997, and total loans and deposits
of $702 million and $824 million, respectively, at March 31, 1998 compared
with $615 million and $765 million, respectively, at December 31, 1997. As of
March 31, 1998, Company's Tier 1 leverage capital ratio and total
risk-weighted capital ratio were 7.0% and 10.0%, respectively.
For more information about the Company, reference is made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
incorporated herein by reference. See "Available Information" and "Incorporation
of Certain Documents by Reference."
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT
In connection with the sale of the Old Capital Securities, the Company
and the Trust entered into the Registration Rights Agreement with the initial
purchasers of the Old Capital Securities, pursuant to which the Company and the
Trust agreed, among other things, to file and to use their reasonable efforts to
cause to become effective with the Commission a registration statement with
respect to the exchange of the Old Capital Securities for capital securities
with terms identical in all material respects to the terms of the Old Capital
Securities. A copy of the Registration Rights Agreement has been filed as an
Exhibit to the Registration Statement of which this Prospectus is a part. The
Exchange Offer is being made to satisfy the contractual obligations of the
Company and the Trust under the Registration Rights Agreement. The form and
terms of the New Capital Securities are the same as the form and terms of the
Old Capital Securities except that the New Capital Securities have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Old Capital Securities and will not
provide for any increase in the Distribution rate thereon. In that regard, the
Old Capital Securities provide, among other things, that, if the Exchange Offer
is not consummated by July 29, 1998, then the Company will pay additional
interest (the "Additional Interest") on the Junior Subordinated Debentures
and corresponding additional Distributions ("Additional Distributions") will
become payable on the Trust Securities, with respect to the first 90-day
period immediately following the occurrence of such Registration Default at a
rate of 0.50% per annum. The amount of the Additional Interest (and
corresponding Additional Distributions) will further increase at a rate of
0.25% per annum with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum rate of Additional
Interest (and corresponding Additional Distributions) of 1.0% per annum.
Following the cure of all Registration Defaults, the accrual of Additional
Interest (and corresponding Additional Distributions) will cease. Any amounts
of Additional Interest (and corresponding Additional Distributions) will be
payable in cash on the same original Interest Payment Dates as regular
payments of interest on the Junior Subordinated Debentures. The amount of
Additional Interest (and corresponding Additional Distributions) will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Junior Subordinated Debentures multiplied by a
fraction, the numerator of which is the number of days such Additional
Interest rate was applicable during such period (determined on the basis of a
360-day year comprised of twelve 30-day months), and the denominator of which
is 360. See "Risk Factors -- Consequences of a Failure to Exchange Old
Capital Securities" and "Description of the Old Securities."
The Exchange Offer is not being made to, nor will the Company or the
Trust accept tenders for exchange from, holders of Old Capital Securities in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not be
in compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect
to the Exchange Offer means any person in whose name the Old Capital Securities
are registered on the books of the Trust or any other person who has obtained a
properly completed bond power from the registered holder.
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
all of the Old Junior Subordinated Debentures, of which $28,513,000 aggregate
principal amount is outstanding, for like aggregate
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<PAGE>
principal of the New Junior Subordinated Debentures. The New Guarantee and New
Junior Subordinated Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE
The Company and the Trust hereby offer, upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $27,657,000 aggregate Liquidation Amount of New
Capital Securities for a like aggregate Liquidation Amount of Old Capital
Securities properly tendered on or prior to the Expiration Date (as defined
below) and not properly withdrawn in accordance with the procedures described
below. The Trust will issue, promptly after the Expiration Date, an aggregate
Liquidation Amount of up to $27,657,000 of New Capital Securities in exchange
for a like principal amount of outstanding Old Capital Securities tendered and
accepted in connection with the Exchange Offer. Holders may tender their Old
Capital Securities in any integral multiple of $1,000. The Exchange Offer is not
conditioned upon any minimum Liquidation Amount of Old Capital Securities being
tendered. As of the date of this Prospectus, $27,657,000 aggregate Liquidation
Amount of the Old Capital Securities is outstanding.
Holders of Old Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Old Capital Securities
which are not tendered for or are tendered but not accepted in connection with
the Exchange Offer will remain outstanding and be entitled to the benefits of
the Declaration of Trust, but will not be entitled to any further registration
rights under the Registration Rights Agreement, except under limited
circumstances. See "Risk Factors -- Consequences of a Failure to Exchange Old
Capital Securities" and "Description of the Old Securities." If any tendered Old
Capital Securities are not accepted for exchange because of an invalid tender,
the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Capital Securities will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Old Capital Securities in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Old Capital Securities in connection with the
Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange Offer.
See "-- Fees and Expenses" below.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE TRUSTEES OF THE
TRUST MAKE ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL SECURITIES AS TO WHETHER
TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD CAPITAL
SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL SECURITIES
MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER
AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., Los Angeles time, on
__________, 1998 unless the Exchange Offer is extended by the Company and the
Trust (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended). The Company and the Trust
expressly reserve the right in their sole and absolute discretion, subject to
applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Capital Securities for exchange, (ii) to terminate the
Exchange Offer (whether or not any Old Capital Securities have theretofore
been accepted for exchange) if the Company and the Trust determine, in their
sole and absolute discretion, that any of the events or conditions referred
to under "-- Conditions to the Exchange Offer" have occurred or exist or have
not been satisfied, (iii) to extend the Expiration Date of the Exchange Offer
and retain all Old Capital Securities tendered pursuant to the Exchange
Offer, subject, however, to the right of holders of Old Capital Securities to
withdraw their tendered Old Capital Securities as described under "--
Withdrawal Rights" below, and (iv) to waive any condition or otherwise amend
the terms of the Exchange Offer in any respect. If the Exchange Offer is
amended in a manner determined by the Company and the Trust to constitute a
material change, or if the Company and the Trust waive a material condition
of the Exchange Offer, the Company or the Trust will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Capital Securities, and the Company and the
Trust will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will
be followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., Los Angeles time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company or the Trust may choose to make any public
announcement and subject to applicable law, neither the Company nor the Trust
shall have any obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to an appropriate news
agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company and the Trust will exchange, and will issue to the Exchange Agent, New
Capital Securities for Old Capital Securities validly tendered and not withdrawn
(pursuant to the withdrawal rights described under "-- Withdrawal Rights")
promptly after the Expiration Date. In all cases, delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) Old Capital Securities, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and (iii) any other documents required by the
Letter of Transmittal.
Subject to the terms and conditions of the Exchange Offer, the Company
and the Trust will be deemed to have accepted for exchange, and thereby
exchanged, Old Capital Securities validly tendered and not withdrawn as, if and
when the Company or the Trust gives oral or written notice to the Exchange Agent
of the Company's and the Trust's acceptance of such Old Capital Securities for
exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent
for the Company and the Trust for the purpose of receiving tenders of Old
Capital Securities, Letters of Transmittal
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and related documents, and as agent for tendering holders for the purpose of
receiving Old Capital Securities, Letters of Transmittal and related documents
and transmitting New Capital Securities to validly tendering holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Old Capital
Securities tendered pursuant to the Exchange Offer is delayed (whether before or
after the Company's and the Trust's acceptance for exchange of Old Capital
Securities) or the Company or the Trust extends the Exchange Offer or is unable
to accept for exchange or exchange Old Capital Securities tendered pursuant to
the Exchange Offer, then, without prejudice to the Company or the Trust's rights
described herein, the Exchange Agent may, nevertheless, on behalf of the Company
and the Trust and subject to Rule 14e-1(c) under the Exchange Act, retain
tendered Old Capital Securities and such Old Capital Securities may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "-- Withdrawal Rights" below.
Pursuant to the Letter of Transmittal, a holder of Old Capital
Securities will warrant and agree in the Letter of Transmittal that it has full
power and authority to tender, exchange, sell, assign and transfer Old Capital
Securities, that the Trust will acquire good, marketable and unencumbered title
to the tendered Old Capital Securities, free and clear of all liens,
restrictions, charges and encumbrances, and the Old Capital Securities tendered
for exchange are not subject to any adverse claims or proxies. The holder also
will warrant and agree that it will, upon request, execute and deliver any
additional documents deemed by the Company, the Trust or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment, and
transfer of the Old Capital Securities tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at one of its addresses set forth under "--
Exchange Agent," and either (i) tendered Old Capital Securities must be received
by the Exchange Agent, or (ii) the guaranteed delivery procedures set forth
below must be complied with.
If less than all of the Old Capital Securities are tendered, a
tendering holder should fill in the amount of Old Capital Securities being
tendered in the appropriate box on the Letter of Transmittal. The entire amount
of Old Capital Securities delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need
not be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or
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(b) such registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (a) or (b) above, such certificates for Old Capital Securities
must be duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association (an "Eligible Institution"), unless surrendered
on behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Capital
Securities pursuant to the Exchange Offer and the certificates for such Old
Capital Securities are not immediately available or time will not permit all
required documents to reach the Exchange Agent on or before the Expiration Date,
such Old Capital Securities may nevertheless be tendered, provided that all of
the following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of
Transmittal, is received by the Exchange Agent, as provided below, on
or prior to Expiration Date; and
(iii) the certificates representing all tendered Old Capital
Securities, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within five New York Stock Exchange trading days after
the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, and a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
together with any required signature guarantees and any other documents required
by the Letter of Transmittal. Accordingly, the delivery of New Capital
Securities might not be made to all tendering holders at the same time, and will
depend upon when Old Capital Securities and other required documents are
received by the Exchange Agent.
The acceptance by the Company and the Trust for exchange of Old Capital
Securities tendered pursuant to any of the procedures described above will
constitute a binding agreement between the tendering holder, the Company and the
Trust upon the terms and subject to the conditions of the Exchange Offer.
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DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company and the Trust reserve the absolute right, in their sole and absolute
discretion, to reject any and all tenders determined by them not to be in proper
form or the acceptance of which, or exchange for, may, in the view of counsel to
the Company and the Trust, be unlawful. The Company and the Trust also reserve
the absolute right, subject to applicable law, to waive any of the conditions of
the Exchange Offer as set forth under "-- Conditions to the Exchange Offer" or
any condition or irregularity in any tender of Old Capital Securities of any
particular holder whether or not similar conditions or irregularities are waived
in the case of other holders.
The Company's and the Trust's interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the Company, the
Trust, any affiliates or assigns of the Company, the Trust, the Exchange Agent
nor any other person shall be under any duty to give any notification of any
irregularities in tenders or incur any liability for failure to give any such
notification.
If any Letter of Transmittal, endorsement, bond power, power of
attorney, or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company or
the Trust, proper evidence satisfactory to the Company or the Trust, in its sole
discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Company and the Trust are making the Exchange Offer for the Old
Capital Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, neither the
Company nor the Trust sought its own interpretive letter and there can be no
assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company and the Trust believe
that New Capital Securities issued pursuant to this Exchange Offer in exchange
for Old Capital Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Capital Securities
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such New Capital Securities. However, any holder of Old Capital
Securities who is an "affiliate" of the Company or the Trust or who intends to
participate in the Exchange Offer for the purpose of distributing New Capital
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Securities, or any broker-dealer who purchased Old Capital Securities from the
Trust to resell pursuant to Rule 144A or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Old Capital Securities in the Exchange Offer and (c) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. Such a
secondary resale must be made by delivery of a prospectus containing the selling
securityholder information required by Item 507 of Regulation S-K of the Act. In
addition, as described below, if any broker-dealer holds Old Capital Securities
acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Capital Securities for New Capital Securities,
then such broker-dealer must deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales of such New Capital
Securities.
Each holder of Old Capital Securities who wishes to exchange Old
Capital Securities for New Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company or the
Trust, (ii) any New Capital Securities to be received by it are being acquired
in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Capital Securities, and (iv) if such
holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such New Capital Securities. In addition, the Company and the Trust may
require such holder, as a condition to such holder's eligibility to participate
in the Exchange Offer, to furnish to the Company and the Trust (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Capital Securities to be exchanged in the Exchange Offer. Each
broker-dealer that receives New Capital Securities for its own account pursuant
to the Exchange Offer must acknowledge that it acquired the Old Capital
Securities for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, the Company and
the Trust believe that broker-dealers who acquired Old Capital Securities for
their own accounts as a result of market-making activities or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Capital Securities for a period ending 180
days after the
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Registration Statement of which this Prospectus constitutes a part is declared
effective. See "Plan of Distribution." Any Participating Broker-Dealer who is an
"affiliate" of the Company or the Trust may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old
Capital Securities pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal, that, upon receipt of notice from the
Company or the Trust of the occurrence of any event or the discovery of any fact
which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Company or the Trust has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company or the Trust has given notice that the sale of the New Capital
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities
may be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex
or facsimile transmission of such notice of withdrawal must be timely received
by the Exchange Agent at one of its addresses set forth under "-- Exchange
Agent" on or prior to the Expiration Date. Any such notice of withdrawal must
specify the name of the person who tendered the Old Capital Securities to be
withdrawn, the aggregate principal amount of Old Capital Securities to be
withdrawn, and (if certificates for such Old Capital Securities have been
tendered) the name of the registered holder of the Old Capital Securities as set
forth on the Old Capital Securities, if different from that of the person who
tendered such Old Capital Securities. If Old Capital Securities have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Old Capital Securities, the tendering holder must
submit the serial numbers shown on the particular Old Capital Securities to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Old Capital Securities tendered for
the account of an Eligible Institution. Withdrawals of tenders of Old Capital
Securities may not be rescinded. Old Capital Securities properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "-- Procedures for
Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. Neither the Company, the Trust, any affiliates or assigns of the
Company, the Trust, the Exchange Agent nor any other person shall be under any
duty to give any notification of any irregularities in any notice of withdrawal
or incur any liability for
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failure to give any such notification. Any Old Capital Securities which have
been tendered but which are withdrawn will be returned to the holder thereof
promptly after withdrawal.
