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Filed Pursuant to Rule 424(b)(3)
Registration Statement # 333-58959
PROSPECTUS
PROVIDENT TRUST I
OFFER TO EXCHANGE ITS
8.29% EXCHANGE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8.29% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN BY
PROVIDENT BANKSHARES CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME,
ON SEPTEMBER 3, 1998, UNLESS EXTENDED.
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Provident Trust I, a statutory business trust created under the laws of the
State of Delaware (the "Trust" or "Issuer Trust"), hereby offers, 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 $40,000,000 aggregate Liquidation Amount of its 8.29%
Exchange Capital Securities (the "Exchange 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
8.29% Capital Securities (the "Original Capital Securities"), of which
$40,000,000 aggregate Liquidation Amount is outstanding. Pursuant to the
Exchange Offer, Provident Bankshares Corporation, a Maryland corporation
("Provident" or the "Company"), also is offering to exchange (i) its guarantee
of payment of cash distributions and payments on liquidation of the Trust or
redemption of the Exchange Capital Securities (the "Exchange Guarantee") for a
like guarantee in respect of the Original Capital Securities (the "Original
Guarantee") and (ii) 8.29% Exchange Junior Subordinated Deferrable Interest
Debentures due April 15, 2028 (the "Exchange Junior Subordinated Debentures")
for all of the outstanding 8.29% Junior Subordinated Deferrable Interest
Debentures due April 15, 2028 (the "Original Junior Subordinated Debentures"),
which Exchange Guarantee and Exchange Junior Subordinated Debentures also have
been registered under the Securities Act. The Original Capital Securities, the
Original Guarantee and the Original Junior Subordinated Debentures are
collectively referred to herein as the "Original Securities" and the Exchange
Capital Securities, the Exchange Guarantee and the Exchange Junior Subordinated
Debentures are collectively referred to herein as the "Exchange Securities."
The terms of the Exchange Securities are identical in all material respects
to the respective terms of the Original Securities, except that (i) the Exchange
Securities have been registered under the Securities Act and therefore will not
be subject to certain restrictions on transfer under federal and state
securities laws applicable to the Original Securities, (ii) the Exchange Capital
Securities will not provide for any increase in the Distribution rate thereon
and (iii) the Exchange Junior Subordinated debentures will not provide for any
increase in the interest rate thereon. See "Description of Exchange Securities"
and "Description of Original Securities." The Exchange Capital Securities are
being offered for exchange in order to satisfy certain obligations of the
Company and the Trust under a Registration Rights Agreement, dated as of April
17, 1998 (the "Registration Rights Agreement"), among the Company, the Trust and
Keefe, Bruyette & Woods, Inc. (the "Initial Purchaser"). In the event that the
Exchange Offer is consummated, any Original Capital Securities which remain
outstanding after consummation of the Exchange Offer and the Exchange 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 Trust Agreement (as defined herein).
(Continued on the following page)
This Prospectus and the Letter of Transmittal are first being mailed to all
registered holders of Original Capital Securities as of July 31, 1998.
See "Risk Factors" commencing on page 17 for certain information that should
be considered by holders in deciding whether to tender Original Capital
Securities in the Exchange Offer.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 31, 1998.
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(Continued from the previous page)
As used herein, (i) the "Indenture" means the Junior Subordinated
Indenture, dated as of April 17, 1998, between the Company and Bankers Trust
Company, as Debenture Trustee (the "Debenture Trustee"), as amended and
supplemented from time to time, and (ii) the "Trust Agreement" means the Amended
and Restated Trust Agreement relating to the Trust among the Company, as
Depositor, Bankers Trust Company as Property Trustee (the "Property Trustee"),
Bankers Trust (Delaware), as the Delaware Trustee (the "Delaware Trustee"), the
Administrators named therein (collectively, with the Property Trustee and the
Delaware Trustee, the "Issuer Trustees"), and the holders, from time to time, of
undivided beneficial interests in the assets of the Trust, as amended and
supplemented from time to time. In addition, as the context may require, unless
otherwise expressly stated, (i) the term "Capital Securities" means the Original
Capital Securities and the Exchange Capital Securities, (ii) the term "Trust
Securities" means the Capital Securities and the Common Securities, (iii) the
term "Junior Subordinated Debentures" means the Original Junior Subordinated
Debentures and the Exchange Junior Subordinated Debentures and (iv) the term
"Guarantee" means the Original Guarantee and the Exchange Guarantee.
The Exchange Capital Securities and the Original Capital Securities
represent undivided beneficial interests in the assets of the Trust. The Company
is the owner of all of the beneficial interests represented by common securities
of the Trust (the "Common Securities"). The Trust exists for the sole purpose of
issuing the Capital Securities and the Common Securities and investing the
proceeds thereof in the Junior Subordinated Debentures (as defined herein). The
Junior Subordinated Debentures will mature on April 15, 2028 (the "Stated
Maturity Date"). The Capital Securities will have a preference over the Common
Securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise. See "Description of
Capital Securities -- Subordination of Common Securities."
Except as provided below, the Exchange Capital Securities will be
represented by a global Capital Security in fully registered form, deposited
with a custodian for and registered in the name of a nominee of The Depository
Trust Company ("DTC"). Beneficial interests in the Exchange Capital Securities
will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. Beneficial interests in the Exchange
Capital Securities will trade in DTC's Same-Day Funds Settlement system and
secondary market trading activity in such interests will therefore settle in
immediately available funds. The Exchange Capital Securities will be issued, and
may be transferred, only in blocks having a Liquidation Amount of not less than
$100,000 (100 Capital Securities). See "Description of Capital
Securities -- Book-Entry, Delivery and Form."
Holders of the Exchange Capital Securities will be entitled to receive
preferential cumulative cash distributions payable semi-annually in arrears on
the 15th day of April and October of each year, commencing October 15, 1998, if
such Exchange Capital Securities are issued prior to October 1, 1998, at an
annual rate equal to 8.29% on the Liquidation Amount of $1,000 per Capital
Security ("Distributions"). Assuming the Exchange Capital Securities are issued
in exchange for the Original Capital Securities prior to October 1, 1998, such
Distributions on the Exchange Capital Securities will accumulate from April 17,
1998, the date of initial issuance of the Original Capital Securities. The
Distribution rate and the Distribution payment dates and other payment dates for
the Exchange Capital Securities will correspond to the interest rate and
interest payment dates and other payment dates on the Junior Subordinated
Debentures, which will be the sole assets of the Trust. So long as no Event of
Default (as defined in the Junior Subordinated Indenture) has occurred and is
continuing with respect to the Junior Subordinated Debenture (a "Debenture Event
of Default"), the Company has the right to defer payment of interest on the
Junior Subordinated Debentures at any time or from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. No
interest shall be due and payable during any Extension Period, except at the end
thereof. Upon the termination of any such Extension Period and the payment of
all amounts then due, the Company may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the Junior
Subordinated Debentures are so deferred, Distributions on the Capital Securities
will also be deferred and the Company will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to the Company's stock or with respect
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to debt securities of the Company that rank pari passu in all respects with or
junior to the Junior Subordinated Debentures. During an Extension Period,
interest on the Junior Subordinated Debentures will continue to accrue (and the
amount of Distributions to which holders of the Capital Securities are entitled
will accumulate) at a rate equal to 8.29%, compounded semi-annually, and holders
of Capital Securities will be required to accrue income, in the form of original
issue discount, for United States federal income tax purposes. See "Description
of Junior Subordinated Debentures -- Option to Extend Interest Payment Period"
and "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount."
The Company has and will, through the Guarantee, the Trust Agreement, the
Junior Subordinated Debentures and the Junior Subordinated Indenture (each as
defined herein), taken together, fully, irrevocably and unconditionally
guarantee all the Trust's obligations under the Capital Securities as described
below. See "Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Capital Securities, but only in each case to
the extent of funds held by the Trust, as described herein. See "Description of
Guarantee." If the Company does not make payments on the Junior Subordinated
Debentures held by the Trust, the Trust may have insufficient funds to pay
Distributions on the Capital Securities. The 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 Capital Securities may institute a
legal proceeding directly against the Company to enforce payment of such
Distributions to such holder. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities."
The obligations of the Company under the Guarantee and the Capital Securities
are subordinate and junior in right of payment to all Senior Indebtedness (as
defined in "Description of Junior Subordinated Debentures -- Subordination") of
the Company.
The Capital Securities are subject to mandatory redemption (i) in whole,
but not in part, upon repayment of the Junior Subordinated Debentures at the
Stated Maturity or their earlier redemption in whole upon the occurrence of a
Tax Event, Investment Company Event or Capital Treatment Event (each as defined
herein) and (ii) in whole or in part at any time on or after April 15, 2008
contemporaneously with the optional redemption by the Company of the Junior
Subordinated Debentures in whole or in part. The Junior Subordinated Debentures
are redeemable prior to maturity at the option of the Company (i) on or after
April 15, 2008, in whole at any time or in part from time to time, or (ii) in
whole, but not in part, at any time within 90 days following the occurrence and
continuation of a Tax Event, Investment Company Event or Capital Treatment Event
(each as defined herein), in each case at a redemption price set forth herein,
which includes the accrued and unpaid interest on the Junior Subordinated
Debentures so redeemed to the date fixed for redemption. The ability of the
Company to exercise its rights to redeem the Junior Subordinated Debentures or
to cause the redemption of the Capital Securities prior to the Stated Maturity
may be subject to prior regulatory approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), if then required under
applicable Federal Reserve capital guidelines or policies. See "Description of
Junior Subordinated Debentures -- Redemption" and "Description of Capital
Securities -- Liquidation Distribution Upon Dissolution."
The holders of the outstanding Common Securities have the right at any time
to dissolve the Issuer Trust and, after satisfaction of liabilities to creditors
of the Issuer Trust as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company to dissolve the Issuer Trust may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Capital
Securities -- Liquidation Distribution Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as provided by applicable law, the
holders of the Capital Securities will be entitled to receive a Liquidation
Amount of $1,000 per Capital Security plus accumulated and unpaid Distributions
thereon to the date of payment, subject to certain exceptions, which may be in
the form of a distribution of such amount in Junior Subordinated Debentures. See
"Description of Capital Securities -- Liquidation Distribution Upon
Dissolution."
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The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures -- Subordination."
The Company, as holder of the Common Securities, has the right at any time
(including, without limitation, upon the occurrence of a Tax Event (as defined
herein)) to dissolve the Trust and, after satisfaction of liabilities of
creditors of the Trust as required by applicable law, to cause a Like Amount of
the Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust, subject to (i) the Company having
received an opinion of counsel to the effect that such distribution will not be
a taxable event to holders of Capital Securities, and (ii) the receipt of any
required regulatory approval. Unless the Junior Subordinated Debentures are
distributed to the holders of the Trust Securities, in the event of a
liquidation of the Trust as described herein, after satisfaction of liabilities
to creditors of the Trust as required by applicable law, the holders of the
Trust Securities generally will be entitled to receive a Liquidation Amount of
$1,000 per Trust Security plus accumulated and unpaid Distributions thereon to
the date of payment. See "Description of Capital Securities -- Liquidation of
Distribution Upon Dissolution."
The Trust is making the Exchange Offer of the Exchange 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 these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Company and the Trust believe that Exchange Capital
Securities issued pursuant to this Exchange Offer in exchange for Original
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 Exchange 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 Exchange Capital Securities. However, any holder of Original Capital
Securities who is an affiliate of the Company or the Trust within the meaning of
Rule 405 under the Securities Act (an "Affiliate") or who intends to participate
in the Exchange Offer for the purpose of distributing Exchange Capital
Securities, or any broker-dealer who purchased Original 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 entitled to tender such Original 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 Original Capital Securities unless such sale is made pursuant
to an exemption from such requirements. In addition, as described below, if any
broker-dealer (a "Participating Broker-Dealer") holds Original Capital
Securities acquired for its own account as a result of market-making or other
trading activities and exchanges such Original Capital Securities for Exchange
Capital Securities, then such Participating Broker-Dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such Exchange Capital Securities.
Each holder of Original Capital Securities who wishes to exchange Original
Capital Securities for Exchange 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 Exchange 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 Exchange 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 Exchange Capital Securities. The letter of transmittal contains the
foregoing representations. 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
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meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) on behalf of who such holder holds Original Capital Securities
to be exchanged in the Exchange Offer. Each Participating Broker-Dealer that
receives Exchange Capital Securities for its own account pursuant to the
Exchange Offer will be deemed to have acknowledged by execution of the Letter of
Transmittal or delivery of an Agent's Message (as defined herein) that it
acquired the Original 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 Exchange Capital Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating 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 Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Capital Securities received upon
exchange of such Original Capital Securities (other than Original Capital
Securities which represent an unsold allotment from the original sale of the
Original Capital 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 Exchange 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 Exchange Capital Securities received in exchange for
Original Capital Securities where such Original 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 Exchange Capital Securities for a period ending 90 days after the
Expiration Date (as defined herein) (subject to extension under certain limited
circumstances described below) or, if earlier, when all such Exchange Capital
Securities have been disposed of by such Participating Broker-Dealer. See "Plan
of Distribution." However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of Exchange Capital Securities received
in exchange for Original Capital Securities pursuant to the Exchange Offer must
notify the Company or the Trust, or cause the Company or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer -- Exchange Agent." Any
person, including 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
Exchange Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Original
Capital Securities pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal or delivery of an Agent's Message,
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 Exchange
Capital Securities (or the Exchange Guarantee or the Exchange 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 Exchange Capital Securities (or the Exchange
Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be. If the Company or the Trust gives such notice to
suspend the sale of the Exchange Capital Securities (or the Exchange Guarantee
or the Exchange Junior Subordinated Debentures, as applicable), it shall extend
the 90-day period referred to above during which Participating Broker-Dealers
are entitled to use this Prospectus in connection with the resale of Exchange
Capital Securities
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by the number of days during the period from and including the date of the
giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Capital Securities or to
and including the date on which the Company or the Trust has given notice that
the sale of Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable) may be resumed, as the
case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Original Capital Securities. The Exchange Capital
Securities will be a new issue of securities for which there currently is no
market. There can be no assurance as to the development or liquidity of any
market for the Exchange Capital Securities. The Company and the Trust currently
do not intend to apply for listing of the Exchange Capital Securities on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System ("Nasdaq").
Any Original 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 Trust
Agreement (except for those rights which terminate upon consummation of the
Exchange Offer). Following consummation of the Exchange Offer, the holders of
Original 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
Original Capital Securities held by them. To the extent that Original Capital
Securities are tendered and accepted in the Exchange Offer, a holder's ability
to sell untendered Original Capital Securities could be adversely affected. See
"Risk Factors -- Consequences of a Failure to Exchange Original Capital
Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE
OFFER.
Original Capital Securities may be tendered for exchange on or prior to
5:00 p.m., Eastern Time, on September 3, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Company or 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
Original 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 Original 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 provisions of the
Registration Rights Agreement. Original Capital Securities may be tendered in
whole or in part having an aggregate Liquidation Amount of not less than
$100,000 (100 Capital Securities) and/or any integral multiple of $1,000
Liquidation Amount (one Capital Security) in excess thereof. The Company has
agreed to pay all expenses of the Exchange Offer. To the extent a holder of an
Original Capital Security has exchanged such security pursuant to the Exchange
Offer prior to October 1, 1998, such holder shall receive a distribution as the
holder of Exchange Capital Securities as described herein. See "The Exchange
Offer -- Fees and Expenses."