DISTRIBUTIONS ON THE NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are
accepted for exchange will not receive accumulated Distributions on such Old
Capital Securities for any period from and after the last Distribution Date with
respect to such Old Capital Securities prior to the original issue date of the
New Capital Securities or, if no such Distributions have been made, will not
receive any accumulated Distributions on such Old Capital Securities, and will
be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after such Distribution Date or, if no
such Distributions have been made, from and after __________, 1998. However,
because Distributions on the New Capital Securities will accumulate from
__________, 1998, the amount of the Distributions received by holders whose
Old Capital Securities are accepted for exchange will not be affected by the
exchange.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Trust will not be required to accept for
exchange, or to exchange, any Old Capital Securities for any New Capital
Securities, and, as described below, may terminate the Exchange Offer (whether
or not any Old Capital Securities have theretofore been accepted for exchange)
or may waive any conditions to or amend the Exchange Offer, if any of the
following conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation
by the staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof (other
than broker-dealers and any such holder which is an "affiliate" of the Company
or the Trust within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such New Capital Securities are acquired in the
ordinary course of such holders' business and such holders have no arrangement
or understanding with any person to participate in the distribution of such New
Capital Securities;
(b) any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency or body with
respect to the Exchange Offer which, in the Company's and the Trust's judgment,
would reasonably be expected to impair the ability of the Company or the Trust
to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been
adopted or enacted which, in the Company's and the Trust's judgment, would
reasonably be expected to impair the ability of the Company or the Trust to
proceed with the Exchange Offer;
(d) a stop order shall have been issued by the Commission or
any state securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of the
Company or the Trust, threatened for that purpose; or
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(e) any change, or any development involving a prospective
change, in the business or financial affairs of the Company or the Trust or any
of their subsidiaries have occurred which, in the sole judgment of the Company
and the Trust, would reasonably be expected to cause the Company to amend this
Prospectus or otherwise materially impair the ability of the Company or the
Trust to proceed with the Exchange Offer.
If the Company and the Trust determine in their sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, the Company and the Trust may, subject to applicable
law, terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offer in any respect. If such waiver
or amendment constitutes a material change to the Exchange Offer, the Company
and the Trust will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders of the Old Capital
Securities, and the Company and the Trust will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
Wilmington Trust Company
Stock Transfer/Corporate Trust
Rodney Square North
1100 North Market Street
Wilmington, DE 19899
Telephone:(302) 651-1562
Facsimile: (302) 651-1576
Delivery to other than the above address or facsimile number will not constitute
a valid delivery.
FEES AND EXPENSES
The Company is obligated to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Company is also obligated to
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus and related documents to the beneficial owners of Old Capital
Securities, and in handling or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not
be obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering
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holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
Neither the Company nor the Trust will make any payment to brokers,
dealers or others soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF NEW CAPITAL SECURITIES
The Regular Trustees, on behalf of the Trust, have issued the Old
Capital Securities and the Old Common Securities, and will issue the New Capital
Securities, pursuant to the terms of the Declaration. The New Capital Securities
will represent undivided beneficial ownership interests in the assets of the
Trust and the holders thereof are entitled to a preference in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation over the New Common Securities, as well as other benefits as
described in the Declaration. This summary of certain provisions of the New
Capital Securities and the Declaration does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Declaration, a copy of which is available to any beneficial owner or a
prospective purchaser of New Capital Securities upon request to the Company, and
to the Trust Indenture Act. Wherever particular defined terms of the Declaration
(as supplemented or amended from time to time) are referred to herein, the
definitions of such defined terms are incorporated herein by reference. The term
"Capital Securities" used in this section refers to the New Capital Securities,
which have substantially identical terms to the Old Capital Securities. See
"Description of Old Securities". The term "Guarantee" refers to the New
Guarantee, which has identical terms to the Old Guarantee. See "Description of
the New Guarantee."
GENERAL
The Capital Securities will rank PARI PASSU, and payments will be made
thereon pro rata, with the Common Securities except as described under "--
Subordination of Common Securities" below. Legal title to the New Junior
Subordinated Debentures will be held by the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The Guarantee will be executed
by the Company for the benefit of the holders of the Capital Securities, and is
a guarantee on a subordinated basis with respect to the Capital Securities but
does not guarantee payment of Distributions or amounts payable on redemption or
liquidation of the Capital Securities when the Trust does not have sufficient
funds available to make such payments. See "Description of the New Guarantee."
The Company's obligations under the Guarantee, taken together with its
obligations under the New Junior Subordinated Debentures and the Indenture,
including its obligation to pay all costs, expenses and liabilities of the Trust
(other than with respect to the Trust Securities), will constitute a full and
unconditional guarantee of all of the Trust's obligations under the Capital
Securities.
Holders of the Capital Securities have no preemptive or similar rights.
DISTRIBUTIONS
Distributions on each Capital Security are payable at an annual rate
of 11 3/4% of the Liquidation Amount of the Capital Securities, payable
quarterly in arrears on the 30th day of March, June, September and December
of each year, commencing on _________, 1998. The amount of Distributions
payable for any period is computed on the basis of a 360-day year of twelve
30-day months.
In the event that any date on which Distributions are payable on the
Capital Securities is not a Business Day, then payment of the Distributions
payable on such date will be made on the next succeeding day that is a Business
Day unless such succeeding Business Day falls in the subsequent calendar year,
in which event payment shall be made on the next preceding day that is a
Business Day (and without any additional interest or other adjustment to the
amount of the Distributions in respect
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of any such delayed or accelerated payment), with the same force and effect as
if made on the date such payment was originally payable (each date on which
Distributions are payable in accordance with the foregoing, a "Distribution
Date"). A "Business Day" shall mean any day other than a Saturday or a Sunday,
or a day on which banking institutions in the City of Huntington Beach,
California or Wilmington, Delaware are authorized or required by law or
executive order to remain closed.
Distributions on the Capital Securities (other than distributions on a
Redemption Date (as defined below)) are payable to the holders thereof as they
appear on the register of the Trust on the relevant record dates, which shall be
the fifteenth day of the month of the relevant Distribution Date or such other
date as the Property Trustee may fix in its discretion with notice to the
holders of the Capital Securities. Distributions payable on any Capital
Securities that are not punctually paid on any Distribution Date will cease to
be payable to the person in whose name such Capital Securities are registered on
the relevant record date, and such defaulted Distribution will instead be
payable to the person in whose name such Capital Securities are registered on
the special record date or other specified date determined in accordance with
the Declaration.
Distributions on the Capital Securities must be paid on the dates
payable to the extent that the Trust has funds available for the payment of such
Distributions. The revenue of the Trust available for distribution to holders of
its Capital Securities is limited to payments under the New Junior Subordinated
Debentures in which the Trust has invested the proceeds from the issuance and
sale of the Trust Securities. See "Description of the New Junior Subordinated
Debentures." If the Company does not make interest payments on the New Junior
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Capital Securities.
DEFERRAL OF DISTRIBUTIONS
The Company has the right under the Indenture to defer payment of
interest on the New Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarterly periods (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the New Junior Subordinated Debentures. Accordingly, there
could be multiple Extension Periods of varying lengths throughout the term of
the Junior Subordinated Debentures. As a consequence of any such extension,
quarterly Distributions on the Capital Securities will be deferred by the Trust
during any such Extension Period. Such deferred Distributions will accumulate
and compound quarterly to the extent permitted by applicable law at the rate of
11 3/4% per annum from the relevant payment date for such Distributions. The
term "Distributions" as used herein includes any such compounded amounts unless
the context otherwise requires. The terms of the New Junior Subordinated
Debentures will prohibit the Company from taking certain actions during an
Extension Period, such as making distributions in cash to holders of securities
ranking junior to the Capital Securities. See "Description of the New Junior
Subordinated Debentures."
Prior to the termination of any such Extension Period, the Company may
further extend the Extension Period, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any Extension
Period, the Company will be obligated to pay the full amount of interest on the
New Junior Subordinated Debentures that has been accrued and not paid. Provided
that the Company has paid such accrued and unpaid interest to the Trust, upon
the termination of any Extension Period the Trust will pay to the holders of
Trust Securities the amount of all Distributions that were accrued and
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not paid during such Extension Period. Upon the termination of any such
Extension Period and the payment of all accrued and unpaid interest and all
amounts then due on any current Interest Payment Date, the Company may elect to
begin a new Extension Period subject to the foregoing requirements. See
"Description of the New Junior Subordinated Debentures -- Option to Extend
Interest Payment Period." The Company has no current intention of exercising its
right to defer payments of interest by extending the interest payment period of
the New Junior Subordinated Debentures, although there can be no assurance that
it will not exercise such right.
REDEMPTION
REDEMPTION AT OPTION OF COMPANY OR UPON STATED MATURITY. Unless a
Special Event has occurred, the Capital Securities will not be redeemable prior
to June 6, 2007. On and after June 6, 2007, the Capital Securities will be
redeemed (an "Optional Redemption") if and to the extent that the Company
redeems the New Junior Subordinated Debentures (in whole or in part) or upon the
repayment of the New Junior Subordinated Debentures at Stated Maturity. The
price at which the Capital Securities would be so redeemed will include an
allocable portion of an Optional Redemption Premium payable under the terms of
the New Junior Subordinated Debentures if the redemption is effected before June
6, 2017. See "Description of the New Junior Subordinated Debentures." Upon the
repayment or redemption, in whole or in part, of the New Junior Subordinated
Debentures, whether at Stated Maturity or upon earlier redemption as provided by
the terms of the New Junior Subordinated Debentures, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem
Capital Securities and Common Securities upon not less than 30 nor more than 60
days' notice prior to the date fixed for repayment or redemption (the
"Redemption Date"). If less than the full principal amount of the New Junior
Subordinated Debentures is to be repaid or redeemed on a Redemption Date, then
the proceeds from such repayment or redemption shall be allocated pro rata among
all Trust Securities then outstanding.
SPECIAL REDEMPTION UPON OCCURRENCE OF SPECIAL EVENT. If a Regulatory
Capital Event, Tax Event or Investment Company Event (each, a "Special Event")
shall occur and be continuing, the Company has the right, subject to the receipt
of any necessary prior approval from the Federal Reserve, to either (i) redeem
the New Junior Subordinated Debentures (a "Special Redemption") at the Special
Redemption Price (as defined below; see "Description of the New Junior
Subordinated Debentures -- Redemption") and thereby cause a mandatory redemption
of the Capital Securities before, as well as on or after, June 6, 2007, or (ii)
to dissolve the Trust and, after satisfaction of the claims of creditors of the
Trust as provided by applicable law, cause the New Junior Subordinated
Debentures to be distributed to the holders of the Capital Securities in
liquidation of the Trust. Any such Special Redemption may be in whole or in
part, except that no partial Special Redemption may be effected which leaves
outstanding less than $15.0 million in aggregate principal amount of the New
Junior Subordinated Debentures. Under current United States federal income tax
law and interpretations thereof and assuming, as expected, the Trust is treated
as a grantor trust, a distribution of the Junior Subordinated Debentures to the
holders of Trust Securities should not be a taxable event to holders of the
Capital Securities. Should there be a change in law, a change in legal
interpretation, certain Tax Events or other circumstances, however, the
distribution could be a taxable event to holders of the Capital Securities. See
"Certain United States Federal Income Tax Consequences -- Distribution of the
New Junior Subordinated Debentures or Cash upon Liquidation of the Trust."
If, upon the occurrence of a Special Event, the Company does not redeem
the Junior Subordinated Debentures in full or distribute the New Junior
Subordinated Debentures to the holders
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of the Trust Securities, the Capital Securities will remain outstanding until
the repayment of the New Junior Subordinated Debentures, whether at their Stated
Maturity or earlier redemption. The Indenture provides, however, that if as a
consequence of a Tax Event the Trust has become subject to any additional taxes,
duties, assessments and other governmental charges (other than withholding
taxes) ("Additional Taxes"), the Company will be obligated to pay such
Additional Taxes to which the Trust has become subject.
The term "Regulatory Capital Event" means the Company's delivery of an
opinion of counsel experienced in such matters to the effect that, as a result
of the occurrence of any amendment to, or change (including any announced
proposed change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement, action or decision is announced on or after
the date of issuance of the Capital Securities, there is more than an
insubstantial risk that the Company will not be entitled to treat all or any
material portion of the investment represented by the Capital Securities as
"Tier 1 Capital" (or the then equivalent thereof) for purposes of the capital
adequacy guidelines of the federal bank regulatory agency(ies) then having
jurisdiction over the Company.
The term "Tax Event" means the receipt by the Trust of an opinion of
counsel with a recognized tax practice, or an opinion of a nationally recognized
accounting firm, to the effect that, as a result of any amendment to, or change
(including any announced proposed change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision, agency or
authority thereof, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, 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 New Junior Subordinated Debentures,
(ii) interest payable by the Company on the New Junior Subordinated Debentures
is not, or within 90 days of the date of such opinion, will not be, deductible
by the Company, in whole or in part, for United States federal income tax
purposes, or (iii) the Trust is, or will be within 90 days of the date of such
opinion, subject to more than a DE MINIMIS amount of other taxes, duties or
other governmental charges.
The term "Investment Company Event" means the receipt by the Trust of
an opinion of counsel experienced in such matters to the effect that, as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
the Trust is or will be considered an "investment company" that is required to
be registered under the Investment Company Act (the "Investment Company Act"),
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Capital Securities.
REDEMPTION PROCEDURES. Capital Securities redeemed on each Redemption
Date (whether pursuant to an Optional Redemption or a Special Redemption) will
be redeemed at the redemption price in respect of the New Junior Subordinated
Debentures (the "Redemption Price") with the applicable proceeds from the
contemporaneous redemption or payment at Stated Maturity of the New Junior
Subordinated Debentures. Redemptions of the Capital Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has sufficient funds available for the payment of such Redemption
Price. See also "- Subordination of Common Securities."
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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 Capital Securities to
be redeemed at its registered address. On the Redemption Date fixed in any such
notice of redemption, if (or to the extent) the Capital Securities continue to
be held in certificated form, the Trust, to the extent funds are available, will
irrevocably deposit with the paying agent for such Capital Securities funds
sufficient to pay the applicable Redemption Price and will give the paying agent
irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing the Capital
Securities. If (or to the extent) the Capital Securities are then held in
book-entry form, on the Redemption Date, to the extent funds are available, the
Property Trustee will deposit irrevocably with The Depository Trust Company
("DTC") or its nominee funds sufficient to pay the applicable Redemption Price
for all securities held in DTC and will give DTC irrevocable instructions and
authority to pay the Redemption Price to the holders of the Capital Securities.
See "-- Conversion to Book-Entry Issuance." Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Capital
Security called for redemption shall be payable to the holders of such Capital
Security on the relevant record dates for the related Distribution Dates. If
notice of redemption shall have been given and funds deposited as required, then
upon the date of such deposit, all rights of the holders of such Capital
Securities so called for redemption will cease, except the right of the holders
of such Capital Securities to receive the Redemption Price, but without interest
on such Redemption Price, and such Capital Securities will cease to be
outstanding. In the event that payment of the Redemption Price in respect of
Capital 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 Capital Securities will continue to accrue at the then
applicable rate, from the Redemption Date originally established by the Trust
for the Capital Securities to the date such Redemption Price is actually paid,
in which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
The Trust may not redeem fewer than all of the outstanding Capital
Securities in an Optional Redemption or a Special Redemption unless all accrued
and unpaid Distributions have been paid on all Capital Securities for all
quarterly distribution periods terminating on or prior to the date of
redemption. If less than all of the Capital Securities and Common Securities
issued by the Trust are to be redeemed on a Redemption Date, then the aggregate
amount of such Trust Securities to be redeemed shall be allocated pro rata among
all Trust Securities then outstanding. Unless the Capital Securities are then
held in book-entry form, the particular Capital Securities to be redeemed shall
be selected on a pro rata basis not more than 60 days prior to the Redemption
Date by the Property Trustee from the outstanding Capital Securities not
previously called for redemption, by such method as the Property Trustee shall
deem fair and appropriate and which may provide for the selection for redemption
of portions (equal to $1,000 or an integral multiple of $1,000 in excess
thereof) of the Liquidation Amount of Capital Securities of a denomination
larger than $1,000. The Property Trustee shall promptly notify the Trust
registrar in writing of the Capital Securities selected for redemption and, in
the case of any Capital Security selected for partial redemption, the
Liquidation Amount thereof to be redeemed. If the Capital Securities are then
held in book-entry form, beneficial interests in the global Capital Security
will be redeemed pro rata and in accordance with standard DTC procedures. For
all purposes of the Declaration, unless the context otherwise requires, all
provisions relating to the redemption of Capital Securities shall relate, in the
case of any Capital Security redeemed or to be redeemed only in part, to the
portion of the aggregate Liquidation Amount of Capital Securities which has been
or is to be redeemed.
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ACQUISITION OF CAPITAL SECURITIES BY THE COMPANY. Subject to applicable
law (including, without limitation, United States federal securities law), the
Company or its subsidiaries may at any time and from time to time purchase
outstanding Capital Securities by tender, in the open market or by private
agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Trust
Securities shall be made pro rata based on the Liquidation Amount of such Trust
Securities; PROVIDED, HOWEVER, that if on any Distribution Date or Redemption
Date an Indenture Event of Default shall have occurred and be 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, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all of the outstanding Capital Securities then
called for redemption, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Capital Securities
then due and payable.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Declaration, the Trust shall automatically dissolve
upon expiration of its term and shall dissolve on the first to occur of: (i) the
repayment of all of the Capital Securities in connection with the maturity or
redemption of all of the New Junior Subordinated Debentures; (ii) the
distribution of the New Junior Subordinated Debentures to the holders of the
Capital Securities and Common Securities following the election by the Company,
as sponsor, to dissolve the Trust; (iii) certain events of bankruptcy,
dissolution or liquidation of the Company; and (iv) the entry by a court of
competent jurisdiction of an order for the dissolution of the Trust.
If an early dissolution occurs as described in clause (ii), (iii), or
(iv) above, the Trust shall 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 the Capital Securities and Common Securities their pro rata interest
in the Junior Subordinated Debentures, unless such distribution is determined by
the Property Trustee not to be practicable, 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 Capital
Securities, the aggregate of the Liquidation Amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Capital Securities shall be paid on a pro rata basis. The holder(s) of the
Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Capital Securities, except that if
an Indenture Event of Default has occurred and is continuing, the Capital
Securities shall have a priority over the Common Securities.
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After the liquidation date is fixed for any distribution of the New
Junior Subordinated Debentures to holders of the Capital Securities (i) the
Capital Securities will no longer be deemed to be outstanding, (ii) if (or to
the extent) the Capital Securities are then held in book-entry form, DTC or its
nominee, as a record holder of Capital Securities, will receive a registered
global certificate or certificates representing the New Junior Subordinated
Debentures to be delivered upon such distribution, and (iii) if (or to the
extent) the Capital Securities continue to be held in certificated form,
certificates representing such Capital Securities will be deemed to represent
the Junior Subordinated Debentures having a principal amount equal to the
liquidation amount of such Capital Securities, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on such
Capital Securities until such certificates are presented for cancellation
whereupon the Company will issue to such holder, and the Indenture Trustee (as
defined herein) will authenticate, a certificate representing such New Junior
Subordinated Debentures.
TRUST ENFORCEMENT EVENTS
An Indenture Event of Default constitutes a Trust Enforcement Event
under the Declaration with respect to the Trust Securities, provided that
pursuant to the Declaration, the holder of the Common Securities will be deemed
to have waived any Trust Enforcement Event with respect to the Common Securities
until all Trust Enforcement Events with respect to the Capital Securities have
been cured, waived or otherwise eliminated. Until such Trust Enforcement Event
with respect to the Capital Securities has been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Capital Securities and only the holders of the Capital
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
Upon the occurrence of a Trust Enforcement Event, the Indenture Trustee
or the Property Trustee as the holder of the New Junior Subordinated Debentures
will have the right under the Indenture to declare the principal of and interest
on the New Junior Subordinated Debentures to be immediately due and payable.
Each of the Company and the Trust is required to file annually with the Property
Trustee an officer's certificate as to its compliance with all conditions and
covenants under the Declaration.
If the Property Trustee fails to enforce its rights with respect to the
New Junior Subordinated Debentures held by the Trust, any record holder of
Capital Securities may, to the extent permissible under applicable law,
institute legal proceedings directly against the Company to enforce the Property
Trustee's rights under such New Junior Subordinated Debentures without first
instituting any legal proceedings against such Property Trustee or any other
person or entity. In addition, if a Trust Enforcement Event has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest, principal or other required payments on New Junior Subordinated
Debentures issued to the Trust on the date such interest, principal or other
payment is otherwise payable, then a record holder of Capital Securities may, on
or after the respective due dates specified in the New Junior Subordinated
Debentures, institute a proceeding directly against the Company under the
Indenture for enforcement of such payment on New Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Capital Securities held by such holder. In connection with such Direct Action,
the Company will be subrogated to the rights of such record holder of Capital
Securities to the extent of any payment made by the Company to such record
holder of Capital Securities.
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VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as described below and under "Description of the New Guarantee"
and as otherwise required by law and the Declaration, the holders of the Capital
Securities will have no voting rights.
So long as the Junior Subordinated Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee or
executing any trust or power conferred on the Property Trustee with respect to
such New Junior Subordinated Debentures, (ii) waive any past default that is
waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all New Junior Subordinated Debentures is due
and payable, or (iv) consent to any amendment, modification or termination of
the Indenture or the New Junior Subordinated Debentures where such consent shall
be required, without, in each case, obtaining the prior approval of the holders
of a majority in aggregate liquidation amount of all outstanding Capital
Securities; PROVIDED, HOWEVER, that where a consent under the Indenture would
require the consent of each holder of the New Junior Subordinated Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior consent of each holder of Capital Securities. The Trustees shall not
revoke any action previously authorized or approved by a vote of the holders of
the Capital Securities except pursuant to a subsequent vote of the holders of
the Capital Securities. The Property Trustee shall notify each holder of record
of the Capital Securities of any notice of default which it receives with
respect to the New Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Capital Securities, prior to taking
any of the foregoing actions, the Trustees shall receive an opinion of counsel
experienced in such matters to the effect that the Trust will not be classified
as other than a grantor trust for United States federal income tax purposes on
account of such action.
The Declaration may be amended from time to time by the Company and a
majority of the Regular Trustees (and in certain circumstances the Property
Trustee and the Delaware Trustee), without the consent of the holders of the
Capital Securities, (i) to cure any ambiguity, correct or supplement any
provisions in the Declaration that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or questions arising
under the Declaration that shall not be inconsistent with the other provisions
of the Declaration or (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified as a grantor trust for United States federal income tax purposes
at all times that any Capital Securities and Common 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 such action
shall not adversely affect in any material respect the interests of any holder
of Capital Securities or Common Securities, and any amendments of the
Declaration shall become effective when notice thereof is given to the holders
of Capital Securities and Common Securities. The Declaration may be amended by
the Company and a majority of the Regular Trustees with (i) the consent of
holders representing not less than a majority in Liquidation Amount of the
outstanding Capital Securities and Common Securities and (ii) receipt by the
Regular Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Regular 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, provided, further that
without the consent of each holder of Capital Securities and Common Securities
affected thereby, the Declaration may not be amended to (i) change the amount or
timing of any Distribution on the Capital Securities and
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Common Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Capital Securities and Common Securities
as of a specified date or (ii) restrict the right of a holder of Capital
Securities or Common Securities to institute suit for the enforcement of any
such payment on or after such date.
Any required approval of holders of Capital Securities may be given at
a meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of Capital Securities in the manner set forth in the
Declaration.
No vote or consent of the holders of Capital Securities will be
required for the Trust to redeem and cancel its Capital Securities in accordance
with the Declaration.
Notwithstanding that holders of Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Trustees or any affiliate of the
Company or any Trustees, shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
EXPENSES AND TAXES
The Company, as borrower, has agreed in the Indenture to pay all debts
and other obligations (other than with respect to the Capital Securities) and
all costs and expenses of the Trust (including costs and expenses relating to
the organization of the Trust, the fees and expenses of the Trustees and the
costs and expenses relating to the operation of the Trust) and to pay any and
all taxes and all costs and expenses with respect thereto (other than
withholding taxes) to which the Trust might become subject so that the net
amounts received and retained by the Trust and the Property Trustee after paying
such expenses will be equal to the amounts the Trust and the Property Trustee
would have received had such costs or expenses been incurred by or imposed on
the Trust. The foregoing obligations of the Company are for the benefit of, and
shall be enforceable by, any person or entity to which any such debts,
obligations, costs, expenses and taxes are owed (each, a "Creditor") whether or
not such Creditor has received notice thereof. Any such Creditor may enforce
such obligations of the Company directly against the Company, and the Company
has irrevocably waived any right or remedy to require that any such Creditor
take any action against the Trust or any other person before proceeding against
the Company. The Company shall execute such additional agreements as may be
necessary or desirable to give full effect to the foregoing.