Holders of Original Capital Securities as of the October 1, 1998 record
date for the initial Distribution on October 15, 1998, including such holders
who tender their Original Capital Securities pursuant to the Exchange Offer,
will be entitled to receive such Distribution. See "The Exchange Offer."
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
THE EXCHANGE CAPITAL SECURITIES WILL BE ISSUED, AND CAPITAL SECURITIES MAY
BE TRANSFERRED, ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT
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LESS THAN $100,000. ANY TRANSFER, SALE OR OTHER DISPOSITION OF CAPITAL
SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL
BE DEEMED NOT TO BE ENTITLED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL
SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER
IN SUCH CAPITAL SECURITIES.
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH, A "PLAN"), NO
ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S
INVESTMENT IN THE ENTITY (A "PLAN ASSET ENTITY", AND NO PERSON INVESTING "PLAN
ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD THE CAPITAL SECURITIES OR ANY INTEREST
THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF
AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION
("PTCE") 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH PURCHASE OR
HOLDING. ANY PURCHASER OR HOLDER OF THE CAPITAL SECURITIES OR ANY INTEREST
THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF
THAT IT EITHER (I) IS NOT A PLAN OR A PLAN ASSET ENTITY AND IS NOT PURCHASING
SUCH SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN, OR (II) IS
ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38, 90-1
OR 84-14 WITH RESPECT TO SUCH PURCHASE OR HOLDING.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIEF UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC" or
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Citicorp Center, 14th Floor, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material also can
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
information also may be accessed through the Commission's electronic data
gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov). Such
reports, proxy statements and other information concerning the Company also can
be inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
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<PAGE> 8
No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would
be material to holders of the Capital Securities because the Trust is a
newly-formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as Trust assets the Junior Subordinated Debentures and
issuing the Trust Securities. See "Provident Trust I" and "Description of
Exchange Securities." In addition, the Company does not expect that the Trust
will file reports, proxy statements and other information under the Exchange Act
with the Commission.
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, the Trust
and the Exchange Securities. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
2. The Company's Proxy Statement dated March 16, 1998; and
3. The Company's Quarterly Report on Form 10-Q for the period ended March
31, 1998.
All documents subsequently 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 the offering of the Exchange Securities offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
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.
Copies of the other documents incorporated by reference herein are
available from the Company without charge (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates) to any person to whom this
Prospectus is delivered, upon written request of such person. Requests for such
copies should be directed to Robert L. Davis, General Counsel and Corporate
Secretary for the Company, at the principal executive offices located at 114
East Lexington Street, Baltimore, Maryland 21202. The Company's telephone number
is (410) 277-7000.
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<PAGE> 9
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
As used herein, (i) the "Junior Subordinated Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time, between
the Company and Bankers Trust Company, as trustee (the "Debenture Trustee"),
pursuant to which the Junior Subordinated Debentures are issued, (ii) the "Trust
Agreement" means the Amended and Restated Trust Agreement relating to the Issuer
Trust, as amended and supplemented from time to time, among the Company, as
Depositor, Bankers Trust Company, as Property Trustee (the "Property Trustee"),
Bankers Trust (Delaware), as Delaware Trustee (the "Delaware Trustee")
(collectively, the "Issuer Trustees"), the Administrators (as defined herein)
named therein, and the holders, from time to time, of undivided beneficial
interests in the assets of the Issuer Trust, and (iii) the "Guarantee" means the
Original Guarantee Agreement and the Exchange Guarantee Agreement relating to
the Original Capital Securities and the Exchange Capital Securities, as amended
and supplemented from time to time, between the Company and Bankers Trust
Company, as Guarantee Trustee (the "Guarantee Trustee").
PROVIDENT BANKSHARES CORPORATION
The Company is a registered bank holding company, chartered under the laws
of the State of Maryland, and headquartered in Baltimore, Maryland. The Company
operates through its wholly-owned subsidiary, Provident Bank of Maryland (the
"Bank"), a Maryland-chartered commercial bank that maintains, as of March 31,
1998, 69 retail banking offices (of which 51 are traditional branch offices and
18 are in-store facilities) in seven Maryland counties in the
Baltimore/Washington, D.C. corridor, as well as Baltimore City and southern York
County, Pennsylvania. The Company provides a broad range of banking services
with an emphasis on consumer, real estate mortgage, and commercial business
loans. Through three subsidiaries, the Bank provides mortgage-banking products,
purchased annuities and mutual funds, and a variety of credit insurance
products. At March 31, 1998, the Company had total assets of approximately $4.0
billion, total deposits of $2.9 billion, and total consolidated shareholders'
equity of approximately $280.0 million.
The Company has experienced significant growth since the management team,
led by Carl W. Stearn and Peter M. Martin, was retained in 1990 to reorient the
Company's operations from a traditional thrift institution to a commercial
banking operation. In April 1998, Mr. Stearn retired as Chairman of the Board of
Directors and Chief Executive Officer of the Company and Mr. Martin assumed
those positions. Mr. Stearn remains a director of the Company. During their
tenure, the Company has grown from approximately $1.5 billion in assets and 38
banking offices to approximately $4.0 billion in assets and 69 banking offices.
In developing the Company's bank-oriented franchise, management has implemented
extensive modifications to the lending, funding, balance sheet management, and
operational functions of the Company to position the Company for future
profitable growth.
Provident Bankshares Corporation recorded net income for the quarter ended
March 31, 1998 of $9.3 million or $.38 per share basic and $.36 diluted. This
represented a 17.4% increase in net income over the same period a year ago. Net
income for the quarter ended March 31, 1997 was $7.9 million or $.33 per share
basic or $.33 diluted. The higher earnings in 1998 were mainly due to loan
growth (particularly consumer loans), increased fee income and controlled
operating expenses. Average consumer loans outstanding grew $486 million, as
total average loans increased 21% to $2.72 billion. The increase in non-interest
income from $10.3 million at March 31, 1997 to $12.8 million at March 31, 1998
was driven by a 15% increase in fee based services on higher account volume.
Even with higher account volume and continued investment in business
initiatives, operating expenses were limited to a 3.1% growth rate. There was a
$2.1 million increase in the provision for loan losses during the quarter with
net charge-offs of $2.1 million. The increase in provision was mainly related to
the loan portfolio growth.
The Company earned $33.6 million on an operating basis in 1997, excluding
an $8.6 million one-time acquisition related charge, which represents the
seventh consecutive year of double-digit increases in operating earnings. Such
earnings represent an improvement in the Company's returns on average assets and
average
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<PAGE> 10
equity from 0.62% in 1993 to 0.92% (excluding merger-related expenses) in 1997
and from 9.38% in 1993 to 13.34% (excluding merger-related expenses) in 1997,
respectively. Additionally, the Company's efficiency ratio has improved from
79.9% in 1993 to 64.8% (excluding merger-related expenses) in 1997.
The Company has transitioned its asset base into higher yielding products
since 1993, with investment securities and residential mortgages declining from
53% at year-end 1993 to 37% with loans available for sale of earning assets at
March 31, 1998. Loan growth has averaged 10-12% in recent years, supported by
consumer and commercial loan emphasis as well as disciplined wholesale purchases
of seasoned consumer portfolios. At March 31, 1998, Provident's loan balance
totaled $2.7 billion and was comprised of 61.7% consumer, 24.9% commercial and
commercial real estate, and 13.4% residential mortgage.
The Company does not believe that asset quality has been sacrificed in
recent years as a result of loan growth. At March 31, 1998, the Company had
non-performing loans of $14.3 million, or 0.51% of total loans. The allowance
for loan losses at March 31, 1998, was 1.35% of total loans and 264% of
non-performing loans. Net charge-offs at March 31, 1998 were 0.31% of average
loans. Additionally, the Company's net charge-offs to average loans ratio has
averaged 0.16% over the last five years ended December 31, 1997.
In addition to emphasizing credit quality, management has also ensured
sufficient liquidity by maintaining an investment portfolio of $989.4 million at
March 31, 1998. Of the investment portfolio, 3.9% is invested in U.S. government
obligations and 92.0% in mortgage-backed securities with a weighted average life
of 4.7 years. Total investment securities decreased $71 million during 1997 as a
result of shifting funds into higher yielding loan portfolios.
In August 1997, the Company completed its acquisition of First Citizens
Financial Corporation, a $674 million financial institution with 15 branches in
the Montgomery and Frederick Counties of Maryland. The Company will continue to
evaluate business combination opportunities. As a result, business combinations
may take place in the future involving the payment of consideration by the
Company in the form of cash, debt, or equity securities.
The Company's strategy is to continue to develop its community banking
franchise in the Baltimore/Washington, D.C. corridor as well as develop the
Northern Virginia market by emphasizing personalized and responsive banking
services in the communities in which it operates, as well as continuing to
develop its portfolio and indirect consumer lending operations. Management
believes that the increasing consolidation in the financial services industry,
particularly in its principal market area, provides the Company with significant
opportunities as the larger regional institutions focus increasingly on higher
dollar credits and less personalized forms of service delivery.
The Company's principal executive offices are located at 114 East Lexington
Street, Baltimore, Maryland 21202, and its telephone number at such address is
(410) 277-7000.
PROVIDENT TRUST I
The Issuer Trust is a statutory business Trust created under Delaware law
on April 3, 1998 and which is governed by the Trust Agreement. The Issuer Trust
exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures are the sole assets of the Issuer Trust, and payments
under the Junior Subordinated Debentures are the sole source of revenue of the
Issuer Trust.
THE EXCHANGE OFFER
The Exchange Offer......... Up to $40,000,000 aggregate Liquidation Amount of
Original Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount
of Exchange Capital Securities. Original Capital
Securities may be tendered for exchange in whole
or in part in a Liquidation
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<PAGE> 11
Amount of $100,000 (100 Capital Securities) or
any integral multiple of $1,000 (one Capital
Security) in excess thereof. The Company and the
Trust are making the Exchange Offer in order to
satisfy their obligations under the Registration
Rights Agreement relating to the Original Capital
Securities. For a description of the procedures
for tendering Original Capital Securities, see "
The Exchange Offer -- Procedures for Tendering
Original Capital Securities."
Expiration Date............ 5:00 p.m., Eastern Time, on September 3, 1998,
unless the Exchange Offer is extended by the
Company or the Trust (in which case the
Expiration Date will be the latest date and time
to which the Exchange Offer is extended). See
"The Exchange Offer -- Terms of the Exchange
Offer."
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 Original Capital
Securities being tendered. See "The Exchange
Offer -- Conditions to the Exchange Offer."
Terms of 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 Original
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 Original Capital Securities
tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Original
Capital Securities to withdraw their tendered
Original Capital Securities or (iv) to waive any
condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Terms of the Exchange Offer."
Withdrawal Rights.......... Tenders of Original 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
Original Capital
Securities............... Certain brokers, dealers, commercial banks, trust
companies and other nominees who hold Original
Capital Securities through DTC must effect
tenders by book-entry transfer through DTC's
Automated Tender Offer Program ("ATOP").
Beneficial owners of Original 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 Original Capital Securities
pursuant to the Exchange Offer. Tendering holders
of Original Capital Securities that do not use
ATOP 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,
either with the certificates of the Original
Capital Securities to be tendered or in
compliance with the specified procedures for
guaranteed delivery of Original Capital
Securities. Tendering holders of Original Capital
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<PAGE> 12
Securities that use ATOP will, by so doing,
acknowledge that they are bound by the terms of
the Letter of Transmittal. See "The Exchange
Offer -- Procedures for Tendering Original
Capital Securities."
Letters of Transmittal and certificates
representing Original Capital Securities should
not be sent to the Corporation or the Trust. Such
documents should only be sent to the Exchange
Agent.
Resales of Exchange 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 these interpretations by the staff of the
Division of Corporation Finance of the
Commission, and subject to the two immediately
following sentences, the Company and the Trust
believe that Exchange Capital Securities issued
pursuant to this Exchange Offer in exchange for
Original Capital Securities may be offered for
resale, resold and otherwise transferred by a
holder thereof (other than a holder who is
broker-dealer) without further compliance with
the registration and prospectus delivery
requirements of the Securities Act, provided that
such Exchange 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 Exchange
Capital Securities. However, any holder of
Original 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 Exchange Capital Securities,
or any broker-dealer who purchased the Original
Capital Securities from the Trust to resell
pursuant to 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 Original 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 Original Capital Securities unless such sale
is made pursuant to an exemption from such
requirements. In addition, as described below, if
any broker-dealer holds Original Capital
Securities acquired for its own account as a
result of market-making or other trading
activities and exchanges such Original Capital
Securities for Exchange Capital Securities, then
such broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resales of such Exchange
Capital Securities.
Each holder of Original Capital Securities who
wishes to exchange Original Capital Securities
for Exchange Capital Securities in the Exchange
Offer will be required to represent in the Letter
of Trans-
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<PAGE> 13
mittal or by transmission of an Agent's Message
that (i) it is not an affiliate of the Company or
the Trust, (ii) any Exchange 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 Exchange 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 Exchange Capital Securities. The Letter of
Transmittal contains the foregoing
representations. Each Participating Broker-Dealer
that receives Exchange Capital Securities for its
own account pursuant to the Exchange Offer will
be deemed to have acknowledged by execution of
the Letter of Transmittal or delivery of an
Agent's Message (as defined herein) that it
acquired the Original 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 Exchange
Capital Securities. The Letter of Transmittal
states that, by so acknowledging and by
delivering a prospectus, a Participating
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 Participating Broker-Dealers who
acquired Original Capital Securities for their
own accounts as a result of market-making
activities or other trading activities may
fulfill their prospectus delivery requirements
with respect to the Exchange Capital Securities
received upon exchange of such Original Capital
Securities (other than Original Capital
Securities which represent an unsold allotment
from the original sale of the Original 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
Exchange 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
Exchange Capital Securities received in exchange
for Original Capital Securities where such
Original 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 -- Resales of Exchange 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
Exchange Capital Securities for a period ending
90 days after the Expiration date (subject to
extension under certain limited circumstances)
or, if earlier, when all such Exchange Capital
Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of
Distribution." Any person, including any
Participating Broker-Dealer, who is an
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<PAGE> 14
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 Exchange Capital Securities."
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is Bankers 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.
Use of Proceeds............ Neither the Company nor the Trust will receive any
cash proceeds from the issuance of the Exchange
Capital Securities offered hereby. See "Use of
Proceeds."
Certain Federal Income Tax
Considerations; ERISA
Considerations........... Holders of Original Capital Securities should
review the information set forth under "Certain
Federal Income Tax Considerations" and "ERISA
Considerations" prior to tendering Original
Capital Securities in the Exchange Offer.
THE EXCHANGE CAPITAL SECURITIES
Securities Offered......... Up to $40,000,000 aggregate Liquidation Amount of
the Trust's Exchange Capital Securities which
have been registered under the Securities Act
(Liquidation Amount $1,000 per Exchange Capital
Security). The Exchange Capital Securities will
be issued and the Original Capital Securities
were issued under the Trust Agreement. The
Exchange Capital Securities and any Original
Capital Securities which remain outstanding after
consummation of 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 Trust Agreement. See
"Description of Capital Securities -- Voting
Rights; Amendment of the Trust Agreement." The
terms of the Exchange Capital Securities are
identical in all material respects to the terms
of the Original Capital Securities, except that
the Exchange Capital Securities have been
registered under the Securities Act and therefore
will not be subject to certain restrictions on
transfer under federal and state securities laws
and will not provide for any increase in the
Distribution rate thereon. See "The Exchange
Offer."
Distribution Dates......... April 15th and October 15th of each year.