REGISTRAR AND TRANSFER AGENT
The Property Trustees, on behalf of the Trust, act as registrar and
transfer agent for the Capital Securities. Registration of transfers of Capital
Securities will be effected without charge by or on behalf of the 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 (i) to
register or cause to be registered any transfer or exchange of the Capital
Securities during a period beginning at the opening of business 15 days before
the day of the mailing of the relevant notice of redemption and ending at the
close of business on the day of mailing of such notice of redemption or (ii) to
register or cause to be registered the transfer or exchange of any Capital
Securities so selected for redemption,
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except in the case of any Capital Securities being redeemed in part, any portion
thereof not to be redeemed.
CONVERSION TO BOOK-ENTRY ISSUANCE
The Capital Securities initially will be issued in certificated form.
Upon the request of a majority in Liquidation Amount of the Capital Securities,
the Trust will cause one or more Capital Securities in registered, global form
(collectively, the "Global Capital Security") to be deposited with DTC or a
custodian therefor, and registered in the name of DTC or its nominee, for credit
to an account of a direct or indirect participating organization in DTC (each, a
"Participant"). Contemporaneously with such deposit, each holder of Capital
Securities will be permitted (but will not be obligated to) exchange its Capital
Securities theretofore held in certificated form for book-entry interests in
such Global Capital Security, directly if such holder is a Participant or
indirectly though a direct Participant. Owners of interests in a Global Capital
Security will not have Capital Securities registered in their name and will not
be considered the registered owners or holders thereof for any purpose.
The Property Trustee will treat the persons in whose names the Capital
Securities, including the Global Capital Securities, are registered as the
owners thereof for the purpose of receiving payments in respect thereof, and for
any and all other purposes. Payments in respect of any Global Capital Security
registered in the name of DTC or its nominee will therefore be payable by the
Property Trustee to DTC in its capacity as the registered holder. Consequently,
neither the Property Trustee nor any agent thereof will have any responsibility
or liability for (i) any aspect of DTC's or any Participant's records relating
to, or payments made on account of, beneficial ownership interests in the Global
Capital Securities, or for maintaining, supervising or reviewing any of DTC's or
any such Participant's records relating to the beneficial ownership interests in
the Global Capital Securities or (ii) any other matter relating to the actions
and practices of DTC or any of its Participants. DTC has advised the Trust and
the Company that its current practice, upon receipt of any payment in respect of
securities such as the Capital Securities, is to credit the accounts of the
relevant Participants with the payment on the payment date. Payments by
Participants to the beneficial owners of Capital Securities will be governed by
standing instructions and customary practices and will be the responsibility of
the Participants and will not be the responsibility of DTC, the Property Trustee
or the Trust. Transfers between Participants in DTC will be effected in
accordance with DTC's procedures. Neither the Trust nor the Property Trustee
will be liable for any delay by DTC or any of its Participants in identifying
the beneficial owners of the Capital Securities, and the Trust and the Property
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance
of a Trust Enforcement Event of Default, undertakes to perform only such duties
as are specifically set forth in the Declaration and, after such Trust
Enforcement Event of Default, must exercise the same degree of care and skill as
a prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Capital Securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby. If no Trust
Enforcement Event of Default has occurred and is continuing and the Property
Trustee is
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required to decide between alternative causes of action or construe ambiguous
provisions in the Declaration or is unsure of the application of any provision
of the Declaration, and the matter is not one on which holders of Capital
Securities are entitled under the Declaration to vote, then the Property Trustee
may, but shall be under no duty to, take such action as is directed by the
Company and, if not so directed, shall take such action as it deems advisable
and in the best interests of the holders of the Capital Securities and the
Common Securities, and will have no liability except for its own bad faith,
negligence or willful misconduct.
PAYMENT AND PAYING AGENCY
The Property Trustee may authorize one or more persons (each, a "Paying
Agent") to act as Paying Agent for purposes of all payments in respect of
Capital Securities held in certificated form. The Paying Agent may be the
Company unless (a) an Indenture Event of Default has occurred or (b) two-thirds
in Liquidation Amount of the Trust Securities have directed the Property Trustee
not to permit the Company to act as Paying Agent. The Paying Agent shall
initially be the Company. Payments in respect of any Global Capital Securities
shall be made to DTC, which shall credit the relevant accounts at DTC.
MERGERS, CONSOLIDATIONS, AMALGAMATION OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate or amalgamate with,
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 Regular Trustees and without the consent of the holders of the Capital
Securities, the Delaware Trustee or the Property Trustee, merge with or into,
consolidate or amalgamate with, 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 (any of the foregoing being referred to herein as a
"Merger"); PROVIDED that (i) such successor entity (if not the Trust) either (a)
expressly assumes all of the obligations of the Trust with respect to the Trust
Securities or (b) substitutes for the Capital Securities other securities having
substantially the same terms as the Capital Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Capital
Securities rank in priority with respect to Distributions and payments upon
liquidation, redemption and otherwise, (ii) if the Trust is not the successor
entity, the Company expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the holder of
the Junior Subordinated Debentures, (iii) the Capital Securities or any
Successor Securities will continue to be listed, or any Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or with any other organization on which the Capital Securities were
listed or quoted immediately prior to such Merger, and (iv) if the Capital
Securities have been rated by one or more nationally recognized statistical
rating organizations, such Merger does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any such organization,
(v) such Merger does not adversely affect the rights, preferences and privileges
of the holders of the Capital Securities (including any Successor Securities) in
any material respect, (vi) such successor entity has a purpose identical to that
of the Trust, (vii) prior to such Merger, the Company has received an opinion
from independent counsel to the Trust experienced in such matters to the effect
that (a) such Merger does not adversely affect the rights, preferences and
privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (b) following such Merger, (1) neither
the Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act and (2) the Trust or the
successor entity will continue to be
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classified as a grantor trust for United States federal income tax purposes,
(viii) the Company or any permitted successor or assignee owns all of the Common
Securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee, and (ix) such successor entity (if not the Trust) expressly
assumes all of the obligations of the Trust with respect to the Trustees.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in aggregate Liquidation Amount of the Trust Securities, engage
in any Merger if such Merger would cause the Trust or the successor entity to be
classified as other than a grantor trust for United States federal income tax
purposes or would cause any holder of Trust Securities not to be treated as
owning an undivided interest in the New Junior Subordinated Debentures.
MERGER OR CONSOLIDATION OF TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee
or any Regular Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of such Trustee, shall be the successor of such Trustee under the
Declaration, provided such corporation shall be otherwise qualified and
eligible.
MISCELLANEOUS
The Regular 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 other than a grantor trust for United States
federal income tax purposes and so that the New Junior Subordinated Debentures
will be treated as indebtedness of the Company for United States federal income
tax purposes. In this connection, the Regular Trustees are authorized to take
any action, not inconsistent with applicable law, the Certificate of Trust or
the Declaration, that the Regular Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the holders of the Capital
Securities. The Trust may not borrow money, issue debt, mortgage nor pledge any
of its assets.
DESCRIPTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The New Junior Subordinated Debentures are to be issued under a Junior
Subordinated Indenture (the "Indenture") between the Company and Wilmington
Trust Company, as trustee (the "Indenture Trustee"). This summary of certain
terms and provisions of the New Junior 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. Where used in this section, the term
"Junior Subordinated Debentures" refers to the New Junior Subordinated
Debentures and the term "Capital Securities" refers to the New Capital
Securities, unless in either case the context otherwise required.
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GENERAL
Concurrently with the issuance of the Old Capital Securities, the Trust
invested the proceeds thereof and the consideration paid by the Company for the
Common Securities in the Old Junior Subordinated Debentures issued by the
Company. The New Junior Subordinated Debentures will be in the principal amount
equal to the aggregate liquidation amount of the New Capital Securities plus the
Company's current investment in the Common Securities. The Junior Subordinated
Debentures will bear interest at an annual rate of 11 3/4%, payable quarterly in
arrears on the 30th day of March, June, September and December of each year
(each, an "Interest Payment Date"), commencing __________, 1998, to the
person in whose name the Junior Subordinated Debentures are registered,
subject to certain exceptions, as of the close of business on the fifteenth
day of the month of the relevant Interest Payment Date. It is anticipated
that, until the liquidation, if any, of the Trust, the Junior Subordinated
Debentures will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Capital Securities and the Common Securities.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on
which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made
on the next succeeding day that is a Business Day unless such succeeding
Business Day falls in the subsequent calendar year, in which event payment
shall be made on the next preceding day that is a Business Day (and without
any additional interest or other adjustment in respect of any such delay or
acceleration), with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate of 11 3/4% per annum,
compounded quarterly. The term "interest" as used herein shall include
quarterly interest payments and interest on quarterly interest payments not
paid on the applicable Interest Payment Date, as applicable.
The Junior Subordinated Debentures will mature on June 6, 2027 (the
"Stated Maturity").
The Junior Subordinated Debentures are unsecured and rank junior and
subordinate in right of payment to all Senior Indebtedness (as defined below) of
the Company. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, whether under the Indenture or any
existing or other indenture that the Company may enter into in the future or
otherwise. See "- Subordination." The general provisions of the Indenture do not
afford holders of the Junior Subordinated Debentures protection in the event of
a highly leveraged or other transaction involving the Company that may adversely
affect holders of the Junior Subordinated Debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Indenture Event of Default has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest at any time or from time to time for a period not exceeding 20
consecutive quarterly periods with respect to each Extension Period, provided
that no Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. At the end of such Extension Period, the Company must
pay all interest then accrued and unpaid (together with interest thereon at the
rate of 11 3/4% per annum, compounded quarterly, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of the Junior Subordinated Debentures (or holders of Capital
Securities while the Capital Securities are outstanding) will be required to
accrue interest income (as original issue discount) for United States federal
income tax purposes prior to the receipt of the cash related to such interest
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income. See "Certain United States Federal Income Tax Consequences - Interest
Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not
permit any of its subsidiaries to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank PARI PASSU with or junior in interest
to the Junior Subordinated Debentures or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any subsidiary
of the Company if such guarantee ranks PARI PASSU with or junior in interest to
the Junior Subordinated Debentures (other than (a) dividends, distributions or
other payments in common stock of the Company, (b) payments under the Guarantee,
(c) any declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (d)
purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans, or (e) Permitted Redemptions of the
Company's common stock). As defined in the Indenture, a Permitted Redemption
means a redemption of Class B Common Stock of the Company from any person that
(x) owns less than 1% of the then-outstanding shares of the Company's Class B
Common Stock and (y) is not then, and has not been within the 12 months
preceding such date, an officer or director of the Company; PROVIDED that a
redemption or repurchase of Class B Common Stock will not constitute a Permitted
Redemption if the cumulative amount of all Permitted Redemptions (through and
including the proposed redemption) exceeds $2.5 million.
Whether or not an Extension Period is then in effect, the Company is
not required to obtain the consent of either the holder of the Junior
Subordinated Debentures or the holders of the Capital Securities prior to any
merger or reorganization to which the Company is a party or prior to any sale of
assets by the Company; PROVIDED, HOWEVER, that the Indenture requires that the
resulting entity of any such merger or reorganization or any acquiror of the
assets of the Company substantially as an entirety must expressly assume the
Company's obligations under the Junior Subordinated Debentures and the
Indenture. See "-- Consolidation, Merger, Sale of Assets and Other Transactions
by the Company."
Prior to the termination of any such Extension Period, the Company may
further extend the Extension Period, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all interest then accrued and unpaid together with all
amounts then due on any current Interest Payment Date, the Company may elect to
begin a new Extension Period subject to the above requirements. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company will give notice of its election to initiate an Extension Period at
least one Business Day prior to the record date applicable to the then-current
Interest Payment Period. The Property Trustee will give notice of the Company's
election to begin an Extension Period to the holders of the Trust Securities.
REDEMPTION
OPTIONAL REDEMPTION. The Junior Subordinated Debentures will not be
redeemable prior to June 6, 2007 unless a Special Event has occurred. The Junior
Subordinated Debentures will be redeemable prior to maturity at the option of
the Company, subject to the receipt of any necessary
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prior approval of the Federal Reserve, on or after June 6, 2007 in whole or in
part, at the redemption prices set forth below (expressed as percentages of
principal amount) plus accrued and unpaid interest, if any, to the date of
redemption, if redeemed during the twelve-month period beginning on June 6 of
the years indicated on the following page:
<TABLE>
<S> <C>
2007................................................... 105.875%
2008................................................... 105.288%
2009................................................... 104.700%
2010................................................... 104.113%
2011................................................... 103.525%
2012................................................... 102.938%
2013................................................... 102.350%
2014................................................... 101.763%
2015................................................... 101.175%
2016................................................... 100.588%
</TABLE>
On or after June 6, 2017, the redemption price will be 100%, plus
accrued and unpaid interest, if any, to the date of redemption.
SPECIAL REDEMPTION. The Junior Subordinated Debentures will also be
redeemable at any time, subject to any necessary prior approval of the Federal
Reserve, in whole or in part (provided, however, that no such partial redemption
shall be effected that leaves outstanding less than $15,000,000 in aggregate
principal amount of the Junior Subordinated Debentures), following the
occurrence of a Special Event, at a redemption price (the "Special Redemption
Price") equal to the greater of (i) 100% of the principal amount of such Junior
Subordinated Debentures or (ii) as determined by a Quotation Agent (as defined
below), the sum of the present values of the principal amount and premium
payable with respect to an Optional Redemption effected on June 6, 2007,
together with scheduled payments of interest accruing from the date of the
Special Redemption to such date (the "Remaining Life"), discounted to the date
of the Special Redemption on a quarterly basis (assuming a 360-day year
consisting of 30-day months) at a rate equal to the Special Redemption Discount
Rate, plus, in each case, accrued interest thereon to the date of prepayment.
The "Special Redemption Discount Rate" means, with respect to any
Special Redemption, a rate determined by the Quotation Agent equal to the
Treasury Rate as of the third Business Day prior to the applicable Redemption
Date, plus (i) if the Redemption Date is on or before June 6, 1998, 4.75% (475
basis points), or (ii) if the Redemption Date is after June 6, 1998, 4.00% (400
basis points).
"Treasury Rate" means the yield to maturity under the heading which
represents the average for the immediately prior week, appearing in the most
recently published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or if such release (or any
successor release) is not published during the week preceding the calculation
date or does not contain such yields, the rate per annum equal to
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the quarterly equivalent yield to maturity of the United States Treasury
security of the maturity nearest the Remaining Life (or, if no maturity is
within three months before or after the Remaining Life, yields for the two
maturities most closely corresponding to the Remaining Life, interpolated or
extrapolated as stated above), as determined by the Quotation Agent. "Quotation
Agent" means a primary dealer in U.S. Government securities reasonably
designated by the Company.
If the Junior Subordinated Debentures are redeemed, the Trust must
redeem Capital Securities and Common Securities, on a pro rata basis, having an
aggregate Liquidation Amount equal to the aggregate principal amount of the
Junior Subordinated Debentures so redeemed. See "Description of the Capital
Securities - Redemption." Unless the Company defaults in payment of the
Redemption Price, on and after the Redemption Date interest ceases to accrue on
such Junior Subordinated Debentures or portions thereof called for redemption.
CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted in the Indenture that, if and so long as the
Trust is the holder of all the Junior Subordinated Debentures, the Company, as
borrower, will pay to the Trust all fees and expenses related to the Trust and
the offering of the Capital Securities and will pay, directly or indirectly, all
ongoing costs, expenses and liabilities of the Trust (including any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any domestic taxing authority
upon the Trust but excluding obligations under the Capital Securities).
The Company has also covenanted in the Indenture that neither the
Company nor any of its subsidiaries will take any of the actions that are
prohibited to the Company and its subsidiaries under the Indenture during an
Extension Period (see "-- Option to Extend Interest Payment Period") if at such
time (i) there shall have occurred any event of which the Company has actual
knowledge that (x) with the giving of notice or the lapse of time, or both,
would constitute an Indenture Event of Default with respect to the Junior
Subordinated Debentures and (y) in respect of which the Company shall not have
taken reasonable steps to cure, or (z) the Company shall be in default with
respect to its payment of any obligations under the Guarantee. Further, the
Company has covenanted in the Indenture that (a) it will, subject to certain
exceptions, provide certain financial information, including yearly audited
financial statements and copies of the Company's quarterly filings with the SEC
or quarterly "management letters," to holders of Capital Securities owning
Capital Securities having an aggregate Liquidation Amount that, when added to
the Liquidation Value of any shares of the Company's Series B Preferred Stock
then held by such holder, equals or exceeds $1,000,000, and (b) if the Company
is not then subject to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Company will make available to any holder of Capital
Securities (and to any prospective purchaser of such Capital Securities) the
information required pursuant to Rule 144A(d)(4) under the Securities Act of
1933, as amended, in connection with any sale of such Capital Securities.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder are and will be subordinated to and
junior in right of payment to all Senior Indebtedness of the Company to the
extent provided in the Indenture. Upon any payment or distribution of assets of
the Company upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, debt
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restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Indebtedness will
first be entitled to receive payment in full of principal of and premium, if
any, and interest, if any, on such Senior Indebtedness before the holders of the
Junior Subordinated Debentures (including the Property Trustee on behalf of the
holders of Trust Securities) will be entitled to receive or retain any payment
in respect of the principal of and premium, if any, or interest, if any, on the
Junior Subordinated Debentures; PROVIDED, HOWEVER, that holders of Senior
Indebtedness will not be entitled to receive payment of any such amounts to the
extent that such holders would be required by the subordination provisions of
such Senior Indebtedness to pay such amounts over to the obligees on trade
accounts payable or other liabilities arising in the ordinary course of the
Company's business. No cash payments on account of principal of or interest, if
any, on the Junior Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to the Senior
Indebtedness, or an event of default with respect to any Senior Indebtedness
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
In the event of the acceleration of the maturity of the Junior
Subordinated Debentures, the holders of all Senior Indebtedness outstanding at
the time of such acceleration will first be entitled to receive payment in full
of all amounts then due thereon (including any amounts due upon acceleration)
before the holder of such Junior Subordinated Debentures will be entitled to
receive or retain any payment in respect of the principal of and premium, if
any, or interest, if any, on such Junior Subordinated Debentures; PROVIDED,
HOWEVER, that holders of Senior Indebtedness shall not be entitled to receive
payment of any such amounts to the extent that such holders would be required by
the subordination provisions of such Senior Indebtedness to pay such amounts
over to the obligees on trade accounts payable or other liabilities arising in
the ordinary course of the Company's business.
No payments on account of principal of, or premium or interest on, the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to any Senior Indebtedness, or
an event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Senior Indebtedness" means, whether recourse is to all or a portion of
the assets of the Company and whether or not contingent: (i) every obligation of
the Company for money borrowed; (ii) every obligation of the Company evidenced
by bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) all indebtedness of the Company
for claims (as defined in Section 101(4) of the United States Bankruptcy Code of
1978, as amended) in respect of derivative products such as interest and foreign
exchange rate contracts, commodity contracts and similar arrangements; and (vii)
every obligation of the type referred to in clauses (i) through (vi) of another
person and all dividends of another person the payment of which, in either case,
the Company has guaranteed or is responsible or liable, directly or indirectly,
as obligor or otherwise; PROVIDED, HOWEVER, that Senior Indebtedness does not
include obligations referred to in clauses (i) through (vii) that, (a) by their
terms, are expressly stated to rank PARI PASSU in right of payment with, or to
be not superior in right of payment to, the Junior Subordinated Debentures, (b)
when incurred and without
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respect to any election under Section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, were without recourse to the Company, (c) consist of
obligations of the Company to any of its subsidiaries, (d) consist of
obligations to any employee of the Company, or (e) consist of obligations in
respect of debt securities issued to any trust, or a trustee of such trust,
partnership or other entity affiliated with the Company that is a financing
entity of the Company in connection with the issuance of such financing entity
of securities that are similar to the Capital Securities.
As a holding company, the ability of the Company to make payments of
interests and principal on the Junior Subordinated Debentures will be dependent
primarily upon the receipt of dividends and other distributions from the Bank,
which currently is the Company's only subsidiary. There are various regulatory
restrictions on the ability of the Bank to pay dividends or make other payments
to the Company. On a pro forma basis at December 31, 1997, the Bank could not
pay dividends to the Company without prior regulatory approval. In addition, the
right of the Company to participate in any distribution of assets of any
subsidiary, including the Bank, upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution), will be subject to the
prior claims of creditors of that subsidiary, except to the extent that any
claims of the Company as a creditor of such subsidiary may be recognized as
such. Accordingly, the Capital Securities will effectively be subordinated to
all existing and future liabilities and obligations of the Bank and of any other
future subsidiary of the Company, and holders of the Capital Securities should
look only to the assets of the Company for payments on the Capital Securities.
On a pro forma basis at December 31, 1997, the Bank had indebtedness and other
liabilities (including deposit liabilities) of approximately $767.3 million.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes an "Indenture Event of Default" with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior
Subordinated Debentures when due (subject to the deferral of any due
date in the case of an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated
Debentures when due whether at maturity, upon redemption by declaration
or otherwise; or
(iii) failure to observe or perform in any material respect any
other covenant contained in the Indenture for 90 days after written
notice to the Company from the Indenture Trustee or the holders of at
least 25% in aggregate outstanding principal amount of outstanding
Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization
of the Company.
The holders of a majority in aggregate outstanding principal amount of
all outstanding Junior Subordinated Debentures have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee. The Indenture Trustee or the holders of not less than 25%
in aggregate outstanding principal amount of the Junior Subordinated Debentures
may declare the principal due and payable immediately upon an Indenture Event of
Default, and,
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should the Indenture Trustee or such holders of such Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate liquidation amount of the Capital Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of all
outstanding Junior Subordinated Debentures may annul such declaration and waive
the default if the default (other than the non-payment of the principal of the
Junior 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
Indenture Trustee, and should the holders of such Junior Subordinated Debentures
fail to annul such declaration and waive such default, the holders of a majority
in aggregate liquidation amount of the Capital Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures affected thereby may, on behalf of the
holders of all the Junior Subordinated Debentures then outstanding, waive any
past default, except a default in the payment of principal or interest (unless
such default has been cured and a sum sufficient to pay all matured installments
of interest and principal due otherwise than by acceleration has been deposited
with the Indenture Trustee) or a default in respect of a covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the holder of each outstanding Junior Subordinated Debenture, and should the
holders of such Junior Subordinated Debentures fail to waive such default, the
holders of a majority in aggregate Liquidation Amount of the Capital Securities
shall have such right. The Company is required to file annually with the
Indenture 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.
In case an Indenture Event of Default shall occur and be continuing,
the Property Trustee will have the right to declare the principal of and the
interest on such Junior Subordinated Debentures and any other amounts payable
under the Indenture to be forthwith due and payable and to enforce its other
rights as a creditor with respect to such Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If an Indenture Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of Capital Securities may institute a
Direct Action for payment. The Company may not amend the Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
the holders of all of the Capital Securities. Notwithstanding any payment made
to such holder of Capital Securities by the Company in connection with a Direct
Action, the Company shall remain obligated to pay the principal of or interest
on the Junior Subordinated Debentures held by the Trust or the Property Trustee
and the Company shall be subrogated to the rights of the holder of such Capital
Securities with respect to payments on the Capital Securities to the extent of
any payments made by the Company to such holder in any Direct Action. The
holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Junior Subordinated Debentures.
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CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS BY THE COMPANY
The Indenture provides that the Company shall not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, unless (i) if the Company
consolidates with or merges into another Person or conveys, transfers or leases
its properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any state
or the District of Columbia, and such successor Person expressly assumes the
Company's obligations on the Junior Subordinated Debentures issued under the
Indenture; (ii) immediately after giving effect thereto, no Indenture Event of
Default, and no event which, after notice or lapse of time or both, would become
an Indenture Event of Default, shall have happened and be continuing; (iii) if
at the time any Capital Securities are outstanding, such transaction is
permitted under the Declaration and Guarantee and does not give rise to any
breach or violation of the Declaration or Guarantee; (iv) any such lease shall
provide that it will remain in effect so long as any Junior Subordinated
Debentures are outstanding; and (v) certain other conditions as prescribed in
the Indenture are met.
MODIFICATION OF INDENTURE
From time to time the Company and the Indenture Trustee may, without
the consent of the holders of the Junior Subordinated Debentures, amend, waive
or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interest of the holders of the
Junior Subordinated Debentures) and qualifying, or maintaining the qualification
of, the Indenture under the Trust Indenture Act. The Indenture contains
provisions permitting the Company and the Indenture Trustee, with the consent of
the holders of not less than a majority in principal amount of outstanding
Junior Subordinated Debentures affected, to modify the Indenture in a manner
affecting the rights of the holders of such Junior Subordinated Debentures;
PROVIDED that no such modification may, without the consent of the holder of
each outstanding Junior Subordinated Debentures so affected, (i) change the
stated maturity of any Junior Subordinated Debentures, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon (except such extension as is contemplated hereby) or (ii) reduce the
percentage of principal amount of the Junior Subordinated Debentures the holders
of which are required to consent to any such modification of the Indenture,
provided that, so long as any Capital Securities remain outstanding, no such
modification may be made that adversely affects the holders of such Capital
Securities in any material respect, and no termination of the Indenture may
occur, and no waiver of any Indenture Event of Default or compliance with any
covenant under the Indenture may be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities unless and until the principal of the Junior
Subordinated Debentures and all accrued and unpaid interest thereon have been
paid in full and certain other conditions are satisfied.