Extension Periods.......... So long as no Debenture Event of Default has
occurred and is continuing, distributions on the
Capital Securities will be deferred for the
duration of any Extension Period elected by the
Company with respect to the payment of interest
on the Junior Subordinated Debentures. No
Extension Period will exceed 10 consecutive
semi-annual periods, end on a date other than an
Interest Payment Date or extend beyond the Stated
Maturity Date. See "Description of Junior
Subordinated Debentures -- Option to Extend
Interest Payment Period" and "Certain
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<PAGE> 15
Federal Income Tax Considerations -- Interest
Income and Original Issue Discount."
Ranking.................... The Exchange Capital Securities will rank pari
passu, and payments thereon will be made pro
rata, with the Original Capital Securities and
the Common Securities except as described under
"Description of Capital Securities --
Subordination of Common Securities." The
Exchange Junior Subordinated Debentures will
rank pari passu with the Original Junior
Subordinated Debentures, and all other junior
subordinated debentures issued by the Company
(the "Other Debentures") and sold to other
trusts established or to be established by the
Company, in each case similar to the Trust (the
"Other Trusts"), and will be unsecured and
subordinate and junior in right of payment to
all Senior Indebtedness of the Company to the
extent and in the manner set forth in the
Indenture. See "Description of Junior
Subordinated Debentures." The Exchange Guarantee
will rank pari passu with the Original
Guarantee, and all other guarantees issued by
the Company with respect to capital securities
issued or to be issued by Other Trusts (the
"Other Guarantees") and will constitute an
unsecured obligation of the Company and will
rank subordinate and junior in right of payment
to all Senior Indebtedness of the Company to the
extent and in the manner set forth in the
Guarantee Agreement. See "Description of
Guarantee."
Redemption................. The Trust Securities are subject to mandatory
redemption (i) in whole, but not in part, at the
Stated Maturity upon repayment of the Junior
Subordinated Debentures, (ii) in whole, but not
in part, at any time prior to April 15, 2008,
contemporaneously with the optional redemption at
any time by the Company of the Junior
Subordinated Debentures at any time within 90
days following the occurrence and during the
continuation of a Tax Event, Investment Company
Event or Capital Treatment Event in each case,
subject to possible regulatory approval and (iii)
in whole or in part, at any time on or after
April 15, 2008, contemporaneously with the
optional redemption by the Company of the Junior
Subordinated Debentures in whole or in part, in
each case at the applicable Redemption Price (as
defined herein). See "Description of Capital
Securities -- Redemption."
Ratings.................... The Exchange Capital Securities are expected to be
rated "BB" by Standard & Poor's Ratings Services
and "BB+" by Tomson BankWatch, Inc. A security
rating is not a recommendation to buy, sell, or
hold securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization.
Transfer................... The Exchange Capital Securities will be issued, and
may be transferred, only in blocks having a
Liquidation Amount of not less than $100,000 (100
Exchange Capital Securities). Any transfer, sale
or other disposition of Exchange Capital
Securities resulting in a block having a
Liquidation Amount of less than $100,000 shall be
deemed to be void and of no legal effect
whatsoever.
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<PAGE> 16
Absence of Market for the
Exchange Capital
Securities............... The Exchange Capital Securities will be a new issue
of securities for which there currently is no
market. Although the Initial Purchaser has
informed the Issuer Trust and the Company that it
currently intends to make a market in the
Exchange Capital Securities, the Initial
Purchaser is not obligated to do so, and any such
market making may be discontinued at any time
without notice. Accordingly, there can be no
assurance as to the development or liquidity of
any market for the Exchange Capital Securities.
See "Plan of Distribution."
For additional information regarding the Exchange Capital Securities, see
"Provident Trust I," "Use of Proceeds," "Description of Capital Securities,"
"Description of Junior Subordinated Debentures," "Description of Guarantee,"
"Relationship Among the Capital Securities, the Junior Subordinated Debentures
and the Guarantee," "Certain Federal Income Tax Consequences" and "Certain ERISA
Considerations."
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<PAGE> 17
RISK FACTORS
Prospective purchasers of the Exchange Capital Securities should carefully
review the information contained elsewhere in this Prospectus and should
particularly consider the following matters. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases such as
"intended," "will be positioned," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
the Company's current expectations. To the extent any of the information
contained or incorporated by reference in this Prospectus constitutes a
"forward-looking statement" as defined in Section 21E(i)(1) 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.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE EXCHANGE GUARANTEE AND THE
EXCHANGE JUNIOR SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company
for the benefit of the holders of Capital Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness. At March 31, 1998, the Senior Indebtedness of the Company
aggregated approximately $488.3 million. None of the Junior Subordinated
Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Indebtedness, that may be
incurred by the Company. See "Description of Guarantee -- Status of the Exchange
Guarantee" and "Description of Junior Subordinated Debentures -- Subordination."
The ability of the Issuer Trust to pay amounts due on the Capital
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
STATUS OF THE COMPANY AS A BANK HOLDING COMPANY
Because the Company is a bank holding company, its right to participate in
any distribution of assets of the Bank upon such Bank's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such a distribution) is subject to the
prior claims of creditors of that Bank (including its depositors), except to the
extent that the Company may itself be recognized as a creditor of the Bank. At
March 31, 1998, the Bank had total liabilities (excluding liabilities owed to
the Company) of approximately $3.7 billion, including deposits. Accordingly, the
Capital Securities effectively will be subordinated to all existing and future
liabilities of the Bank, and holders of Capital Securities should look only to
the assets of the Company for payments on the Capital Securities. Neither the
Guarantee nor the Junior Subordinated Indenture places any limitation on the
amount of secured or unsecured debt that may be incurred by the Bank in the
future. See "Description of Junior Subordinated Debentures" and "Description of
Guarantee."
In addition, almost all of the operating assets of the Company are owned by
the Bank. The Company relies primarily on dividends from the Bank to meet its
obligations for the payment of principal and interest on its separate debt
obligations and corporate expenses and for payment of dividends on its
outstanding common stock. The payment of dividends by the Bank to the Company is
subject to certain legal and regulatory limitations, is subject to ongoing
review by banking regulators and, under certain circumstances, may require prior
approval by banking regulatory authorities. At March 31, 1998, approximately
$144.8 million was available for payment of dividends to the Company from the
Bank without prior regulatory approval. The Bank also is subject to certain
restrictions under federal law on extensions of credit to, and certain other
transactions with, the Company and certain of its other affiliates, and on
investments in the stock or other securities thereof. Such restrictions prevent
the Company and such other affiliates from borrowing from the Bank unless the
loans are secured by various types of collateral. Further, such secured loans or
other transactions and investments by the Bank are generally limited in amount
as to the Company and as to each such other affiliate to 10% of such Bank's
capital and surplus and as to the Company and all such other affiliates to an
aggregate of 20% of such Bank's capital and surplus.
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OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated 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 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Debenture Events of Default."
As a consequence of any such deferral, semi-annual Distributions on the Capital
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions (such additional Distributions
hereinafter are referred to as "Additional Amounts") thereon during any
Extension Period at a rate equal to 8.29% per annum, compounded semi-annually
from the relevant payment date for such Distributions, computed on the basis of
a 360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. Additional Amounts payable for each full Distribution
period will be computed by dividing the rate per annum by two. The term
"Distributions" as used herein shall include any such Additional Amounts. During
any such Extension Period, the Company may not (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu in all respects with or
junior in interest to the Junior Subordinated Debentures (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or shareholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any shareholder's rights
plan, or the issuance of rights, stock or other property under any shareholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 10 consecutive semi-annual periods
or extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at a rate equal to 8.29% per
annum, compounded semi-annually), the Company may elect to begin a new Extension
Period subject to the above conditions. No interest shall be due and payable
during an Extension Period, except at the end thereof. The Company must give the
Issuer Trustees notice of its election of such Extension Period at least one
Business Day (as defined herein) prior to the earlier of (i) the date the
Distributions on the Capital Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee will give
notice of the Company's election to begin a new Extension Period to the holders
of the Capital Securities. Subject to the foregoing, there is no limitation on
the number of times that the Company may elect to begin an Extension Period. See
"Description of Capital Securities -- Distributions" and "Description of Junior
Subordinated Debentures -- Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) for United
States federal income tax purposes in respect of its pro rata share of the
Junior Subordinated Debentures held by the Issuer Trust. As a result, a holder
of Capital Securities will
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include such original issue discount income in gross income for United States
federal income tax purposes in advance of the receipt of cash attributable to
such original issue discount interest income, and will not receive the cash
related to such income from the Issuer Trust if the holder disposes of the
Capital Securities prior to the record date for the payment of Distributions
with respect to such Extension Period. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" and "-- Sale or
Redemption 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 such
right in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of its Capital Securities during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Capital Securities. 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 undivided beneficial
interests in the assets of the Issuer Trust) may be more volatile than the
market prices of other securities on which original issue discount accrues that
are not subject to such deferrals.
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time within
90 days following the occurrence of such Tax Event, Investment Company Event or
Capital Treatment Event and thereby cause a mandatory redemption of the Capital
Securities and Common Securities. Any such redemption shall be at a price equal
to the aggregate liquidation amount of the Capital Securities and Common
Securities, respectively, together with accumulated Distributions to but
excluding the date fixed for redemption and the related amount of the premium,
if any, paid by the Company upon the concurrent redemption of such Junior
Subordinated Debentures. The ability of the Company to exercise its rights to
redeem the Junior Subordinated Debentures prior to the Stated Maturity may be
subject to prior regulatory approval by the Federal Reserve, if then required
under applicable Federal Reserve capital guidelines or policies. See
"Description of Junior Subordinated Debentures -- Redemption" and "Description
of Capital Securities -- Liquidation Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official 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 (i) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Original Junior Subordinated
Debentures or Exchange Junior Subordinated Debentures, (ii) interest payable by
the Company on the Original Junior Subordinated Debentures or Exchange Junior
Subordinated Debentures is not, or within 90 days of the delivery of such
opinion will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes or (iii) the Issuer Trust is, or will be
within 90 days of the delivery of the opinion, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Capital Securities.
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A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as "Tier 1 capital" (or the then equivalent thereof) for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
POSSIBLE TAX LAW CHANGES
In 1996 and 1997, the Clinton Administration proposed to amend the Code to
deny deductions of interest on instruments with features similar to those of the
Junior Subordinated Debentures when issued under arrangements similar to the
Issuer Trust. That proposal was not passed by Congress. The Clinton
Administration did not include this proposal in its fiscal year 1999 budget
proposal. However, there can be no assurance that future legislative proposals,
future regulations or official administrative pronouncements or future judicial
decisions will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company, upon approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve,
to cause a redemption of the Capital Securities, as described more fully under
"Description of Capital Securities -- Redemption."
EXCHANGE OF EXCHANGE CAPITAL SECURITIES FOR EXCHANGE JUNIOR SUBORDINATED
DEBENTURES
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company to dissolve the Issuer Trust may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Capital
Securities -- Liquidation Distribution Upon Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Capital Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Capital Securities. See
"Certain Federal Income Tax Consequences -- Distribution of Exchange Junior
Subordinated Debentures to Holders of Exchange Capital Securities."
RIGHTS UNDER THE EXCHANGE GUARANTEE
Bankers Trust Company will act as the Guarantee Trustee under the Guarantee
and will hold the Guarantee for the benefit of the holders of the Capital
Securities. Bankers Trust Company will also act as Debenture Trustee for the
Junior Subordinated Debentures and as Property Trustee under the Trust
Agreement. Bankers Trust (Delaware) will act as Delaware Trustee under the Trust
Agreement. The Guarantee guarantees to the holders of the Capital Securities the
following payments, to the extent not paid by or on behalf of the Issuer Trust:
(i) any accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time; (ii) the Redemption Price (as defined in "Description of
Capital Securities -- Redemption") with respect to any Capital Securities called
for redemption, to the extent that the Issuer Trust has funds on hand available
therefor at such time; and (iii) upon a voluntary or involuntary dissolution of
the Issuer Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the
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aggregate of the Liquidation Amount and all accumulated and unpaid Distributions
to the date of payment, to the extent that the Issuer Trust has funds on hand
available therefor at such time, and (b) the amount of assets of the Issuer
Trust remaining available for distribution to holders of the Capital Securities
on liquidation of the Issuer Trust. The Guarantee is subordinated as described
under "-- Ranking of Subordinated Obligations Under the Exchange Guarantee and
the Exchange Junior Subordinated Debentures" and "Description of
Guarantee -- Status of the Exchange Guarantee." The holders of not less than a
majority in aggregate Liquidation Amount of the outstanding Capital Securities
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any Trust power conferred upon the Guarantee Trustee
under the Guarantee. Any holder of the Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may 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, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, 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 such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder (a "Direct Action").
In connection with such Direct Action, the Company will have a right of set-off
under the Junior Subordinated Indenture to the extent of any payment made by the
Company to such holder of Capital Securities in the Direct Action. Except as
described herein, holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities,"
"-- Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Capital Securities by acceptance thereof
agrees to the provisions of the Exchange Guarantee and the Exchange Junior
Subordinated Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of the Issuer Trust's rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement and described
herein. The Property Trustee and the holders of all the Common Securities may,
subject to certain conditions, amend the Trust Agreement without the consent of
holders of Capital Securities to cure any ambiguity or make other provisions not
inconsistent with the Trust Agreement or to ensure that the Issuer Trust (i)
will not be taxable as a corporation for United States federal income tax
purposes, or (ii) will not be required to register as an "investment company"
under the Investment Company Act. See "Description of Capital
Securities -- Voting Rights; Amendment of Trust Agreement" and "-- Removal of
Issuer Trustees; Appointment of Successors."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities,
or the market prices for Junior Subordinated Debentures that may be distributed
in exchange for Capital Securities if a liquidation of the Issuer Trust occurs.
Accordingly, the Capital Securities or the Junior Subordinated Debentures that a
holder of Capital Securities may receive on liquidation of the Issuer Trust may
trade at a discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures on termination of the Issuer Trust, prospective
purchasers of Capital
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Securities are also making an investment decision with regard to the Junior
Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein. See "Description
of Junior Subordinated Debentures."
ABSENCE OF PUBLIC MARKET
The Original Capital Securities were issued to, and the Company believes
such securities are currently owned by, a relatively small number of beneficial
owners. The Original Capital Securities have not been registered under the
Securities Act and will be subject to restrictions on transferability if they
are not exchanged for the Exchange Capital Securities. Although the Exchange
Capital Securities may 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. Capital Securities may
be transferred by the holders thereof only in blocks having a Liquidation Amount
of not less than $100,000 (100 Capital Securities). The Company and the Trust
have been informed by the Initial Purchaser that it intends to make a market in
the Exchange Capital Securities. However, the Initial Purchaser is not obligated
to do so and any such market-making activity may be terminated at any time
without notice to the holders of the Exchange Capital Securities. In addition,
such market-making activity will be subject to the limits of the Securities Act
and may be limited during the pendency of the Exchange Offer. Accordingly, no
assurance can be given that an active public or other market will develop for
the Exchange Capital Securities or the Original Capital Securities, or as to the
liquidity of or the trading market for the Exchange Capital Securities or the
Original Capital Securities. If an active public market does not develop, the
market price and liquidity of the Exchange Capital Securities may be adversely
affected.
If a public trading market develops for the Exchange Capital Securities,
future trading prices of the Capital Securities will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results, and the market for similar securities. Depending on these and
other factors, the Exchange Capital Securities may trade at a discount.
Notwithstanding the registration of the Exchange Capital Securities in the
Exchange Offer, holders who are Affiliates of the Company or the Trust may
publicly offer for sale or resell the Exchange Capital Securities only in
compliance with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives Exchange Capital Securities for its own
account in exchange for Original Capital Securities, where such Original 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 Exchange Capital Securities.