DEFEASANCE AND DISCHARGE
The Indenture provides that the Company, at the Company's option: (a)
will be discharged from any and all obligations in respect of the Junior
Subordinated Debentures (except for certain obligations to register the transfer
or exchange of the Junior Subordinated Debentures, replace stolen, lost or
mutilated Junior Subordinated Debentures, maintain paying agencies and hold
moneys for payment in trust) or (b) need not comply with certain restrictive
covenants of the Indenture (including certain of those described in the second
paragraph under "Certain Covenants of the Company"), in
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each case if the Company deposits, in trust with the Indenture Trustee, money or
U.S. Government Obligations which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money, in an
amount sufficient to pay all the principal of, and interest and premium, if any,
on the Junior Subordinated Debentures on the dates such payments are due in
accordance with the terms of such Junior Subordinated Debentures. To exercise
any such option, the Company is required to deliver to the Indenture Trustee an
opinion of counsel to the effect that the deposit and related defeasance would
not cause the holder(s) of the Junior Subordinated Debentures to recognize
income, gain or loss for United States federal income tax purposes and, in the
case of a discharge pursuant to clause (a), such opinion shall be accompanied by
a private letter ruling to the effect received by the Company from the United
States Internal Revenue Service or revenue ruling pertaining to a comparable
form of transaction to such effect published by the United States Internal
Revenue Service.
DISTRIBUTIONS OF THE JUNIOR SUBORDINATED DEBENTURES
Under certain circumstances involving the termination of the Trust, the
Junior Subordinated Debentures may be distributed to the holders of the Capital
Securities in liquidation of the Trust after satisfaction of liabilities to
creditors of the Trust as provided by applicable law. If distributed to holders
of Capital Securities in liquidation, the Junior Subordinated Debentures will
initially be issued in certificated form if (or to the extent) the Capital
Securities were in certificated form immediately prior to such distribution, and
will be issued in the form of global securities if (or to the extent) the
Capital Securities were in the form of global securities. DTC, or any successor
depositary, will act as depositary for any such global securities. It is
anticipated that the depositary arrangements for such global securities would be
substantially identical to those then in effect for the Capital Securities.
There can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of Capital
Securities. See "Risk Factors."
PAYMENT AND PAYING AGENTS
The Company initially will act as Paying Agent with respect to the
Junior Subordinated Debentures except that, if the Junior Subordinated
Debentures are distributed to the holders of the Capital Securities in
liquidation of such holders' interests in the Trust, the Indenture Trustee may
rescind the Company's appointment as Paying Agent and shall rescind such
appointment if so demanded by a majority in principal amount of the Junior
Subordinated Debentures. Subject to the immediately preceding sentence, the
Company at any time may designate additional Paying Agents or rescind the
designation of any Paying Agent or approve a change in the office through which
any Paying Agent acts, except that the Company will be required to maintain a
Paying Agent at the place of payment.
Any moneys deposited with the Indenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of and
premium, if any, or interest on any Junior Subordinated Debentures and remaining
unclaimed for two years after such principal and premium, if any, or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debentures shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
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INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of the Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture 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 Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures are governed by
and will be construed in accordance with the laws of the State of Delaware.
DESCRIPTION OF NEW GUARANTEE
The Old Guarantee was executed and delivered by the Company
concurrently with the issuance by the Trust of the Old Capital Securities for
the benefit of the holders from time to time of such Old Capital Securities. As
soon as practicable after the Expiration Date, the Old Guarantee will be
exchanged by the Company for the New Guarantee. Wilmington Trust Company will
act as indenture trustee ("Guarantee Trustee") under the New Guarantee. This
summary of certain provisions of the New 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 New Guarantee, including the definitions therein of
certain terms. The Guarantee Trustee will hold the New Guarantee for the benefit
of the holders of the New Capital Securities.
GENERAL
The Company has irrevocably and unconditionally agreed to pay in full
on a subordinated basis, to the extent set forth herein, the Guarantee Payments
(as defined below) to the holders of the New Capital 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 New Capital Securities, to the extent not paid by or on
behalf of the Trust (the "Guarantee Payments"), will be subject to the New
Guarantee: (i) any accrued and unpaid Distributions required to be paid on the
New Capital Securities, to the extent that the Trust has sufficient funds
available therefor at the time, (ii) the redemption price with respect to any
New Capital Securities called for redemption, to the extent that the Trust has
sufficient funds available therefor at such time, or (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Trust (unless the New
Junior Subordinated Debentures are distributed to holders of the New Capital
Securities), the lesser of (a) the aggregate liquidation amount of the New
Capital Securities and all accrued and unpaid Distributions thereon to the date
of payment, to the extent the Trust has funds available therefor, and (b) the
amount of assets of the Trust remaining available for distribution to holders of
New Capital Securities. The Company's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the Company to the
holders of the applicable New Capital Securities or by causing the Trust to pay
such amounts to such holders.
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The New Guarantee is an irrevocable guarantee, on a subordinated basis
as described herein, of the Trust's obligations under the New Capital Securities
but will apply only to the extent that the Trust has sufficient funds available
to make such payments. If the Company does not make interest payments on the New
Junior Subordinated Debentures held by the Trust, the Trust will not be able to
pay Distributions on the New Capital Securities and will not have funds legally
available therefor.
RANKING AND STATUS OF THE NEW GUARANTEE
The New Guarantee constitutes an unsecured obligation of the Company,
ranking subordinate and junior in right of payment to all Senior Indebtedness of
the Company in the same manner as the New Junior Subordinated Debentures. The
New Guarantee does not place a limitation on the amount of additional Senior
Indebtedness or other debt that may be incurred by the Company.
The New Guarantee constitutes a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the New Guarantee without
first instituting a legal proceeding against any other person or entity). The
New Guarantee is held by the Guarantee Trustee for the benefit of the holders of
the Capital Securities. The New 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 New Junior Subordinated Debentures to the holders of
the New Capital Securities in exchange for all of the New Capital Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of holders of the New Capital Securities (in which case no
vote will be required), the New 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 New Capital Securities. In connection with any
amendment of the New Guarantee, the Company is required to deliver to the
Indenture Trustee an opinion of counsel with a recognized tax practice or an
opinion of a national and recognized accounting firm to the effect that such
amendment will not result in a taxable event for United States federal income
tax purposes to holders of New Capital Securities (or the New Junior
Subordinated Debentures, if the New Capital Securities are no longer
outstanding). All guarantees and agreements contained in the New Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the registered holders of the New
Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the New 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 New Capital
Securities have the right to initiate and conduct any proceeding for any remedy
available to the Guarantee Trustee under the New Guarantee or to direct the
exercise of any trust or power conferred on the Guarantee Trustee or any other
person or entity.
In the event the Company fails to make a Guarantee Payment, any
registered holder of New Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights
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under the New Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person.
The Company, as guarantor, is obligated to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with the conditions and covenants applicable to it in the New
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 New Guarantee, undertakes to
perform only such duties as are specifically set forth in the New Guarantee and,
after default with respect to the New Guarantee, must exercise the same degree
of care and skill as a prudent person would exercise or use in the conduct of
his or her own affairs. Subject to this provision, the Guarantee Trustee is
under no obligation to exercise any of the powers vested in it by the New
Guarantee at the request of any holder of any New Capital Security unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
TERMINATION OF THE NEW GUARANTEE
The New Guarantee will terminate and be of no further force and effect
upon full payment of the redemption price of all of the New Capital Securities,
upon full payment of the amounts payable upon liquidation of the Trust or upon
distribution of the New Junior Subordinated Debentures to the holders of the New
Capital Securities in exchange for all of the New Capital Securities. The New
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the New Capital Securities must restore payment
of any sums paid under the New Capital Securities or the New Guarantee.
GOVERNING LAW
The New Guarantee will be governed by and construed in accordance with
the laws of the State of Delaware.
RELATIONSHIP AMONG THE NEW CAPITAL SECURITIES,
THE NEW JUNIOR SUBORDINATED DEBENTURES AND THE NEW GUARANTEE
GENERAL
Payments of Distributions and other amounts due on the New Capital
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 New Guarantee." If and to the extent that
the Company does not make payments under the New Junior Subordinated Debentures,
the Trust will not pay Distributions or other amounts due on the New Capital
Securities. The New Guarantee does not cover payment of Distributions when the
Trust does not have sufficient funds to pay such Distributions. In such event, a
holder of New Capital Securities may institute a legal action directly against
the Company under the Indenture to enforce payment of the Company's obligations
under the New Junior Subordinated Debentures having a principal amount equal to
the aggregate
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Liquidation Amount of such holder's New Capital Securities. Taken together, the
Company's obligations under the New Junior Subordinated Debentures, the
Indenture and the New Guarantee provide, in the aggregate, a full and
unconditional guarantee of payments of distributions and other amounts due on
the New Capital Securities. No single document standing alone, or operating in
conjunction with fewer than all of the other documents, constitutes such
guarantee; it is only the combined operation of these documents that has the
effect of providing a full and unconditional guarantee of the Trust's
obligations under the New Capital Securities. The obligations of the Company
under the New Guarantee and the New Junior Subordinated Debentures are
subordinate and junior in right of payment to all Senior Indebtedness of the
Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the New Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and other payments due on the New Capital Securities,
primarily because (i) the principal amount of the New Junior Subordinated
Debentures is equal to the sum of the aggregate stated Liquidation Amount of the
Capital Securities and the Common Securities; (ii) the interest rate and
interest and other payment dates on the New Junior Subordinated Debentures match
the rate at which Distributions are required to be made and match the
Distribution and other payment dates for the related New Capital Securities;
(iii) the Company will pay for all and any costs, expenses and liabilities of
the Trust except the Trust's obligations under the New Capital Securities; and
(iv) the Declaration 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 a 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 with
the date of such payment making, a related payment under the New Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF NEW CAPITAL SECURITIES
A holder of New Capital Securities may institute a legal proceeding
directly against the Company to enforce such holder's rights under the Guarantee
without first instituting a legal proceeding against the Trust or any other
person or entity.
A default or event of default under any Senior Indebtedness of the
Company will not constitute a default or Indenture Event of Default. In
addition, in the event of payment defaults under, or acceleration of, Senior
Indebtedness of the Company, the subordination provisions of the Indenture
provide that no payments may be made in respect of the New Junior Subordinated
Debentures until such Senior Indebtedness has been paid in full or any payment
default thereunder has been cured or waived. Failure to make required payments
on the New Junior Subordinated Debentures would constitute an Indenture Event of
Default under the Indenture.
LIMITED PURPOSE OF TRUST
The New Capital Securities evidence a beneficial interest in the Trust,
and the Trust exists for the sole purpose of issuing the New Capital Securities
and the Common Securities and investing the proceeds thereof in the New Junior
Subordinated Debentures. A principal difference between the rights of a holder
of New Capital Securities and a holder of the New Junior Subordinated Debentures
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is that a holder of the New Junior Subordinated Debentures is entitled to
receive from the Company the principal amount of and interest accrued on the New
Junior Subordinated Debentures so held, while a holder of New Capital Securities
is entitled to receive Distributions from the Trust (or from the Company under
the New Guarantee) if and to the extent the Trust had 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 New Junior
Subordinated Debentures, the holders of the New Capital Securities will be
entitled to receive, out of assets held by the Trust, a liquidation distribution
in cash. See "Description of the New Capital Securities - Liquidation
Distribution upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Property Trustee, as holder of the New Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Indebtedness, 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 New Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Trust (other than the Trust's obligations to the holders of
the New Capital Securities), the positions of a holder of New Capital Securities
and a holder of the New Junior Subordinated Debentures relative to other
creditors and to shareholders of the Company in the event of liquidation or
bankruptcy of the Company would be substantially the same.
DESCRIPTION OF THE OLD SECURITIES
The terms of the Old Securities are identical in all material respects
to the New Securities, except that (i) the Old Securities have not been
registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange Offer,
except under limited circumstances); (ii) the New Capital Securities will not
provide for any increase in the Distribution rate thereon, as described in the
immediately following sentence; and (iii) the New Junior Subordinated Debentures
will not provide for any increase in the interest rate thereon, as described in
the immediately following sentence. The Old Securities provide that, in the
event that the Exchange Offer is not consummated on or prior to ,
1998, or, in certain limited circumstances, in the event a shelf registration
statement (the "Shelf Registration Statement") with respect to the resale of
the Old Capital Securities is not declared effective in a timely manner, then
the Company will pay Additional Distributions to each holder of Capital
Securities in the manner set forth in "Exchange Offer -- Purpose and Effect"
herein. Accordingly, holders of Old Capital Securities should review the
information set forth under "Risk Factors -- Certain Consequences of a
Failure to Exchange Old Capital Securities" and "Description of the New
Securities."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal
income tax consequences that may be relevant to the purchase, ownership and
disposition of the Capital Securities. Only certain of the matters discussed
herein will be confirmed by an opinion of Nutter, McClennen & Fish, LLP, Boston,
Massachusetts ("Tax Counsel"); such matters are specifically denoted by
reference to Tax Counsel. All other matters discussed in this section are the
responsibility solely of the Company.