See "Plan of Distribution."
GROWTH
The Company has grown and may seek to grow by acquiring other financial
institutions and branches. However, competition for acquisitions in the
Company's market area is highly competitive. Moreover, any acquisitions will be
subject to regulatory approval and there can be no assurance that the Company
will obtain such approvals. The Company may not be as successful in the future
as it has been in the past in identifying further acquisition candidates,
integrating acquired institutions or preventing deposit erosion at acquired
institutions or branches. Furthermore, the Company's ability to grow through
acquisitions will depend on its maintaining sufficient regulatory capital levels
and on economic conditions.
COMPETITION
The banking business is highly competitive. In its primary market area, the
Bank competes with other commercial banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and
investment banking firms operating locally and elsewhere. Certain of the Bank's
primary competitors have substantially greater resources and lending limits than
the Bank and may
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offer certain services the Bank does not provide at this time. The profitability
of the Company depends upon the Bank's ability to continue to compete in its
primary market area.
DEVELOPMENTS IN TECHNOLOGY
The market for financial services, including banking services, is
increasingly affected by advances in technology, including developments in
telecommunications, data processing, computers, automation, Internet-based
banking, telebanking, debit cards and so-called "smart" cards. The ability of
the Company to compete successfully in its markets may depend on the extent to
which it is able to exploit such technological changes. However, there can be no
assurance that the development of these or any other new technologies, or the
Company's success or failure in anticipating or responding to such developments,
will materially affect the Company's business, financial condition and operating
results.
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL CAPITAL SECURITIES
The Original 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.
Original 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
Original Capital Securities which remain outstanding will not be entitled to any
rights to have such Original Capital Securities registered under the Securities
Act or to any similar rights under the Registration Rights Agreement. The
Company and the Trust do not intend to register under the Securities Act any
Original Capital Securities which remain outstanding after consummation of the
Exchange Offer.
Although the Original Capital Securities have been designated for trading
in the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") market, to the extent that Original Capital Securities are tendered
and accepted in connection with the Exchange Offer, any trading market for
Original Capital Securities which remain outstanding after the Exchange Offer
could be adversely affected.
The Exchange Capital Securities and any Original Capital Securities which
remain outstanding after consummation of 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 Trust Agreement. See "Description of
Exchange Securities" and "Description of Capital Securities -- Voting Rights;
Amendment of the Trust Agreement."
The Original Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by
September 14, 1998 and declared effective by October 14, 1998, the Distribution
rate borne by the Original Capital Securities commencing on April 17, 1998 will
increase by 0.25% per annum until the Exchange Offer is consummated. Upon
consummation of the Exchange Offer, holders of Original Capital Securities will
not be entitled to any increase in the Distribution rate thereon or any further
registration rights under the Registration Rights Agreement. The Exchange
Capital Securities will not be entitled to any such increase in the Distribution
rate thereon. See "Description of Original Capital Securities."
EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth under "The Exchange Offer -- Conditions
to the Exchange Offer," the exchange of the Original Capital Securities for
Exchange Capital Securities pursuant to the Exchange Offer will be made only
after a timely receipt by the Trust of (i) Original Capital Securities or a
book-entry confirmation of a book-entry transfer of Original Capital Securities
into the Exchange Agent's account at DTC, including an Agent's Message if the
tendering holder has not delivered a Letter of Transmittal, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or (in the case of a book-entry transfer) an
Agent's Message in lieu of the Letter of
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<PAGE> 24
Transmittal, and (iii) any other documents required by the Letter of
Transmittal. See "The Exchange Offer -- Acceptance for Exchange and Issuance of
Capital Securities" and "-- Procedures for Tendering Original Capital
Securities." Therefore, holders of the Original Capital Securities desiring to
tender such Original Capital Securities in exchange for Exchange Capital
Securities should allow sufficient time to ensure timely delivery. Neither the
Company nor the Trust is under any duty to give notification of defects or
irregularities with respect to the tenders of Original Capital Securities for
exchange.
PROVIDENT TRUST I
The Trust is a statutory business trust created under Delaware law pursuant
to the filing of a certificate of Trust with the Delaware Secretary of State.
The Trust is governed by the Trust Agreement among the Company, as Depositor,
Bankers Trust (Delaware), as Delaware Trustee, Bankers Trust Company, as
Property Trustee, the Administrators named therein, and the holders, from time
to time, of undivided beneficial interests in the assets of the Trust. Two
individuals are selected by the holders of the Common Securities to act as
administrators with respect to the Trust (the "Administrators"). The Company, as
the holder of the Common Securities, has selected two individuals who are
officers of the Company to serve as the Administrators. See "Description of
Capital Securities -- Miscellaneous." The Issuer Trust exists for the exclusive
purposes of (i) issuing and selling the Trust Securities, (ii) using the
proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary, convenient or incidental thereto (such as registering the transfer of
the Trust Securities). Accordingly, the Junior Subordinated Debentures are the
sole assets of the Issuer Trust, and payments under the Junior Subordinated
Debentures are the sole source of revenue of the Issuer Trust.
All the Common Securities are owned by the Company. The Common Securities
rank pari passu, and payments will be made thereon pro rata, with the Capital
Securities, except that upon the occurrence and during the continuation of a
Debenture Event of Default arising as a result of any failure by the Company to
pay any amounts in respect of the Junior Subordinated Debentures when due, the
rights of the holders of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Capital Securities. See
"Description of Capital Securities -- Subordination of Common Securities." The
Company acquired Common Securities in an aggregate liquidation amount equal to
3% of the total capital of the Issuer Trust. The Issuer Trust has a term of 31
years, but may dissolve earlier as provided in the Trust Agreement. The address
of the Delaware Trustee is Bankers Trust (Delaware), E.A. Delle Donne Corporate
Center, Montgomery Building, 1011 Centre Road, Suite 200, Wilmington, Delaware
19805-1266, telephone number (302) 636-3301. The address of the Property
Trustee, the Guarantee Trustee and the Debenture Trustee is Bankers Trust
Company, Four Albany Street, 4th Floor, New York, NY 10006, telephone number
(212) 250-2500.
PROVIDENT BANKSHARES CORPORATION
GENERAL
The Company is a registered bank holding company, chartered under the laws
of the State of Maryland, and headquartered in Baltimore, Maryland. The Company
operates through its wholly-owned subsidiary, the Bank, a Maryland-chartered
commercial bank that maintains, as of March 31, 1998, 69 retail banking offices
(of which 51 are traditional branch offices and 18 are in-store facilities) in
seven Maryland counties in the Baltimore/Washington D.C. corridor, as well as
Baltimore City and southern York County, Pennsylvania. The Company provides a
broad range of banking services with an emphasis on consumer, real estate
mortgage, and commercial business loans. Through three subsidiaries, the Bank
provides mortgage-banking products, purchased annuities and mutual funds, and a
variety of credit insurance products. At March 31, 1998, the Company had total
assets of approximately $4.0 billion, total deposits of $2.9 billion, and total
consolidated shareholders' equity of approximately $280.0 million.
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The Company has experienced significant growth since the management team,
led by Carl W. Stearn and Peter M. Martin, was retained in 1990 to reorient the
Company's operations from a traditional thrift institution to a commercial
banking operation. In April 1998, Mr. Stearn retired as Chairman of the Board of
Directors and Chief Executive Officer of the Company, and Mr. Martin assumed
those positions. Mr. Stearn remains a director of the Company. During their
tenure, the Company has grown from approximately $1.5 billion in assets and 38
banking offices to approximately $4.0 billion in assets and 69 banking offices.
In developing the Company's bank-oriented franchise, management has implemented
extensive modifications to the lending, funding, balance sheet management, and
operational functions of the Company to position the Company for future
profitable growth.
Provident Bankshares Corporation recorded net income for the quarter ended
March 31, 1998 of $9.3 million or $.38 per share basic and $.36 diluted. This
represented a 17.4% increase in net income over the same period a year ago. Net
income for the quarter ended March 31, 1997 was $7.9 million or $.33 per share
basic and $.33 diluted. The higher earnings in 1998 were mainly due to loan
growth (particularly consumer loans), increased fee income and controlled
operating expenses. Average consumer loans outstanding grew $486 million, as
total average loans increased 21% to $2.72 billion. The increase in non-interest
income from $10.3 million at March 31, 1997 to $12.8 million at March 31, 1998
was driven by a 15% increase in fee based services on higher account volume.
Even with higher account volume and continued investment in business
initiatives, operating expenses were limited to a 3.1% growth rate. There was a
$2.1 million increase in the provision for loan losses during the quarter with
net charge-offs of $2.1 million. The increase in provision was mainly related to
the loan portfolio growth.
The Company earned $33.6 million on an operating basis in 1997, excluding
an $8.6 million one-time acquisition related charge, which represents the
seventh consecutive year of double-digit increases in operating earnings. Such
earnings represent an improvement in the Company's returns on average assets and
average equity from 0.62% in 1993 to 0.92% (excluding merger-related expenses)
in 1997 and from 9.38% in 1993 to 13.34% (excluding merger-related expenses) in
1997, respectively. Additionally, the Company's efficiency ratio has improved
from 79.9% in 1993 to 64.8% (excluding merger-related expenses) in 1997.
The Company has transitioned its asset base into higher yielding products
since 1993, with investment securities and residential mortgages declining from
53% at year-end 1993 to 37% with loans available for sale of earning assets at
March 31, 1998. Loan growth has averaged 10-12% in recent years, supported by
consumer and commercial loan emphasis as well as disciplined wholesale purchases
of seasoned consumer portfolios. At March 31, 1998, Provident's loan balance
totaled $2.7 billion and was comprised of 61.7% consumer, 24.9% commercial and
commercial real estate, and 13.4% residential mortgage.
The Company does not believe that asset quality has been sacrificed in
recent years as a result of loan growth. At March 31, 1998, the Company had
non-performing loans of $14.3 million, or 0.51% of total loans. The allowance
for loan losses at March 31, 1998, was 1.35% of total loans and 264% of
non-performing loans. Net charge-offs at March 31, 1998 were 0.31% of average
loans. Additionally, the Company's net charge-offs to average loans ratio has
averaged 0.16% over the last five years ended December 31, 1997.
In addition to emphasizing credit quality, management has also ensured
sufficient liquidity by maintaining an investment portfolio of $989.4 million at
March 31, 1998. Of the investment portfolio, 3.9% is invested in U.S. government
obligations and 92.0% in mortgage-backed securities with a weighted average life
of 4.7 years. Total investment securities decreased $71 million during 1997 as a
result of shifting funds into higher yielding loan portfolios.
In August 1997, the Company completed its acquisition of First Citizens
Financial Corporation, a $674 million institution with 15 branches in the
Montgomery and Frederick Counties of Maryland. The Company will continue to
evaluate business combination opportunities. As a result, business combinations
may take place in the future involving the payment of consideration by the
Company in the form of cash, debt, or equity securities.
The Company's strategy is to continue to develop its community banking
franchise in the Baltimore/Washington, D.C. corridor as well as develop the
Northern Virginia market by emphasizing personal-
25
<PAGE> 26
ized and responsive banking services in the communities in which it operates, as
well as continuing to develop its portfolio and indirect consumer lending
operations. Management believes that the increasing consolidation in the
financial services industry, particularly in its principal market area, provides
the Company with significant opportunities as the larger regional institutions
focus increasingly on higher dollar credits and less personalized forms of
service delivery.
The Company's principal executive offices are located at 114 East Lexington
Street, Baltimore, Maryland 21202, and its telephone number at such address is
(410) 277-7000.
For additional information regarding the Company and its financial
condition and results of operations, see "Selected Consolidated Financial Data
and Other Information," and "Capitalization."
NEITHER THE CAPITAL SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES ARE
OBLIGATIONS OF OR GUARANTEED BY THE BANK.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following unaudited table presents the consolidated ratios of earnings
to fixed charges of the Company. The consolidated ratio of earnings to fixed
charges has been computed by dividing income before income taxes and fixed
charges by fixed charges. Fixed charges represent all interest expense (ratios
are presented both excluding and including interest on deposits). Interest
expense (other than on deposits) includes interest on borrowed funds, federal
funds purchased and securities sold under agreements to repurchase, and other
funds borrowed.
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings to fixed charges:
Excluding interest on deposits.......... 2.17% 1.76x 1.80x 1.75x 2.11x 2.37x
Including interest on deposits.......... 1.33% 1.25x 1.29x 1.27x 1.30x 1.26x
</TABLE>
26
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
Presented below is selected consolidated financial information for the
Company for the periods specified. The consolidated financial information is not
necessarily indicative of the results for any future period and is qualified in
its entirety by, and should be read in conjunction with, the detailed
information contained in the Company's consolidated financial statements
contained elsewhere herein and the other information contained in its reports
filed with the Commission under the Exchange Act. See "Available Information."
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS ENDED
MARCH 31, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected balance sheet data:
Total assets............. $4,024,894 $3,639,239 $3,926,739 $3,485,618 $3,170,390 $2,842,050 $2,366,199
Total stockholders'
equity................. 280,055 241,118 270,182 238,798 223,048 184,358 164,915
Loans.................... 2,788,374 2,309,745 2,701,068 2,247,873 1,752,851 1,707,389 1,524,860
Deposits................. 2,879,861 2,434,558 2,754,515 2,286,144 2,056,436 1,905,584 1,719,148
Selected results of
operations:
Interest income
(tax-equivalent)....... 74,005 66,719 $ 280,167 $ 248,311 $ 224,236 $ 172,351 $ 156,717
Interest expense......... 41,956 36,933 156,718 137,354 122,819 82,254 74,981
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
(tax-equivalent)....... 32,049 29,786 123,449 110,957 101,417 90,097 81,736
Provision for loan
losses................. 2,975 834 9,953 10,011 1,517 (678) 2,845
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses................. 29,074 28,952 113,496 100,946 99,900 90,775 78,891
Non-interest income...... 11,559 10,267 41,672 44,509 34,573 29,122 28,097
Net securities gains
(losses)............... 1,209 71 2,337 5,556 (2,683) 695 2,951
Merger related
expenses(1)............ -- -- 10,047 -- -- -- --
Non-interest expense..... 27,621 26,802 107,816 110,323 97,416 95,164 89,843
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before taxes and
cumulative effect of
change in accounting
principle.............. 14,221 12,488 39,642 40,688 34,374 25,428 20,096
Income tax expense
(tax-equivalent)....... 4,916 4,559 14,683 14,500 12,242 9,263 6,863
Cumulative effect of
change in accounting
principle(2)........... -- -- -- -- -- -- 777
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............... $ 9,305 $ 7,929 $ 24,959 $ 26,188 $ 22,132 $ 16,165 $ 14,010
========== ========== ========== ========== ========== ========== ==========
Per share amounts:
Net income before
cumulative effect of
change in accounting
principle.............. $ 0.38 $ 0.33 $ 1.05 $ 1.12 $ 0.97 $ 0.77 $ 0.65
Cumulative effect of
change in accounting
principle(2)........... -- -- -- -- -- -- .04
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income --
basic(1)........... $ 0.38 $ 0.33 $ 1.05 $ 1.12 $ 0.97 $ 0.77 $ 0.69
Net income --
diluted(1)......... 0.36 0.33 1.01 1.07 0.92 0.73 0.65
========== ========== ========== ========== ========== ========== ==========
Cash dividends
paid............... $ 0.125 $ 0.105 $ 0.42 $ 0.33 $ 0.25 $ 0.17 $ 0.12
========== ========== ========== ========== ========== ========== ==========
Tax-equivalent
adjustment(3).............. $ 309 $ 231 $ 1,055 $ 832 $ 754 $ 417 $ 317
========== ========== ========== ========== ========== ========== ==========
Ratios:
Return on average
assets(1).............. .97% .91% .68% .79% .75% .66% .62%
Return on average
equity(1).............. 14.11 13.21 9.91 11.41 10.88 9.55 9.38
Stockholders' equity to
assets................. 6.96 6.63 6.88 6.85 7.04 6.49 6.97
Average equity to average
assets................. 6.84 6.88 6.89 6.91 6.85 6.95 6.65
Dividend payout ratio.... 32.89 30.88 41.51 31.25 26.80 23.38 18.84
</TABLE>
- ---------------
(1) Exclusive of after tax merger related expenses incurred during 1997, net
income would have been $33.6 million. Return on average assets and return on
average equity for 1997 would have been .92% and 13.34%, respectively. Basic
net income per share and diluted net income per share would have been $1.41
and $1.36, respectively.
(2) In 1993, the cumulative effect of change in accounting principle included a
$1,510 ($.08 per share) income tax benefit and a $733 ($.04 per share) cost
of purchased mortgage servicing rights.
(3) Tax-advantaged income has been adjusted to a tax-equivalent basis using the
combined statutory federal and state income tax rate in effect of 39.55% in
1997-1994 and 38.62% in 1993.
27
<PAGE> 28
PROVIDENT TRUST I
The Trust is a statutory business Trust created under Delaware law pursuant
to the filing of a certificate of Trust with the Delaware Secretary of State.
The Issuer Trust is governed by the Trust Agreement among the Company, as
Depositor, Bankers Trust (Delaware), as Delaware Trustee, Bankers Trust Company,
as Property Trustee, the Administrators named therein, and the holders, from
time to time, of undivided beneficial interests in the assets of the Issuer
Trust. Two individuals will be selected by the holders of the Common Securities
to act as administrators with respect to the Issuer Trust. The Company, as the
holder of the Common Securities, selected two individuals who are officers of
the Company to serve as the Administrators. See "Description of Capital
Securities -- Miscellaneous." The Trust exists for the exclusive purposes of (i)
issuing and selling the Trust Securities, (ii) using the proceeds from the sale
of the Trust Securities to acquire the Junior Subordinated Debentures and (iii)
engaging in only those other activities necessary, convenient or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures are the sole assets of the Issuer Trust, and
payments under the Junior Subordinated Debentures are the sole source of revenue
of the Issuer Trust.
All the Common Securities are owned by the Company. The Common Securities
rank pari passu, and payments will be made thereon pro rata, with the Exchange
Capital Securities, except that upon the occurrence and during the continuation
of a Debenture Event of Default arising as a result of any failure by the
Company to pay any amounts in respect of the Junior Subordinated Debentures when
due, the rights of the holders of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Capital Securities. See
"Description of Capital Securities -- Subordination of Common Securities." The
Company acquired Common Securities in an aggregate liquidation amount equal to
3% of the total capital of the Issuer Trust. The Issuer Trust has a term of 31
years, but may dissolve earlier as provided in the Trust Agreement. The address
of the Delaware Trustee is Bankers Trust (Delaware), E.A. Delle Donne Corporate
Center, Montgomery Building, 1011 Centre Road, Suite 200, Wilmington, Delaware
19805-1266, telephone number (302) 636-3301. The address of the Property
Trustee, the Guarantee Trustee and the Debenture Trustee is Bankers Trust
Company, Four Albany Street, 4th Floor, New York, New York 10006, telephone
number (212) 250-2500.
USE OF PROCEEDS
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. The Original Capital
Securities surrendered in exchange for the Exchange Capital Securities will be
retired and cancelled.
The proceeds to the Trust from the offering of the Original Capital
Securities were $40,000,000 (without giving effect to approximately $950,000 of
commissions and expenses paid by the Company). All of the proceeds from the sale
of Original Capital Securities were invested by the Trust in the Original Junior
Subordinated Debentures. The Company invested approximately $40.0 million of the
net proceeds to it from its sale of the Original Junior Subordinated Debentures
in equity of the Bank. Net proceeds retained by the Company will be used by the
Company for general corporate purposes, including the investment of funds in the
Company's subsidiaries and potential future acquisitions. There currently are no
agreements, arrangements or understandings with respect to any potential
acquisitions.
28
<PAGE> 29
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1998 and as adjusted to give pro forma effect to the
Exchange Offer as if it had occurred on March 31, 1998. The issuance of the
Exchange Capital Securities in the Exchange Offer will have no effect on the
capitalization of the Company. This table is based on, and is qualified in its
entirety by, the historical consolidated financial statements of Provident
Bankshares Corporation, including the related notes thereto, which are included
in documents incorporated by reference herein, and should be read in conjunction
therewith. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENT AS ADJUSTED
-------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term debt.............................................. $488,297 $488,297
Corporation-obligated mandatorily redeemable original
capital securities of Subsidiary trust holding solely
Original Junior Subordinated Debentures of the Company.... -- $40,000 40,000
Stockholders' equity:
Common stock, par value $1.00 per share; 30,000,000
shares authorized; 23,537,844 shares issued.......... 23,538 23,538
Capital surplus........................................ 135,079 135,079
Retained earnings...................................... 119,885 119,885
Net unrealized holding gain on debt securities......... 4,043 4,043
Treasury stock, at cost, 228,066 shares................ (2,490) (2,490)
-------- ------- --------
Total stockholders' equity........................ 280,055 280,055
-------- ------- --------
Total capitalization......................... $768,352 $40,000 $808,352
======== ======= ========
</TABLE>
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 Capital Securities
will be included in the consolidated balance sheets of the Company and
appropriate disclosures about the Capital Securities, the Guarantee and the
Junior Subordinated Debentures will be included in the notes to the consolidated
financial statements of the Company. For financial reporting purposes,
distributions on the Capital Securities will be recorded in the consolidated
statements of income of the Company.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Original Capital Securities, the Company
and the Trust entered into the Registration Rights Agreement with the Initial
Purchaser, pursuant to which the Company and the Trust agreed to file and to use
their reasonable best efforts to cause to be declared effective by the
Commission a registration statement with respect to the exchange of the Exchange
Capital Securities for Original Capital Securities with terms identical in all
material respects to the terms of the Original 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 Exchange Capital Securities are the same as the form and terms of
the Original Capital Securities except that the Exchange Capital Securities
29
<PAGE> 30
(i) have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer under federal and state securities
laws and (ii) will not provide for any increase in the Distribution Rate
thereon. In that regard, the Original Capital Securities provide, among other
things, that, if a registration statement relating to the Exchange Offer has not
been filed by September 14, 1998, and declared effective by October 14, 1998,
the Distribution Rate borne by the Original Capital Securities, commencing on
April 17, 1998 will increase by 0.25% per annum until the Exchange Offer is
consummated. Upon consummation of the Exchange Offer, holders of Original
Capital Securities will not be entitled to any increase in the Distribution Rate
thereon or any further registration rights under the Registration Rights
Agreement. See "Risk Factors -- Consequences of a Failure to Exchange Original
Capital Securities" and "Description of Capital Securities."
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Original 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 Original 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, or any
participant in the DTC system whose name appears on a security position listing
as the holder of such Original Capital Securities and who desires to deliver
such Original Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Exchange Guarantee for the Original
Guarantee and the Exchange Junior Subordinated Debentures, in an amount
corresponding to the Original Capital Securities accepted for exchange, for a
like aggregate principal amount of the Original Junior Subordinated Debentures.
The Exchange Guarantee and the Exchange Junior Subordinated Debentures have been
registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $40,000,000 aggregate Liquidation Amount of Exchange Capital
Securities for a like aggregate Liquidation Amount of Original Capital
Securities properly tendered on or prior to the Expiration Date 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 $40,000,000 of Exchange Capital Securities in exchange for a like aggregate
Liquidation Amount of outstanding Original Capital Securities tendered and
accepted in connection with the Exchange Offer. Holders may tender their
Original Capital Securities in whole or in part in a Liquidation Amount of not
less than $100,000 (100 Capital Securities) or any integral multiple of $1,000
Liquidation Amount (one Capital Security) in excess thereof, provided that if
any Original Capital Securities are tendered in exchange for part, the
untendered Liquidation Amount must be $100,000 or any integral multiple of
$1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Original Capital Securities being tendered. As of the date of this
Prospectus, $40,000,000 aggregate Liquidation Amount of the Original Capital
Securities is outstanding.
Holders of Original Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Original 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 Trust Agreement, but will not be entitled to any further
registration rights under the Registration Rights Agreement. See "Risk
Factors -- Consequences of a Failure to Exchange Original Capital Securities"
and "Description of Original Securities."
If any tendered Original 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 Original Capital
Securities will be returned, without expense, to the tendering holder thereof
promptly after the Expiration Date.
30
<PAGE> 31
Holders who tender Original 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 Original 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."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY ISSUER TRUSTEE OF THE
TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF ORIGINAL CAPITAL SECURITIES AS TO
WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR ORIGINAL
CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF ORIGINAL CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF ORIGINAL CAPITAL SECURITIES
TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., Eastern Time, on September 3,
1998 unless the Exchange Offer is extended by the Company or the Trust (in which
case the term "Expiration Date" shall mean the latest date and time 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 anytime and from time to
time, (i) to delay the acceptance of the Original Capital Securities for
exchange, (ii) to terminate the Exchange Offer (whether or not any Original
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 Original Capital Securities
tendered pursuant to the Exchange Offer, subject, however, to the right of
holders of Original Capital Securities to withdraw their tendered Original
Capital Securities as described under "-- Withdrawal Rights," 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 and the Trust will
promptly disclose such amendment by means of a Prospectus supplement that will
be distributed to the registered holders of the Original 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., Eastern Time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company and the Trust may choose to make any public
announcement and subject to applicable law, the Company and the Trust shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate new agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, Exchange Capital
Securities for Original Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of Exchange Capital Securities in exchange for
Original 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) Original Capital Securities or a book-entry confirmation of a book-entry
transfer of Original Capital Securities into the Exchange Agent's account at
DTC, including an Agent's Message if the
31
<PAGE> 32
tendering holder has not delivered a Letter of Transmittal, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or (in the case of a book-entry transfer) an
Agent's Message in lieu of the Letter of Transmittal, and (iii) any other
documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Original Capital Securities into the Exchange Agent's
account at DTC. The term "Agent's Message" means a message, transmitted by DTC
to and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by the Letter of Transmittal and that the Trust
and the Company may enforce such Letter of Transmittal against such participant.
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,
Original Capital Securities validly tendered and not withdrawn as, if and when
the Trust gives oral or written notice to the Exchange Agent of the Company's
and the Trust's acceptance of such Original Capital Securities for exchange
pursuant to the Exchange Offer. The Exchange Agent will act as agent for the
Trust for the purpose of receiving tenders of Original Capital Securities,
Letters of Transmittal and related documents and transmitting Exchange 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 Original Capital Securities tendered pursuant to the
Exchange Offer is delayed (whether before or after the Trust's acceptance for
exchange of Original Capital Securities) or the Company and the Trust extend the
Exchange Offer or are unable to accept for exchange or exchange Original Capital
Securities tendered pursuant to the Exchange Offer, then without prejudice to
the Company's and the Trust's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Company and the Trust subject to Rule 14e-1(c)
under the Exchange Act, retain tendered Original Capital Securities and such
Original Capital Securities may not be withdrawn except to the extent tendering
holders are entitled to withdrawal rights as described under "-- Withdrawal
Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a
holder of Original 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 Original Capital Securities, that the Trust will acquire
good, marketable and unencumbered title to the tendered Original Capital
Securities, free and clear of all liens, restrictions, charges and encumbrances,
and the Original 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 Original Capital
Securities tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING ORIGINAL CAPITAL SECURITIES
Valid Tender. Except as set forth below, in order for Original 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, or (in the case of a book-entry transfer) an
Agent's Message in lieu of a Letter of Transmittal, and any other required
documents, must be received by the Exchange Agent at one of its addresses set
forth under "-- Exchange Agent," and (i) tendered Original Capital Securities
must be received by the Exchange Agent, or (ii) such Original Capital Securities
must be tendered pursuant to the procedures for book-entry transfer set forth
below and a book-entry confirmation, including an Agent's Message if the
tendering holder has not delivered a Letter of Transmittal, must be received by
the Exchange Agent, in each case on or prior to the Expiration Date, or (iii)
the guaranteed delivery procedures set forth below must be complied with.
If less than all of the Original Capital Securities are tendered, a
tendering holder should fill in the amount of Original Capital Securities being
tendered in the appropriate box on the Letter of Transmittal or so indicate in
an Agent's Message in lieu of the Letter of Transmittal and the untendered
Liquidation Amount must be
32
<PAGE> 33
$100,000 or any integral multiple of $1,000 in excess thereof. The entire amount
of Original 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.
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Original Capital Securities at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Original Capital Securities by causing DTC
to transfer such Original Capital Securities into the Exchange Agent's account
at DTC in accordance with DTC's procedures for transfers. However, although
delivery of Original Capital Securities may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must in any case be delivered to
and received by the Exchange Agent at its address set forth under "-- Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure
set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Original Capital Securities
need not be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (i) a certificate for the Original Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (ii) such holder completes the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" in the Letter of Transmittal. In the case of
(i) or (ii) above, such certificates for Original 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 Instructions to the "Letter of
Transmittal."
Guaranteed Delivery. If a holder desires to tender Original Capital
Securities pursuant to the Exchange Offer and the certificates for such Original
Capital Securities are not immediately available or time will not permit all
required documents to reach the Exchange Agent on or prior to the Expiration
Date, or the procedure for book-entry transfer cannot be completed on a timely
basis, such Original 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 the
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Original Capital Securities, in proper form for transfer, together
with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), or Agent's Message in lieu thereof, with any required
signature guarantees and any other documents required by the Letter of
Transmittal, are received by the Exchange
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<PAGE> 34
Agent within three 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 Exchange
Capital Securities in exchange for Original 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 Original Capital Securities,
or of a book-entry confirmation with respect to such Original Capital
Securities, and a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), or Agent's Message in lieu thereof, together with any
required signature guarantees and any other documents required by the Letter of
Transmittal. Accordingly, the delivery of Exchange Capital Securities might not
be made to all tendering holders at the same time, and will depend upon when
Original Capital Securities, book-entry confirmation with respect to Original
Capital Securities and other required documents are received by the Exchange
Agent.
The Company and the Trust's acceptance for exchange of Original 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.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Original Capital Securities will be determined by the Company and
the Trust, in their sole discretion, whose determination shall be final and
binding of 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 opinion 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 for thereunder
"-- Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Original Capital Securities of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The interpretation by the Company and the Trust 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 Original Capital Securities
will be deemed to have been validly made until all irregularities with respect
to such tender have been cured or waived. None of the Company, the Trust, any
affiliates or assigns of the Company or the Trust, the Exchange Agent or 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 and the Trust,
proper evidence satisfactory to the Company and the Trust, in their sole
discretion, of such person's authority to so act must be submitted.
A beneficial owner of Original 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 EXCHANGE CAPITAL SECURITIES
The Trust is making the Exchange Offer for the Exchange 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 of the Commission, and subject to the two
immediately following sentences, the Company and the
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<PAGE> 35
Trust believe that Exchange Capital Securities issued pursuant to this Exchange
Offer in exchange for Original 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 Exchange 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 Exchange Capital Securities. However, any holder of
Original 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
Exchange Capital Securities, or any broker-dealer who purchased Original Capital
Securities from the Trust to resell pursuant to 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 Original 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 Original Capital Securities, unless such sale is made pursuant
to an exemption from such requirements. In addition, as described below,
Participating Broker-Dealers must deliver a prospectus meeting the requirements
of the Securities Act in connection with any resales of Exchange Capital
Securities.