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Unless otherwise stated, this summary deals only with Capital
Securities held as capital assets by United States Holders (defined below) who
purchase the Capital Securities in the Offering. As used herein, a "United
States Holder" means (i) a person that is a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust the income of which is
subject to United States federal income tax regardless of its source; provided,
however, that for taxable years beginning after December 31, 1996 (or if a
trustee so elects for taxable years ending after August 20, 1996), a "United
States Holder" shall include any trust if a court within the United States is
able to exercise primary supervision over the administration of such trust and
one or more United States fiduciaries have the authority to control all of the
substantial decisions of such trust. The tax treatment of a holder may vary
depending on his, her or its particular situation. This summary does not address
all of the tax consequences that may be relevant to a particular holder or to
holders who may be subject to special tax treatment, such as banks, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, or tax-exempt holders. In addition, this summary
does not include any description of any alternative minimum tax consequences or
of the tax laws of any state, local or foreign government that may be applicable
to a holder of Capital Securities. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis. The authorities on which this summary is based are subject to various
interpretations and the opinions expressed herein (including those of Tax
Counsel) are not binding on the Internal Revenue Service ("IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought from the IRS with respect to the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the opinions expressed herein or that a court would not sustain such a
challenge. Nevertheless, Tax Counsel has advised the Company that it is of the
view that, if challenged, the opinions of Tax Counsel expressed herein would be
sustained by a court having jurisdiction in a properly presented case.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE CAPITAL
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF THE
CAPITAL SECURITIES - REDEMPTION - SPECIAL REDEMPTION UPON OCCURRENCE OF SPECIAL
EVENT."
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Capital Securities, Tax Counsel
is of the opinion that, under current law and assuming full compliance with the
terms of the Declaration and other documents, and based upon certain facts and
assumptions contained in such opinion, the Trust will be classified as a grantor
trust and not as an association taxable as a corporation for United States
federal income tax purposes. Accordingly, Tax Counsel is of the opinion that,
for United States federal income tax purposes, each holder of Capital Securities
will be treated as owning an undivided beneficial interest in the Junior
Subordinated Debentures and, thus, will be required to include in its
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gross income its pro rata share of interest income or original issue discount
that is paid or accrued on the Junior Subordinated Debentures.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company, the Trust and the holders of the Capital Securities (by
the acceptance of a beneficial interest in a Capital Security) will agree to
treat the Junior Subordinated Debentures as indebtedness for all United States
federal income tax purposes. In connection with the issuance of the Junior
Subordinated Debentures, the Company believes, after consultation with its
advisors that, under current law, the Junior Subordinated Debentures will be
classified as indebtedness for United States federal income tax purposes. The
Company has not requested, and does not intend to request, an opinion from Tax
Counsel or its tax accountants to that effect.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be taxable to a holder as ordinary income at the time
it is paid or accrued in accordance with such holder's regular method of tax
accounting.
The Company believes that, under the applicable Treasury regulations,
the Junior Subordinated Debentures will not be treated as issued with original
issue discount ("OID") within the meaning of section 1273 (a) of the Code. If,
however, the Company exercises its right to defer payments of interest on the
Junior Subordinated Debentures, the Junior Subordinated Debentures will become
an OID instrument at such time and the holder of the Junior Subordinated
Debentures and, consequently, holders of the Capital Securities will be required
to accrue their pro rata share of OID (which will include both the stated
interest and any DE MINIMIS OID on the Junior Subordinated Debentures) on a
daily economic accrual basis (using the constant-yield-to-maturity method of
accrual described in Section 1272 of the Code) during the Extension Period even
though the Company will not pay such interest until the end of the Extension
Period, and even though some holders may use the cash method of tax accounting.
Moreover, thereafter the Junior Subordinated Debentures will be taxed as an OID
instrument for as long as they remain outstanding. Thus, even after the end of
an Extension Period, all holders would be required to continue to include the
stated interest (and any DE MINIMIS OID) on the Junior Subordinated Debentures
in income on a daily basis, regardless of their method of tax accounting and in
advance of receipt of the cash attributable to such interest income. Under the
OID economic accrual rules, a holder would accrue an amount of interest income
each year that approximates the stated interest payments called for under the
terms of the Junior Subordinated Debentures, and actual cash payments of
interest on the Junior Subordinated Debentures would not be reported separately
as taxable income. Any amount of OID included in a holder's gross income
(whether or not during an Extension Period) with respect to a Capital Security
will increase such holder's tax basis in such Capital Security, and the amount
of Distributions received by a holder in respect of such accrued OID will reduce
the holder's tax basis in such Capital Security.
The Treasury regulations described above have not yet been addressed in
any rulings or other interpretations by the IRS, and it is possible that the IRS
could take a position contrary to the foregoing descriptions. If the IRS were to
assert successfully that the stated interest on the Junior Subordinated
Debentures is OID regardless of whether the Company exercises its option to
defer payments of interest on the Junior Subordinated Debentures, all holders of
Capital Securities would be
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required to include such stated interest in income on a daily economic accrual
basis as described above,
Corporate holders of Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized by such
holders with respect to the Capital Securities.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF
THE TRUST
As described under "Description of the Junior Subordinated Debentures
- -- Distribution of the Junior Subordinated Debentures," the Junior Subordinated
Debentures may be distributed to holders of Trust Securities in exchange for the
Trust Securities and in liquidation of the Trust. Under current law, such a
distribution would be nontaxable, and would result in the holder receiving
directly its pro rata share of the Junior Subordinated Debentures previously
held indirectly through the Trust, with a holding period and aggregate tax basis
equal to the holding period and aggregate tax basis such holder had in its
Capital Securities before such distribution. If, however, the liquidation of the
Trust were to occur because the Trust is subject to United States federal income
tax with respect to income accrued or received on the Junior Subordinated
Debentures, the distribution of the Junior Subordinated Debentures to holders of
Capital Securities would be a taxable event to the Trust and to each holder, and
a holder would recognize gain or loss as if the holder had exchanged its Capital
Securities for the Junior Subordinated Debentures it received upon liquidation
of the Trust. A holder would accrue interest in respect of the Junior
Subordinated Debentures received from the Trust in the manner described above
under "- Interest Income and Original Issue Discount."
Under certain circumstances described herein (see "Description of the
Capital Securities and Related Instruments -- Description of the Capital
Securities" and "--Description of the Junior Subordinated Debentures"), the
Junior Subordinated Debentures may be redeemed for cash, with the proceeds of
such redemption distributed to holders in redemption of their Capital
Securities. Under current law, such a redemption would constitute a taxable
disposition of the redeemed Capital Securities for United States federal income
tax purposes, and a holder would recognize gain or loss as if it sold such
redeemed Capital Securities for cash. See "-- Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss
equal to the difference between the amount realized by such holder on the sale
of the Capital Securities (except to the extent that such amount realized is
characterized as a payment in respect of accrued but unpaid interest on such
holder's allocable share of the Junior Subordinated Debentures that the holder
had not included in gross income previously) and the holder's adjusted tax basis
in the Capital Securities sold. Such gain or loss generally will be a capital
gain or loss and generally will be taxable as a long-term capital gain or loss
if the Capital Securities have been held for more than one year. Subject to
certain limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes.
PROPOSED TAX LAW CHANGES
Prior to the issuance of the Old Capital Securities, proposals had been
made by the Clinton Administration and in Congress that would deny an issuer an
interest deduction, for United States federal income tax purposes, on certain
instruments with characteristics similar to the Junior
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Subordinated Debentures. There can be no assurance, that future legislation will
not adversely affect the ability of the Company to deduct interest on the Junior
Subordinated Debentures or otherwise affect the tax treatment of the
transactions described herein. If such legislation were enacted it could give
rise to a Tax Event which would permit the Company to cause a redemption of the
Capital Securities as described more fully under "Description of the New Junior
Subordinated Debentures -- Redemption." See "Description of the New Capital
Securities -- Redemption -- Special Redemption Upon Occurrence of Special
Event."
NON-UNITED STATES HOLDERS
As used herein, the, term "Non-United States Holder" means any person
that is not a United States Holder (as defined above). As discussed above, the
Capital Securities will be treated as evidence of an indirect beneficial
ownership interest in the Junior Subordinated Debentures. See "-- Classification
of the Trust." Thus, under present United States federal income tax law, and
subject to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Company or any paying agent
of principal or interest (which for purposes of this discussion
includes any OID) on the Junior Subordinated Debentures to a Non-United
States Holder, provided that (i) the beneficial owner of the Capital
Securities ("Beneficial Owner") does not actually or constructively own
10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote within the meaning of section 871(h)(3)
of the Code and the regulations thereunder, (ii) the Beneficial Owner
is not a controlled foreign corporation that is related to the Company
through stock ownership, (iii) the Beneficial Owner is not a bank whose
receipt of interest on the Junior Subordinated Debentures is described
in section 881(c)(3)(A) of the Code and (iv) the Beneficial Owner
satisfies the statement requirement (described generally below) set
forth in section 871(h) and section 881(c) of the Code and the
regulations thereunder; and
(b) no withholding of United States federal income tax will be
required with respect to any gain realized by a Non-United States
Holder upon the sale or other disposition of the Capital Securities.
To satisfy the requirement referred to in (a)(iv) above, the Beneficial
Owner, or a financial institution holding the Capital Securities on behalf of
such owner, must provide, in accordance with specified procedures, to the Trust
or its paying agent, a statement to the effect that the Beneficial Owner is not
a United States Holder. Pursuant to current temporary Treasury regulations,
these requirements will be met if (1) the Beneficial Owner provides its name and
address, and certifies, under penalties of perjury, that it is not a United
States person (which certification may be made on an IRS Form W-8 (or successor
form)) or (2) a financial institution holding the Capital Securities on behalf
of the Beneficial Owner certifies, under penalties of perjury, that such
statement has been received by it from the Beneficial Owner and furnishes the
Trust or its paying agent with a copy thereof.
If a Non-United States Holder cannot satisfy the requirements of the
exception described in (a) above, payments of premium, if any, and interest
(including any OID) made to such Non-United States Holder will be subject to a
30% withholding tax unless the Beneficial Owner provides the Company or its
paying agent, as the case may be, with a properly executed (1) IRS Form 1001 (or
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<PAGE>
successor form) claiming an exemption from, or a reduction of, such withholding
tax under the benefit of a tax treaty or (2) IRS Form 4224 (or successor form)
stating that interest paid on the Junior Subordinated Debentures is not subject
to withholding tax because it is effectively connected with the Beneficial
Owner's conduct of a trade or business in the United States. In addition, if the
Junior Subordinated Debentures were to be recharacterized as equity for United
States federal income tax purposes, the income on the Junior Subordinated
Debentures (and, as a result, the Capital Securities) would be recharacterized
as dividends, which would be subject to 30% withholding tax when paid to a
Non-United States Holder.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the Junior Subordinated Debentures is effectively
connected with the conduct of such trade or business, the Non-United States
Holder, although exempt from the withholding tax discussed above, will be
subject to United States federal income tax on such interest income on a net
income basis in the same manner as if it were a United States Holder. In
addition, if such Non-United States Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, such interest income would be included in such foreign corporation's
earnings and profits.
Any gain realized upon the sale or other disposition of the Capital
Securities by a Non-United States Holder generally will not be subject to United
States federal income tax unless (i) such gain is effectively connected with the
conduct of a trade or business in the United States of the Non-United States
Holder, (ii) in the case of a Non-United States Holder who is an individual,
such individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange or retirement, and certain other conditions
are met, and (iii) in the case of any gain representing accrued interest on the
Junior Subordinated Debentures, the requirements described above are not
satisfied.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Capital Securities held of record by United States
Holders will generally be reported annually to such holders and to the IRS. The
Regular Trustees currently intend to deliver such reports to holders of record
prior to January 31 following each calendar year. It is anticipated that persons
who hold Capital Securities as nominees for beneficial holders will report the
required tax information to beneficial holders on Form 1099.
"Backup withholding" at a rate of 31% will apply to payments of
interest to non-exempt United States Holders unless the holder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
No information reporting or backup withholding will be required with
respect to payments made by the Trust or any paying agent to Non-United States
Holders if a statement described in (a)(iv) under "Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person.
In addition, backup withholding and information reporting will not
apply if payments of the principal, interest, OID or premium on the Junior
Subordinated Debentures are made to or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the Beneficial Owner, or
if a foreign office of a broker (as defined in applicable Treasury regulations)
pays the proceeds of
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<PAGE>
the sale of the Capital Securities to the owner thereof. If, however, such
nominee, custodian, agent or broker is, for United States federal income tax
purposes, a United States person, a controlled foreign corporation or a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the Beneficial Owner is not a United States person and certain
other conditions are met or (2) the Beneficial Owner otherwise establishes an
exemption.