Each holder of Original Capital Securities who wishes to exchange Original
Capital Securities for Exchange 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 Exchange Capital Securities to be received by it are being
acquired in the ordinary course of 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 Exchange 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 Exchange Capital Securities. The Letter of Transmittal contains the
foregoing representations. 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 exchange in the Exchange Offer. Each Participating
Broker-Dealer will be deemed to have acknowledged by execution of the Letter of
Transmittal or delivery of an Agent's Message that it acquired the Original
Capital Securities for its own account as the result of market-making activities
or their 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 Exchange Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating 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 Participating Broker-Dealers who
acquired Original Capital Securities for their own accounts as a result of
market-making activities or other trading activities may fulfill their
prospectus delivery requirements with respect to the Exchange Capital Securities
received upon exchange of such Original Capital Securities (other than Original
Capital Securities which represent an unsold allotment from the original sale of
the Original 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 Exchange 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 Exchange Capital Securities received in exchange for Original
Capital Securities where such Original 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 Exchange
Capital Securities for a period ending 90-days after the Expiration Date
(subject to extension under certain limited circumstances described below) or,
if earlier, when all such Exchange Capital Securities have been disposed of by
such Participating Broker-Dealer. See
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<PAGE> 36
"Plan of Distribution." However, a Participating Broker-Dealer who intends to
use this Prospectus in connection with the resale of Exchange Capital Securities
received in exchange for Original Capital Securities pursuant to the Exchange
Offer must notify the Company or the Trust, or cause the Company or the Trust to
be so notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "-- Exchange Agent." Any person, including
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 Original
Capital Securities pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal or delivery of an Agent's Message in
lieu thereof, 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
Exchange Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) pursuant to this Prospectus or 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 Exchange Capital Securities (or the Exchange
Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be. If the Company or the Trust gives such notice to
suspend the sale of the Exchange Capital Securities (or the Exchange Guarantee
or the Exchange Junior Subordinated Debentures, as applicable), it shall extend
the 90-day period referred to above during which Participating Broker-Dealers
are entitled to use this Prospectus in connection with the resale of Exchange
Capital Securities by the number of days during the period from and including
the date of the giving of such notice to and including the date when
Participating Broker-Dealers shall have received copies of the amended or
supplemented Prospectus necessary to permit resales of the Exchange Capital
Securities or to and including the date on which the Company or the Trust has
given notice that the sale of Exchange Capital Securities (or the Exchange
Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original 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 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 Original Capital Securities to be withdrawn,
the aggregate principal amount of Original Capital Securities to be withdrawn,
and (if certificates for such Original Capital Securities have been tendered)
the name of the registered holder of the Original Capital Securities as set
forth on the Original Capital Securities, if different from that of the person
who tendered such Original Capital Securities. If Original Capital Securities
have been delivered or otherwise identified to the Exchange Agent, then prior to
the physical release of such Original Capital Securities, the tendering holder
must submit the certificate numbers shown on the particular Original 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 Original Capital
Securities tendered for the account of an Eligible Institution. If Original
Capital Securities have been tendered pursuant to the procedures for book-entry
transfer set forth in "-- Procedures for Tendering Original Capital Securities,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of Original Capital Securities, in which case
a notice of withdrawal will be effective if delivered to
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<PAGE> 37
the Exchange Agent by written or facsimile transmission. Withdrawals of tenders
of Original Capital Securities may not be rescinded. Original 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 Original 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. None of the Company, the Trust, any affiliates or assigns of the
Company or the Trust, the Exchange Agent or 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 failure to give any such notification. Any Original
Capital Securities which have been tendered but which are withdrawn will be
returned to the holder thereof promptly after withdrawal.
DISTRIBUTIONS ON EXCHANGE CAPITAL SECURITIES
Holders of Original Capital Securities as of October 1, 1998, the record
date for the initial Distribution on October 15, 1998, will be entitled to
receive such initial Distribution. However to the extent a holder of an Original
Capital Security has exchanged such security pursuant to the Exchange Offer
prior to October 1, 1998, such holder shall not be entitled to receive the
Distribution on October 15, 1998 with respect to such Original Capital
Securities, but instead, shall be entitled to a Distribution on October 15, 1998
with respect to the Exchange Capital Securities held on the October 1, 1998
record date, as described herein. Distributions on the Exchange Capital
Securities are payable semi-annually in arrears on April and October 15th of
each year, commencing October 15, 1998, at the annual rate of 8.29% of the
Liquidation Amount to the holders of the Exchange Capital Securities on the
relevant record dates (which for the October 15, 1998 Distribution will be
October 1, 1998). Distributions on the Exchange Capital Securities will
accumulate from April 17, 1998, the date of issuance for the Original Capital
Securities, if such Exchange Capital Securities are issued in exchange for
Original Capital Securities prior to October 1, 1998 or, even if issued after
October 1, 1998, no Distribution is made with respect to Original Capital
Securities. If, however, the Exchange Capital Securities are not issued until
after October 1, 1998, and a Distribution is made with respect to the Original
Capital Securities, then the Distributions on the Exchange Capital Securities
will accumulate from the date of the most recent Distribution on the Original
Capital Securities prior to the issuance of the Exchange Capital Securities.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company and the Trust will not be required
to accept for exchange, or to exchange, any Original Capital Securities for any
Exchange Capital Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Original 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 Exchange Capital Securities
issued pursuant to the Exchange Offer in exchange for Original 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) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Capital Securities are acquired in the ordinary
course of such holders' business and such
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<PAGE> 38
holders have no arrangement or understanding with any person to participate
in the distribution of such Exchange Capital Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer;
(c) 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 its ability to proceed with the
Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or Maryland or New York state authorities which, in the Company's
and the Trust's judgment, would reasonably be expected to impair the
ability of the Trust or the Company to proceed with the Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority 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; or
(f) 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 any governmental
approval which either the Company or the Trust shall, in its sole
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby has not been obtained.
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 Original 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 or amendment by
means of a Prospectus supplement that will be distributed to the registered
holders of the Original Capital Securities and will extend the Exchange Offer to
the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
Bankers Trust Company has been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letter of Transmittal and any other required documents,
questions, requests for assistance, and requests for
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additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Mail or Courier:
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust & Agency Group Corporate Trust & Agency Group
P.O. Box 292737 Receipt & Delivery Window Reorganization Unit
Nashville, Tennessee 37229-2737 123 Washington Street, 1st Floor 648 Grassmere Park Road
New York, New York 10006 Nashville, Tennessee 37211
</TABLE>
For Information Call:
(800) 735-7777
Confirm by Telephone:
(615) 835-3572
Facsimile Transmission:
(Eligible Institutions Only)
(615) 835-3701
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed 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 will also 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 Original Capital Securities, and in handling or
tendering for their customers.
Holders who tender their Original Capital Securities for exchange will not
be obligated to pay any transfer taxes in connection therewith. If, however,
Exchange 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 Original Capital
Securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of Original 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 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 other nominees soliciting acceptances of the Exchange Offer.
DESCRIPTION OF THE EXCHANGE SECURITIES; COMPARISON TO ORIGINAL SECURITIES
The terms of the Exchange Securities are identical in all material respects
to the Original Securities, except that (i) the Original Securities have not
been registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the applicable Registration
Rights Agreement (which rights will terminate upon consummation of the Exchange
Offer, except under limited circumstances); (ii) the Exchange Capital Securities
will not contain certain restrictions on transfer applicable to Original Capital
Securities; (iii) the Exchange Capital Securities will not provide for any
increase in the Distribution rate thereon; and (iv) the Exchange Junior
Subordinated Debentures will not provide for any increase in the interest rate
thereon. The Original Securities provide that, in the event that a registration
statement relating to the Exchange Offer has not been filed by September 14,
1998 and been declared effective by October 14, 1998, or, in certain limited
circumstances, in the event a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the Original Capital
Securities is not declared effective by the time required by the Registration
Rights Agreement, then liquidated damages will accrue at the rate of 0.25% per
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<PAGE> 40
annum on the principal amount of the Original Junior Subordinated Debentures and
Distributions will accrue at the rate of 0.25% per annum on the Liquidation
Amount of the Original Capital Securities, for the period from the occurrence of
such event until such time as such registration statement has been filed or
declared effective, as the case may be. The Exchange Securities are not, and
upon consummation of the Exchange Offer the Original Securities will not be,
entitled to any such additional interest or Distributions. Accordingly, holders
of Original Capital Securities should review the information set forth under
"Risk Factors -- Consequences of a Failure to Exchange Original Capital
Securities" and "Description of Exchange Securities."
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trust has issued the Original Capital Securities and the Common
Securities and will issue the Exchange Capital Securities. The Original Capital
Securities do, and the Exchange Capital Securities shall, represent preferred
undivided beneficial interests in the assets of the Issuer Trust and the holders
thereof will be entitled to a preference in certain circumstances with respect
to Distributions and amounts payable on redemption or liquidation over the
Common Securities, as well as other benefits as described in the Trust
Agreement. The Trust Agreement has been qualified under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). This summary of certain
provisions of the Capital Securities and the Trust Agreement does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein of
certain terms. Wherever particular defined terms of the Trust Agreement are
referred to herein, such defined terms are incorporated herein by reference.
GENERAL
The Capital Securities (including the Original Capital Securities and the
Exchange Capital Securities) are limited to $40,000,000 aggregate Liquidation
Amount outstanding. The Capital Securities rank pari passu, and payments will be
made thereon pro rata, with the Common Securities except as described under
"-- Subordination of Common Securities." The Junior Subordinated Debentures are
registered in the name of the Issuer Trust and held by the Property Trustee in
Trust for the benefit of the holders of the Capital Securities and Common
Securities. The Guarantee 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 such Capital Securities when the
Issuer Trust does not have funds on hand available to make such payments. See
"Description of Guarantee."
DISTRIBUTIONS
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and Distributions on each Capital Security
will be payable at an annual rate equal to 8.29% on the stated Liquidation
Amount of $1,000, payable semi-annually in arrears on the 15th day of April and
October of each year (each a "Distribution Date"), to the holders of the Capital
Securities at the close of business on the April 1st or October 1st (whether or
not a Business Day) next preceding the relevant Distribution Date. Distributions
on the Capital Securities will be cumulative. Distributions accumulate from
April 17, 1998. The first Distribution Date for the Capital Securities will be
October 15, 1998. The amount of Distributions payable for any period less than a
full Distribution period will be computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by two. If 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 (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Junior Subordinated Indenture to defer the
payment of interest on the Junior Subordinated
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Debentures at any time or from time to time for a period not exceeding 10
consecutive semi-annual periods with respect to each Extension Period, provided
that no Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. As a consequence of any such deferral, semi-annual
Distributions on the Capital Securities by the Issuer Trust will be deferred
during any such Extension Period. Distributions to which holders of the Capital
Securities are entitled will accumulate Additional Amounts thereon at a rate
equal to 8.29% per annum, compounded semi-annually from the relevant payment
date for such Distributions, computed on the basis of a 360-day year of twelve
30-day months and the actual days elapsed in a partial month in such period.
Additional Amounts payable for each full Distribution period will be computed by
dividing the rate per annum by two. The term "Distributions" as used herein
shall include any such Additional Amounts. During any such Extension Period, the
Company may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Junior Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or shareholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any shareholder's rights plan, or the issuance of
rights, stock or other property under any shareholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 10 consecutive semi-annual periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extension Period and the payment of all amounts then due, the
Company may elect to begin a new Extension Period. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company must
give the Issuer Trustees notice of its election of such Extension Period at
least one Business Day prior to the earlier of (i) the date the Distributions on
the Capital Securities would have been payable but for the election to begin
such Extension Period and (ii) the date the Property Trustee is required to give
notice to holders of the Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Property Trustee will give notice of the Company's
election to begin a new Extension Period to the holders of the Capital
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See "Description
of Junior Subordinated Debentures -- Option To Extend Interest Payment Period"
and "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of
the Capital Securities is limited to payments under the Junior Subordinated
Debentures in which the Issuer Trust has invested the proceeds from the issuance
and sale of the Capital Securities. See "Description of Junior Subordinated
Debentures." If the Company does not make payments on the Junior Subordinated
Debentures, the Issuer Trust may not have funds available to pay Distributions
or other amounts payable on the Capital Securities. The payment of Distributions
and other amounts payable on the Capital Securities (if and to the extent the
Issuer Trust has
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<PAGE> 42
funds legally available for and cash sufficient to make such payments) is
guaranteed by the Company on a limited basis as set forth herein under
"Description of Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Trust Securities, upon not less than 30 nor more than
60 days' notice, at a redemption price (the "Redemption Price") equal to the
aggregate Liquidation Amount of such Capital Securities plus accumulated but
unpaid Distributions thereon to but excluding the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by the
Company upon the concurrent redemption of such Junior Subordinated Debentures.
See "Description of Junior Subordinated Debentures--Redemption." If less than
all the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Capital Securities and the Common
Securities. The amount of premium, if any, paid by the Company upon the
redemption of all or any part of the Junior Subordinated Debentures to be repaid
or redeemed on a Redemption Date shall be allocated to the redemption pro rata
of the Capital Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after April 15, 2008, in whole at any time or in part from time to time,
or (ii) in whole, but not in part, at any time within 90 days following the
occurrence and during the continuation of a Tax Event, Investment Company Event
or Capital Treatment Event (each as defined below), in each case subject to
possible regulatory approval. See "-- Liquidation Distribution Upon
Dissolution." A redemption of the Junior Subordinated Debentures would cause a
mandatory redemption of a Like Amount of the Capital Securities and Common
Securities at the Redemption Price.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices, expressed in percentages of the Liquidation Amount
(as defined below), together with accumulated Distributions to but excluding the
date fixed for redemption, if redeemed during the 12-month period beginning
April 15:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2008........................................................ 104.1450%
2009........................................................ 103.7305%
2010........................................................ 103.3160%
2011........................................................ 102.9015%
2012........................................................ 102.4870%
2013........................................................ 102.0725%
2014........................................................ 101.6580%
2015........................................................ 101.2435%
2016........................................................ 100.8290%
2017........................................................ 100.4145%
</TABLE>
and at 100% on or after April 15, 2018.
The Redemption Price, in the case of a redemption on or after April 15,
2008 following a Tax Event, Investment Company Event or Capital Treatment Event
shall equal the Redemption Price then applicable to a redemption under (i)
above. The Redemption Price, in the case of a redemption prior to April 15, 2008
following a Tax Event, Investment Company Event or Capital Treatment Event as
described under (ii) above, will equal for each Capital Security the Make-Whole
Amount for a corresponding $1,000 principal amount of Junior Subordinated
Debentures together with accumulated Distributions to but excluding the date
fixed for redemption. The "Make-Whole Amount" will be equal to the greater of
(i) 100% of the principal amount of such Junior Subordinated Debentures and (ii)
as determined by a Quotation Agent (as defined below), the
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<PAGE> 43
sum of the present values of the principal amount and premium payable as part of
the Redemption Price with respect to an optional redemption of such Junior
Subordinated Debentures on April 15, 2008, together with the present values of
scheduled payments of interest (not including the portion of any such payments
of interest accrued as of the Redemption Date) from the Redemption Date to April
15, 2008 (the "Remaining Life"), in each case discounted to the Redemption Date
on a semi-annual basis (assuming a 360-day year consisting of 30-day months) at
the Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate plus (i) 1.875 basis points if such Redemption Date occurs on or
before April 15, 1999 or (ii) 1.375 basis points if such Redemption Date occurs
after April 15, 1999.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the week immediately prior to the calculation date, appearing in the
most recently published statistical release designated "H.15 (519)" or any
successor publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
Business Day preceding the Redemption Date.
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York, New York or the City of
Baltimore, Maryland are authorized or required by law or executive order to
remain closed, or (c) a day on which the Property Trustee's Corporate Trust
Office or the Corporate Trust Office of the Debenture Trustee is closed for
business.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Capital Securities based upon the
relative Liquidation Amounts of such classes and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Issuer Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official 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 (i) the Issuer Trust is, or will be within 90 days of
the delivery of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Original Junior Subordinated
Debentures or Exchange Junior Subordinated Debentures, (ii) interest payable by
the Company on the Original Junior Subordinated Debentures or Exchange Junior
Subordinated Debentures is not, or within 90 days of the delivery of such
opinion, will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes or (iii) the Issuer Trust is, or will be
within 90 days of the delivery of such opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
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<PAGE> 44
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Capital Securities.
"Capital Treatment Event" means the reasonable determination by the Company
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or decision
is announced on or after the date of issuance of the Capital Securities, there
is more than an insubstantial risk that the Company will not be entitled to
treat an amount equal to the Liquidation Amount of the Capital Securities as
"Tier 1 capital" (or the then equivalent thereof) for purposes of the risk-based
capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to the Company.
Payment of Additional Sums. If a Tax Event described in clause (i) or
(iii) of the definition of Tax Event above has occurred and is continuing and
the Issuer Trust is the holder of all the Junior Subordinated Debentures, the
Company will pay Additional Sums (as defined below), if any, on the Junior
Subordinated Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on the
outstanding Capital Securities and Common Securities of the Issuer Trust will
not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of any Capital
Securities, then, by 12:00 noon, Eastern Time, on the Redemption Date, to the
extent funds are available, in the case of Capital Securities held in book-entry
form, the Property Trustee will deposit irrevocably with DTC funds sufficient to
pay the applicable Redemption Price and will give DTC irrevocable instructions
and authority to pay the Redemption Price to the holders of the Capital
Securities. With respect to Capital Securities not held in book-entry form, the
Property Trustee, to the extent funds are available, will irrevocably deposit
with the paying agent for the Capital Securities funds sufficient to pay the
applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing the Capital Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Capital Securities called for redemption shall be
payable to the holders of the Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit all
rights of the holders of such Capital Securities so called for redemption will
cease, except the right of the holders of such Capital Securities to receive the
Redemption Price, and any Distribution payable in respect of the Capital
Securities, but without interest on such Redemption Price, and such Capital
Securities will cease to be outstanding. If any date fixed for redemption of
Capital Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day which is a Business
Day (without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in
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<PAGE> 45
the next calendar year, such payment will be made on the immediately preceding
Business Day. In the event that payment of the Redemption Price in respect of
Capital Securities called for redemption is improperly withheld or refused and
not paid either by the Issuer Trust or by the Company pursuant to the Guarantee
as described under "Description of Guarantee," Distributions on such Capital
Securities will continue to accumulate at the then applicable rate, from the
Redemption Date originally established by the Issuer Trust for such Capital
Securities to the date such Redemption Price is actually paid, in which case the
actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes subject to the requirement that no holder
shall hold capital securities of less than $100,000 after such redemption. 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, or
if the Capital Securities are then held in the form of a Global Capital Security
(as defined below), in accordance with DTC's customary procedures. The Property
Trustee shall promptly notify the securities registrar for the Trust Securities
in writing of the Capital Securities selected for redemption and, in the case of
any Capital Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Capital
Securities shall relate, in the case of any Capital Securities redeemed or to be
redeemed only in part, to the portion of the aggregate Liquidation Amount of
Capital Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either by
the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Capital Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, the Liquidation Distribution in respect of,
and the Redemption Price of, the Capital Securities and Common Securities, as
applicable, shall be made pro rata based on the Liquidation Amount of such
Capital Securities and Common Securities. However, if on any Distribution Date
or Redemption Date a Debenture Event of Default has occurred and is continuing
as a result of any failure by the Company to pay any amounts in respect of the
Junior Subordinated Debentures when due, no payment of any Distribution on, or
Liquidation Distribution in respect of, 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 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 the outstanding Capital Securities then
called for redemption, or in the case of payment of the Liquidation
Distribution, the full amount of such Liquidation Distribution on all
outstanding Capital Securities, shall have been made or provided for, and all
funds immediately available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, Liquidation Distribution in
respect of or Redemption Price of, the Capital Securities then due and payable.
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<PAGE> 46
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Capital Securities have been cured, waived or otherwise eliminated. See
"-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events of Default." Until all such Events of Default
under the Trust Agreement with respect to the Capital Securities have been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Capital Securities and not on behalf of the holders
of the Common Securities, and only the holders of the Capital Securities will
have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any
liquidation of the Issuer Trust is $1,000 per Capital Security plus accumulated
and unpaid Distributions to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior Subordinated
Debentures.
The holders of all the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities, dissolves
the Issuer Trust prior to the Stated Maturity of the Capital Securities and the
dissolution of the Issuer Trust is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of the Issuer Trust by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it obtain
the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) if the holders of Common
Securities have given written direction to the Property Trustee to dissolve the
Issuer Trust (which direction, subject to the foregoing restrictions, is
optional and wholly within the discretion of the holders of Common Securities),
(iii) the repayment of all the Capital Securities in connection with the
redemption of all the Trust Securities as described under "-- Redemption" and
(iv) the entry of an order for the dissolution of the Issuer Trust by a court of
competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i), (ii)
or (iv) above, the Issuer Trust will be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by distributing,
after satisfaction of liabilities to creditors of the Issuer Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer Trust available for distribution to holders, after satisfaction of
liabilities to creditors of the Issuer 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 accumulated 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
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<PAGE> 47
because the Issuer Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Issuer Trust on its Capital Securities shall be paid on a pro rata basis. The
holders 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 a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities shall have a priority
over the Common Securities. See "-- Subordination of Common Securities."
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
the Stated Maturity and the Issuer Trust is not liquidated and the Junior
Subordinated Debentures are not distributed to holders of the Capital
Securities, the Capital Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures and the distribution of the Liquidation
Distribution to the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Capital Securities offered hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees and
the Company by the holders of at least 25% in aggregate Liquidation Amount
of the outstanding Capital Securities, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
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<PAGE> 48
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
the Capital Securities as described above. See "-- Subordination of Common
Securities," "-- Liquidation Distribution Upon Dissolution" and "Description of
Junior Subordinated Debentures -- Debenture Events of Default."
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove an Issuer Trustee for cause or, if a
Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding Capital
Securities, the successor may be appointed by the holders of at least 25% in
Liquidation Amount of Capital Securities then outstanding. If an Issuer Trustee
resigns, such Issuer Trustee will appoint its successor. If an Issuer Trustee
fails to appoint a successor, the holders of at least 25% in Liquidation Amount
of the outstanding Capital Securities may appoint a successor. If a successor
has not been appointed by the holders, any holder of Capital Securities or
Common Securities or the other Issuer Trustee may petition a court of competent
jurisdiction to appoint a successor. Any Delaware Trustee must meet the
applicable requirements of Delaware law. Any Property Trustee must be a national
or state-chartered bank and have a combined capital and surplus of at least
$50,000,000. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all of the
corporate Trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a Trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities have
the same priority as the Capital Securities with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) a trustee of such
successor entity, possessing the same powers and duties as the Property Trustee,
is appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
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<PAGE> 49
holders of the Capital Securities (including any Successor Securities) in any
material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Issuer Trust has
received an opinion from independent counsel experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act, and (vii) the Company or
any permitted successor or assignee owns all the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Issuer Trust may not, except with the consent
of holders of 100% in aggregate Liquidation Amount of the Capital Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to, any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable other than as a grantor Trust for United States federal
income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "-- Removal of Issuer Trustees;
Appointment of Successors" and "Description of Exchange Guarantee -- Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority in Liquidation Amount of the Common Securities and the Property
Trustee, without the consent of the holders of the Capital Securities, (i) to
cure any ambiguity, correct or supplement any provisions in the Trust Agreement
that may be inconsistent with any other provision, or to make any other
provisions with respect to matters or questions arising under the Trust
Agreement, provided that any such amendment does not adversely affect in any
material respect the interests of any holder of Trust Securities, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as may be necessary to ensure that the Issuer Trust will not be taxable other
than as a grantor Trust for United States federal income tax purposes at any
time that any Trust Securities are outstanding or to ensure that the Issuer
Trust will not be required to register as an "investment company" under the
Investment Company Act, and any such amendments of the Trust Agreement will
become effective when notice of such amendment is given to the holders of Trust
Securities. The Trust Agreement may be amended by the holders of a majority of
the Common Securities and the Property Trustee with (i) the consent of holders
representing not less than a majority in aggregate Liquidation Amount of the
outstanding Capital Securities and (ii) receipt by the Issuer Trustees of an
opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Issuer Trustees in accordance with such amendment will not
affect the Issuer Trust's being taxable as a grantor Trust for United States
federal income tax purposes or the Issuer Trust's exemption from status as an
"investment company" under the Investment Company Act, except that, without the
consent of each holder of Trust Securities affected thereby, the Trust Agreement
may not be amended to (x) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(y) restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any Trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required,
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<PAGE> 50
without, in each case, obtaining the prior approval of the holders of at least a
majority in aggregate Liquidation Amount of the Capital Securities, except that,
if a consent under the Junior Subordinated Indenture would require the consent
of each holder of Junior Subordinated Debentures affected thereby, no such
consent will be given by the Property Trustee without the prior written consent
of each holder of the Capital Securities. The Property Trustee may not revoke
any action previously authorized or approved by a vote of the holders of the
Capital Securities except by subsequent vote of the holders of the Capital
Securities. The Property Trustee will notify each holder of Capital Securities
of any notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Capital
Securities, before taking any of the foregoing actions, the Property Trustee
will obtain an opinion of counsel experienced in such matters to the effect that
the Issuer Trust will not be taxable other than as a grantor Trust for United
States federal income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each registered holder of Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
BOOK-ENTRY, DELIVERY AND FORM
Exchange Capital Securities initially may be represented by one or more
Capital Securities in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited upon issuance with
the Property Trustee as custodian for DTC, in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Capital Securities in certificated form
except in the limited circumstances described below. See "-- Exchange of
Book-Entry Capital Securities for Certificated Capital Securities."
Depository Procedures. DTC has advised the Trust and the Company that DTC
is a limited purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants") and to facilitate
the clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes to accounts of its
Participants. The Participants include securities brokers and dealers (including
the Initial Purchaser), banks, trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Capital Securities and (ii)
ownership of such interests in the Global Capital Securities will be shown on,
and the transfer of ownership thereof will be
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<PAGE> 51
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Capital Securities).
Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are Participants in such system, or indirectly
through organizations which are Participants in such system. All interests in a
Global Capital Security will be subject to the procedures and requirements of
DTC. The laws of some states require that certain persons take physical delivery
in certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Capital Security to such persons will
be limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in a Global Capital Security to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests. For certain
other restrictions on the transferability of the Capital Securities, see
"-- Exchange of Book-Entry Capital Securities for Certificated Capital
Securities."
Except as described below, owners of beneficial interests in the Global
Capital Securities will not have Capital Securities registered in their name,
will not receive physical delivery of Capital Securities in certificated form
and will not be considered the registered owners or holders thereof under the
Trust Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC or its
nominee as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Capital Securities, including the Global Capital Securities, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participants's or Indirect Participants' 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 records or any Participants' or Indirect Participants' 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 or Indirect Participants. DTC has advised the Trust and the Company
that its current practice, upon receipt of any payment in respect of securities
such as the Capital Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC, unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Capital
Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Property Trustee, the Trust or the
Company. Neither the Trust nor the Company nor 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 or the Company and the Property
may conclusively rely on and will be protected in relying instructions from DTC
or its nominee for all purposes.
Secondary market trading activity in interests in the Global Capital
Securities will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Exchange Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in the
Global Capital Securities are credited and only in respect of such portion of
the Liquidation Amount of the Capital Securities as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Trust Agreement, DTC reserves the right to
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<PAGE> 52
exchange the Global Capital Securities for legended Exchange Capital Securities
in certificated form and to distribute such Exchange Capital Securities to its
Participants.
The information in this section concerning DTC and their book-entry systems
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Capital Securities among Participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Trust nor the
Company nor the Property trustee will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Capital Securities for Certificated Capital
Securities. A Global Capital Security is exchangeable for Exchange Capital
Securities in registered certificated form if (i) DTC (x) notifies the Trust
that it is unwilling or unable to continue as Depositary for the Global Capital
Security and the Trust thereupon fails to appoint a successor Depositary within
90 days, or (y) has ceased to be a clearing agency registered under the Exchange
Act; (ii) the Trust in its sole discretion elects to cause the issuance of the
Capital Securities in certificated form; or (iii) there shall have occurred and
be continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default under the Trust Agreement. In
addition, beneficial interests in a Global Capital Security may be exchanged for
certificated Exchange Capital Securities upon request, but only upon at least 20
days prior written notice given to the Property Trustee by or on behalf of DTC
in accordance with customary procedures. In all cases, certificated Capital
Securities delivered in exchange for any Global Capital Security or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures).
EXPENSES AND TAXES
In the Trust Agreement, the Company, as borrower, has agreed to pay all
debts and other obligations (other than with respect to the Capital Securities)
and all costs and expenses of the Issuer Trust (including costs and expenses
relating to the organization of the Issuer Trust, the fees and expenses of the
Issuer Trustees and the costs and expenses relating to the operation of the
Issuer Trust) and to pay any and all taxes and all costs and expenses with
respect thereto (other than United States withholding taxes) to which the Issuer
Trust might become subject. The foregoing obligations of the Company under the
Trust Agreement are for the benefit of, and shall be enforceable by, any person
to whom any such debts, obligations, costs, expenses and taxes are owed (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 Issuer Trust or any other
person before proceeding against the Company. The Company has also agreed in the
Trust Agreement to execute such additional agreements as may be necessary or
desirable to give full effect to the foregoing.
RESTRICTIONS ON TRANSFER
The Capital Securities will be issued, and may be transferred only, in
blocks having a Liquidation Amount of not less than $100,000 (100 Capital
Securities). Any such transfer of Capital Securities in a block having a
Liquidation Amount of less than $100,000 shall be deemed to be void and of no
legal effect whatsoever. Any such transferee shall be deemed not to be the
holder of such Capital Securities for any purpose, including but not limited to
the receipt of Distributions on such Capital Securities, and such transferee
shall be deemed to have no interest whatsoever in such Capital Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are not held by DTC, such payments will be made by
check mailed to the address of the holder entitled thereto as such address
appears
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<PAGE> 53
on the securities register for the Trust Securities. The paying agent (the
"Paying Agent") initially will be the Property Trustee and any co-paying agent
chosen by the Property Trustee and acceptable to the Administrators. The Paying
Agent will be permitted to resign as Paying Agent upon 30 days' written notice
to the Property Trustee and the Administrators. If the Property Trustee is no
longer the Paying Agent, the Property Trustee will appoint a successor (which
must be a bank or trust company reasonably acceptable to the Administrators) to
act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee acts as registrar and transfer agent for the Capital
Securities.