Payment of the proceeds from disposition of Capital Securities to or
through a United States office of a broker is subject to information reporting
and backup withholding unless the holder or Beneficial Owner establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a holder of the Capital Securities under the
backup withholding rules will generally be allowed as a refund or a credit
against such holder's United States federal income tax liability, provided the
required information is furnished to the IRS.
EXCHANGE OFFER
The exchange of the Old Junior Subordinated Debentures for the New
Junior Subordinated Debentures pursuant to the Exchange Offer should not be
treated as an "exchange" for United States federal income tax purposes because
the New Junior Subordinated Debentures should not be considered to differ
materially in kind or extent from the Junior Subordinated Debentures. Rather,
the New Junior Subordinated Debentures received by the Trust should be treated
as a continuation of the Junior Subordinated Debentures in the hands of the
Trust. As a result, there should be no United States federal income tax
consequences to a holder exchanging Capital Securities for New Capital
Securities pursuant to the Exchange Offer. Accordingly, the New Capital
Securities should be treated as having the same issue date and issue price as
the Capital Securities for United States federal income tax purposes.
BENEFIT PLAN CONSIDERATIONS
Generally, an employee benefit plan that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code (a "Plan"), may purchase Capital Securities, subject to the
investing fiduciary's determination that the investment in Capital Securities
satisfies ERISA's fiduciary standards and other requirements applicable to
investments by the Plan.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R.
Section 2510.3-101)(the "DOL Regulation") concerning the definition of what
constitutes the assets of a Plan. The DOL Regulation provides that as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply.
There can be no assurance that any of the exceptions set forth in the
DOL Regulation will apply to the exchange of Capital Securities offered hereby,
and as a result, an investing Plan's assets could be considered to include an
undivided interest in the Junior Subordinated Debentures held by the Trust. In
the event that the assets of the Trust are considered assets of an investing
Plan, the
81
<PAGE>
Company, the Trustees and other persons, in providing services with respect to
the Junior Subordinated Debentures, may be considered fiduciaries to such Plan
and subject to the fiduciary responsibility provisions of Title I of ERISA
(including the prohibited transaction provisions thereto). In addition, the
prohibited transaction provisions of Section 4975 of the Code could apply with
respect to transactions engaged in by any "disqualified person," as defined
below, involving such assets unless a statutory or administrative exemption
applies.
Even if they are not fiduciaries, 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. The acquisition and ownership of Capital Securities by
a Plan (including an individual retirement arrangement or other Plan described
in Section 4975(e)(1) of the Code) may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Capital
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
Capital Securities unless such Capital Securities are acquired pursuant to and
in accordance with an applicable prohibited transaction exemption.
Notwithstanding the foregoing, it is possible that the New Capital
Securities (see "Registration Rights") may qualify as "publicly offered
securities" under the DOL Regulation if, in addition to the exchange pursuant to
any effective registration statement, they are also "widely held" and "freely
transferable" at the time of the Exchange Offer. Under the DOL Regulation, a
class of securities is "widely held," only if it is a class of securities owned
by 100 or more investors independent of the issuer and each other. Although it
is possible that at the time of the Exchange Offer the New Capital Securities
will be "widely held," the Company, the Trust and the Initial Purchaser believe
the likelihood of such outcome is remote. If the New Capital Securities are
"publicly offered securities" at the time of the Exchange Offer, the assets of
the Trust would not be assets of any Plan purchasing such securities as of such
time. If the New Capital Securities did not qualify as "publicly offered
securities," the foregoing discussion about plan assets would also apply to the
New Capital Securities.
Any Plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Capital Securities or New
Capital Securities should consult with their own counsel.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own
account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Capital
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by Participating Broker-Dealers during the period referred to
below in connection with resales of New Capital Securities received in exchange
for Old Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 180 days after the Registration Statement of
which this Prospectus constitutes a part is declared effective. See "The
Exchange Offer -- Resales of New Capital Securities." Neither the Company nor
the Trust will receive any cash proceeds from the issuance of the New Capital
Securities offered hereby. New
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<PAGE>
Capital Securities received by broker-dealers for their own accounts in
connection with the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Capital Securities or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Capital Securities. Any
broker-dealer that resells New Capital Securities that were received by it for
its own account in connection with the Exchange Offer and any broker or dealer
that participates in a distribution of such New Capital Securities may be deemed
to be an "underwriter" within the meaning of the Securities Act, and any profit
on any such resale of New Capital Securities and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
LEGAL OPINIONS
Certain legal matters, including the validity of the New Junior
Subordinated Debentures, have been passed upon for the Company and the Trust by
Nutter, McClennen & Fish, LLP, Boston, Massachusetts. Michael K. Krebs, the
Secretary of the Company, is a partner of Nutter, McClennen & Fish, LLP.
EXPERTS
The financial statements as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997, incorporated
in this Prospectus by reference to the Company's Annual Report on Form 10-K,
as amended, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
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<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNTIL ________, 1998, ALL PARTICIPATING BROKER-
DEALERS EFFECTING TRANSACTIONS IN THE NEW SECURITIES
ACQUIRED IN THE EXCHANGE OFFER WILL BE REQUIRED TO
DELIVER A PROSPECTUS.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
OFFERING MEMORANDUM AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASER. THIS OFFERING
MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
OFFERING MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THAT DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................ 8
Incorporation of Certain
Documents by Reference............................. 9
Summary............................................. 10
Risk Factors........................................ 21
Use of Proceeds..................................... 33
Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends............. 33
Accounting Treatment................................ 34
Regulatory Treatment................................ 34
Capitalization...................................... 35
The Trust........................................... 36
The Company......................................... 37
Recent Developments................................. 37
The Exchange Offer.................................. 39
Description of New Capital Securities............... 50
Description of New Junior
Subordinated Debentures.......................... 61
Description of New Guarantee........................ 71
Relationship Among the New Capital
Securities, the New Junior Subordinated
Debentures and the New Guarantee ................ 73
Description of the Old Securities................... 75
Certain United States Federal
Income Tax Consequences........................... 75
Benefit Plan Considerations......................... 81
Plan of Distribution................................ 82
Legal Opinions...................................... 83
Experts............................................. 83
</TABLE>
CSBI CAPITAL TRUST I
OFFER FOR ALL OUTSTANDING
11 3/4% SUBORDINATED CAPITAL
INCOME SECURITIES, SERIES A
IN EXCHANGE FOR
11 3/4% SUBORDINATED CAPITAL
INCOME SECURITIES, SERIES A
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
Fully and unconditionally guaranteed
to the Extent Set Forth Herein by
COMMERCE SECURITY
BANCORP, INC.
------------------
PROSPECTUS
___________, 1998
------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
84
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section 145
of the Delaware General Corporation Law, as amended, which provides that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite an adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except to the extent
that exculpation from liability is not permitted under the Delaware General
Corporation Law. The provision does not eliminate liability of a director for
any act or omission occurring prior to the date on which the provision became
effective.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
ITEM 21. EXHIBITS.
See the Exhibit Index immediately preceding the exhibits attached
hereto.
85
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
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<PAGE>
(d) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
(e) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions of the Delaware General
Corporation Law and the registrant's certificate of incorporation and
by-laws, or otherwise, the registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or a
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
87
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-8 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Laguna Hills, State of
California, on the 28th day of April, 1998.
COMMERCE SECURITY BANCORP, INC.
By: /s/ Robert P. Keller
-----------------------------------
Robert P. Keller
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below on this Registration Statement hereby constitutes and appoints
Robert P. Keller, Curt A. Christianssen and Michael K. Krebs, and each of
them, with full power to act without the other, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all
amendments (including post-effective amendments and amendments thereto) to
this Registration Statement on Form S-8 of the registrant, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary fully to
all intents and purposes as he or she might or could do in person thereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert P. Keller
--------------------------- President, Chief Executive April 28, 1998
Robert P. Keller Officer and Director
/s/ Curt A. Christianssen Senior Vice President, April 28, 1998
--------------------------- Treasurer and Chief Financial
Curt A. Christianssen Officer
88
<PAGE>
Signature Title Date
--------- ----- ----
-------------------------- Director
Ernest J. Boch
/s/ James A. Conroy
-------------------------- Director April 28, 1998
James A. Conroy
/s/ Edward A. Fox
-------------------------- Director April 28, 1998
Edward A. Fox
-------------------------- Director
Charles E. Hugel
-------------------------- Director
Mitchell A. Johnson
/s/ K. Thomas Kemp
-------------------------- Director April 28, 1998
K. Thomas Kemp
-------------------------- Director
Jefferson W. Kirby
/s/ John B. Pettway
-------------------------- Director April 28, 1998
John B. Pettway
/s/ Heny T. Wilson
-------------------------- Director April 28, 1998
Henry T. Wilson
/s/ Paul R. Wood
-------------------------- Director April 28, 1998
Paul R. Wood
89
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title
- ----------- -----
<S> <C>
Exhibit 3.1 Amended and Restated Certificate of
Incorporation (incorporated by
reference to the Company's Current
Report on Form 8-K/A filed with the
Commission on July 11, 1997)
Exhibit 3.2 By-laws of the Company (incorporated
by reference to the Company's Quarterly
Report on Form 10-Q for the period
ended September 30, 1996)
Exhibit 3.3 Amended and Restated Declaration of
Trust of CSBI Capital Trust I
(incorporated by reference to the
Company's Form 8-K/A filed with the
Commission on July 11, 1997)
Exhibit 4.1 Indenture between the Company and
Wilmington Trust Company dated as of
July 15, 1997 (incorporated by reference
to the Company's Current Report on
Form 8-K filed with the Commission on
August 7, 1997)
Exhibit 4.2 Form of New Junior Subordinated
Debenture*
Exhibit 4.3 Form of New Guarantee*
Exhibit 5.1 Opinion of Nutter, McClennen & Fish,
LLP*
Exhibit 8.1 Opinion of Nutter, McClennen & Fish,
LLP as to tax matters concerning the
Exchange Offer*
Exhibit 10.1 Registration Rights Agreement dated as
of July 15, 1997 (incorporated by
reference to the Company's Current
Report on Form 8-K/A filed with the
Commission on July 11, 1997)
Exhibit 12.1 Calculation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings
to Combined Fixed Charges and Preferred
Stock Dividends
Exhibit 23.1 Consent of Nutter, McClennen & Fish,
LLP (contained in Exhibit 5.1) *
Exhibit 23.2 Consent of Price Waterhouse LLP
Exhibit 24 Power of Attorney (contained in Part II
of the Registration Statement)
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<PAGE>
Exhibit 25.1 Form T-1 of Wilmington Trust
Company as to the Declaration of Trust*
Exhibit 25.2 Form T-1 of Wilmington Trust
Company as to the Guarantee*
Exhibit 25.3 Form T-1 of Wilmington Trust
Company as to the Indenture*
Exhibit 99.1 Form of Letter of Transmittal*
Exhibit 99.2 Form of Exchange Agent Agreement*
</TABLE>
- ------------------------
* To be filed by amendment.
91
<PAGE>
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's consolidated ratios of earnings to fixed charges and
consolidated ratios of earnings to combined fixed charges and preferred stock
dividends for each of the periods indicated have been calculated using the
figures set forth below:
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
(dollars in thousands)
<S> <C>
Fixed Charges:
Interest expense on debentures......................... $ 1,908
Interest expense on deposits........................... 18,143
Interest expense on federal funds...................... 563
-------
Total............................................. $20,614
-------
-------
Earnings:
Pretax earnings........................................ $ 6,602
Fixed Charges.......................................... 20,614
-------
$27,216
-------
-------
Ratios of earnings to fixed charges:
Including interest on deposits....................... 1.32
Excluding interest on deposits....................... 3.67
Ratios of earnings to combined fixed charges
and preferred stock dividend requirements:
Including interest on deposits....................... 1.27
Excluding interest on deposits....................... 2.83
</TABLE>
For purposes of computing the ratios of both earnings to fixed charges
and earnings to combined fixed charges and preferred stock dividend
requirements, earnings represent net income plus applicable income taxes and
fixed charges. Fixed charges, excluding interest on deposits, represent
interest expense (except interest on deposits), capitalized interest and the
interest factor included in rents. Fixed charges, including interest on
deposits, represent all interest expense, capitalized interest, and the
interest factor included in rents. Combined fixed charges and preferred stock
dividend requirements, excluding interest on deposits, represent interest
expense (except interest paid on deposits), capitalized interest, the
interest factor included in rents and an amount equal to the pre-tax earnings
required to meet applicable preferred stock dividend requirements. Combined
fixed charges and preferred stock dividend requirements, including interest
on deposits, represent all interest expense, capitalized interest, the
interest factor included in rents, and an amount equal to the pre-tax
earnings required to meet applicable preferred stock dividend requirements.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Commerce
Security Bancorp, Inc. and its subsidiaries of our report dated March 27, 1998
appearing on page F-1 of the issuer's Annual Report on Form 10-K for the year
ended December 31, 1997. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However,
it should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
/s/ Price Waterhouse LLP
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PRICE WATERHOUSE LLP
Los Angeles, California
April 23, 1998