Registration of transfers of Exchange Capital Securities will be effected
without charge by or on behalf of the Issuer Trust, but upon payment of any tax
or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer Trust will not be required to register or cause
to be registered the transfer of the Capital Securities after the Capital
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationships between Bankers Trust Company,
the Property Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable other than as a grantor
Trust for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Property
Trustee and the holders of Common Securities are authorized to take any action,
not inconsistent with applicable law, the certificate of Trust of the Issuer
Trust or the Trust Agreement, that the Property Trustee and the holders of
Common Securities determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not materially adversely affect the
interests of the holders of the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Original Junior Subordinated Debentures were issued and the Exchange
Junior Subordinated Debentures are to be issued under the Junior Subordinated
Indenture, under which Bankers Trust Company is acting as Debenture Trustee.
This summary of certain terms and provisions of the Junior Subordinated
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<PAGE> 54
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference.
GENERAL
Concurrently with the issuance of the Original Capital Securities, the
Issuer Trust invested the proceeds thereof, together with the consideration paid
by the Company for the Common Securities, in the Original Junior Subordinated
Debentures issued by the Company. Pursuant to the Exchange Offer, the Company
will exchange the Exchange Junior Subordinated Debentures, in an amount
corresponding to the Original Junior Subordinated Debentures accepted for
exchange, for a like aggregate principal amount of Original Junior Subordinated
Debentures as soon as practicable after the date hereof. The Junior Subordinated
Debentures bear interest, accruing from April 17, 1998, at a rate equal to 8.29%
per annum on the principal amount thereof, payable semi-annually in arrears on
the 15th day of April and October of each year (each, an "Interest Payment
Date"), commencing October 15, 1998, to the person in whose name each Junior
Subordinated Debenture is registered at the close of business on the April 1st
or October 1st (whether or not a Business Day) next preceding such Interest
Payment Date. It is anticipated that, until the liquidation, if any, of the
Issuer Trust, each Junior Subordinated Debenture will be registered in the name
of the Issuer Trust and held by the Property Trustee in Trust for the benefit of
the holders of the Trust Securities. The amount of interest payable for any
period less than a full interest period will be computed on the basis of a
360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such period. The amount of interest payable for any full interest
period will be computed by dividing the rate per annum by two. If 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 (without any interest or other
payment in respect of any such delay), with the same force and effect as if made
on the date such payment was originally payable. Accrued interest that is not
paid on the applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at a rate equal to 8.29% per
annum, compounded semi-annually and computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. The amount of additional interest payable for any full interest period
will be computed by dividing the rate per annum by two. The term "interest" as
used herein includes semi-annual interest payments, interest on semi-annual
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on April 15, 2028.
The Exchange Junior Subordinated Debentures will rank pari passu with the
Original Junior Subordinated Debentures and will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund and will not be eligible as collateral for any loan made by the Company.
The Junior Subordinated Indenture does not limit the incurrence or issuance of
other secured or unsecured debt by the Company, including Senior Indebtedness,
whether under the Junior Subordinated Indenture or any existing or other
indenture or agreement that the Company may enter into in the future or
otherwise. See "-- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 10 consecutive semi-annual periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the 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 a rate equal to 8.29% per annum, compounded semi-annually
and computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period, to the extent permitted
by applicable law). The amount of additional interest
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<PAGE> 55
payable for any full interest period will be computed by dividing the rate per
annum by two. During an Extension Period, interest will continue to accrue and
holders of Junior Subordinated Debentures (or holders of Capital Securities
while outstanding) will be required to accrue interest income for United States
federal income tax purposes. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or shareholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any shareholder's rights plan, or the issuance of rights, stock
or other property under any shareholders rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period subject to the above conditions. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company must give the Issuer Trustees notice of its election of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the Distributions on the Capital Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee will give
notice of the Company's election to begin a new Extension Period to the holders
of the Capital Securities. There is no limitation on the number of times that
the Company may elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after April 15, 2008, in whole at any time or in
part from time to time, or (ii) in whole, but not in part, at any time within 90
days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Capital Securities -- Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Capital Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like
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amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
The redemption of the Junior Subordinated Debentures by the Company prior
to their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve.
The Redemption Price for Junior Subordinated Debentures in the case of a
redemption under (i) above shall equal the following prices, expressed in
percentages of the principal amount, together with accrued interest to but
excluding the date fixed for redemption. If redeemed during the 12-month period
beginning April 15:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2008........................................................ 104.1450%
2009........................................................ 103.7305%
2010........................................................ 103.3160%
2011........................................................ 102.9015%
2012........................................................ 102.4870%
2013........................................................ 102.0725%
2014........................................................ 101.6580%
2015........................................................ 101.2435%
2016........................................................ 100.8290%
2017........................................................ 100.4145%
</TABLE>
and at 100% on or after April 15, 2018.
The Redemption Price in the case of a redemption on or after April 15, 2008
following a Tax Event, Investment Company Event or Capital Treatment Event shall
equal the Redemption Price then applicable to a redemption under (i) above. The
Redemption Price for Junior Subordinated Debentures, in the case of a redemption
prior to April 15, 2008 following a Tax Event, Investment Company Event or
Capital Treatment Event as described under (ii) above, will equal the Make-Whole
Amount (as defined under "Description of Capital Securities -- Redemption"),
together with accrued interest to but excluding the date fixed for redemption.
ADDITIONAL SUMS
The Company generally has covenanted in the Junior Subordinated Indenture
that, if and for so long as (i) the Issuer Trust is the holder of all Junior
Subordinated Debentures and (ii) the Issuer Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay as additional sums on the Junior Subordinated
Debentures such amounts as may be required so that the Distributions payable by
the Issuer Trust will not be reduced as a result of any such additional taxes,
duties or other governmental charges. See "Description of Capital
Securities -- Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Issuer Trust. If the Junior Subordinated Debentures are distributed to
holders of Capital Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "Description of
Capital Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
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Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede, the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "Description of the Capital
Securities -- Book-Entry, Delivery and Form." If Junior Subordinated Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Junior Subordinated Debentures will be registrable, and Junior
Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate Trust office of the Debenture Trustee in New York, New York or at the
offices of any Paying Agent or transfer agent appointed by the Company, provided
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto. However, a holder of $1
million or more in aggregate principal amount of Junior Subordinated Debentures
may receive payments of interest (other than interest payable at the Stated
Maturity) by wire transfer of immediately available funds upon written request
to the Debenture Trustee not later than 15 calendar days prior to the date on
which the interest is payable.
The Junior Subordinated Debentures will be issuable only in registered form
without coupons in integral multiples of $1,000. The minimum purchase
requirement will be $100,000 (100 Junior Subordinated Debentures). Junior
Subordinated Debentures will be exchangeable for other Junior Subordinated
Debentures of like tenor, of any authorized denominations, and of a like
aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Indenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) to register the
transfer or exchange of any Junior Subordinated Debentures so selected for
redemption, except, in the case of any Junior Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in Trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or shareholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below,
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(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any shareholder's rights plan, or the issuance of
rights, stock or other property under any shareholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock), if at such time (x) there has occurred any event (1)
of which the Company has actual knowledge that with the giving of notice or the
lapse of time, or both, would constitute a Debenture Event of Default and (2)
that the Company has not taken reasonable steps to cure, (y) if the Junior
Subordinated Debentures are held by the Issuer Trust, the Company is in default
with respect to its payment of any obligations under the Guarantee or (z) the
Company has given notice of its election of an Extension Period as provided in
the Junior Subordinated Indenture and has not rescinded such notice, or such
Extension Period, or any extension thereof, is continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Capital Securities in liquidation of the Issuer Trust or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue to be
taxable as a grantor Trust for United States federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to generally: (i) evidence succession of another corporation or association to
the Company and the assumption by such person of the obligations of the Company
under the Junior Subordinated Indenture and the Junior Subordinated Debentures;
(ii) add further covenants, restrictions or conditions for the protection of
holders of the Junior Subordinated Debentures; (iii) cure ambiguities or correct
the Junior Subordinated Debentures in the case of defects or inconsistencies in
the provisions thereof, so long as any such cure or correction does not
adversely affect the interest of the holders of the Junior Subordinated
Debentures in any material respect; (iv) change the terms of the Junior
Subordinated Indentures to facilitate the issuance of the Junior Subordinated
Debentures in certificated or other definitive form; (v) evidence or provide for
the appointment of a successor Debenture Trustee; (vi) qualify, or maintain the
qualification of, the Junior Subordinated Indenture under the Trust Indenture
Act; (vii) convey, transfer, assign, mortgage or pledge any property to or with
the Debenture Trustee or to surrender any right or power conferred on the
Company in the Junior Subordinated Indenture; (viii) establish the form or terms
of Junior Subordinated Debentures; or (ix) change or eliminate any provision of
the Junior Subordinated Indenture, so long as at the time of such change there
are no outstanding Junior Subordinated Debentures entitled to the benefit of
such provision or such change does not apply to then outstanding Junior
Subordinated Debentures. The Junior Subordinated Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the principal of, or any installment of interest on, the Junior
Subordinated Debentures, or reduce the principal amount thereof, the rate of
interest thereon or any premium payable upon the redemption thereof, or change
the place of payment where, or the currency in which, any such amount is payable
or impair the right to institute suit for
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the enforcement of any Junior Subordinated Debenture or (ii) reduce the
percentage of principal amount of outstanding Junior Subordinated Debentures,
the holders of which are required to consent to any such modification of the
Junior Subordinated Indenture. Furthermore, so long as any of the 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 Junior Subordinated Indenture may occur, and no waiver of any
Debenture Event of Default or compliance with any covenant under the Junior
Subordinated 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 (and premium,
if any, on) the Junior Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full and certain other conditions are
satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated 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 "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure to pay any interest on the Junior Subordinated Debentures
when due and payable, and continuance of such default for a period of 30
days (subject to the deferral of any due date in the case of an Extension
Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to duly observe or perform in any material respect
certain other covenants contained in the Junior Subordinated Indenture for
90 days after written notice to the Company from the Debenture Trustee or
the holders of at least 25% in aggregate outstanding principal amount of
the outstanding Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Exchange Capital Securities
- -- Events of Default; Notice," the occurrence of a Debenture Event of Default
will also constitute an Event of Default in respect of the Trust Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable upon a Debenture Event of Default, which
is continuing and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Capital Securities shall
have such right. The holders of a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures may annul such declaration and waive
the default if all defaults (other than the non-payment of the principal of
Junior Subordinated Debentures which has become due solely by such acceleration)
have been cured or waived and a sum sufficient to pay all matured installments
of interest and principal due otherwise than by acceleration has been deposited
with the Debenture Trustee. Should the holders of Junior Subordinated Debentures
fail to annul such declaration and waive such default, the holders of a majority
in aggregate Liquidation Amount of the outstanding Capital Securities shall have
such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby, and the holders of
a majority in aggregate Liquidation Amount of the Capital Securities issued by
the Issuer Trust, may, on behalf of the holders of all the Junior Subordinated
Debentures, waive any past default, except a default in the payment of principal
(or premium, if any) or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a
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covenant or provision which under the Junior Subordinated Indenture cannot be
modified or amended without the consent of the holder of each outstanding Junior
Subordinated Debenture affected thereby. See "-- Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to such
holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities held by such holder (a "Direct
Action"). The Company may not amend the Junior Subordinated Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all the Capital Securities. The Company will have the right
under the Junior Subordinated Indenture to set-off any payment made to such
holder of Capital Securities by the Company in connection with a Direct Action.
With certain exceptions, the holders of the Capital Securities would not be
able to exercise directly any remedies available to the holders of the Junior
Subordinated Debentures except under the circumstances described in the
preceding paragraph. See "Description of Capital Securities -- Events of
Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) 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 thereof or the District of Columbia, and such successor
Person expressly assumes the Company's obligations in respect of the Junior
Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would constitute a Debenture Event of Default, has occurred and is
continuing; and (iii) certain other conditions as prescribed in the Junior
Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) (A) have become due and payable or (B) will become
due and payable at the Stated Maturity within one year or (C) are to be called
for redemption within one year under arrangements satisfactory to the Debenture
Trustee, and (ii) the Company deposits or causes to be deposited with the
Debenture Trustee funds, in Trust, for the purpose and in an amount sufficient
to pay and discharge the entire indebtedness on the Junior Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation,
for the principal (and premium, if any) and interest (including any additional
interest) to the date of the deposit or to the Stated Maturity, as the case
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may be, then the Junior Subordinated Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will be
deemed to have satisfied and discharged the Junior Subordinated Indenture.
SUBORDINATION
The Original Subordinated Debentures are, and the Exchange Subordinated
Debentures will be, subordinate and junior in right of payment, to the extent
set forth in the Junior Subordinated Indenture, to all Senior Indebtedness (as
defined below) of the Company. If the Company defaults in the payment of any
principal, premium, if any, or interest, if any, on any Senior Indebtedness when
the same becomes due and payable, whether at maturity or at a date fixed for
redemption or by declaration of acceleration or otherwise, then, unless and
until such default has been cured or waived or has ceased to exist or all Senior
Indebtedness has been paid, no direct or indirect payment (in cash, property,
securities, by setoff or otherwise) may be made or agreed to be made on the
Junior Subordinated Debentures, or in respect of any redemption, repayment,
retirement, purchase or other acquisition of any of the Junior Subordinated
Debentures.
As used herein, "Senior Indebtedness" means, 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) every
obligation 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 the payment of which the Company has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise. At March 31, 1998, the Company's Senior Indebtedness aggregated
approximately $488.3 million. See "Risk Factors -- Status of the Company as a
Bank Holding Company." "Senior Indebtedness" shall not include (i) any
obligations which, by their terms, are expressly stated to rank pari passu in
right of payment with, or to not be superior in right of payment to, the Junior
Subordinated Debentures, (ii) any indebtedness of the Company which when
incurred and without respect to any election under Section 1111(b) of the United
States Bankruptcy Code of 1978, as amended, was without recourse to the Company,
(iii) any indebtedness of the Company to any of its subsidiaries, (iv)
indebtedness to any executive officer or director of the Company, or (v) any
indebtedness 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.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshaling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
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In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in Trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a Debenture Event of Default, undertakes to perform only such duties as are
specifically set forth in the Junior Subordinated Indenture, is under no
obligation to exercise any of the powers vested in it by the Junior Subordinated
Indenture and, after such Event of Default, must exercise the same degree of
care and skill as a prudent person would exercise in the conduct of his or her
own affairs. The Debenture Trustee is not required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of its
duties if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to time
as trustee under other indentures or Trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
RESTRICTIONS ON TRANSFER
The Exchange Junior Subordinated Debentures (and the Exchange Junior
Subordinated Debentures were) will be, issued, and may be transferred only, in
blocks having an aggregate principal amount of not less than $100,000 (100
Junior Subordinated Debentures). Any such transfer of Junior Subordinated
Debentures in a block having an aggregate principal amount of less than $100,000
shall be deemed to be void and of no legal effect whatsoever. Any such
transferee shall be deemed not to be the holder of such Junior Subordinated
Debentures for any purpose, including but not limited to the receipt of payments
on such Junior Subordinated Debentures, and such transferee shall be deemed to
have no interest whatsoever in such Junior Subordinated Debentures.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
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DESCRIPTION OF GUARANTEE
The Original Guarantee was executed and delivered by the Company
concurrently with the issuance of Original Capital Securities by the Trust for
the benefit of the holders from time to time of the Original Capital Securities.
The Exchange Guarantee will be executed and delivered by the Company
concurrently with the issuance of the Exchange Capital Securities by the Trust
for the benefit of the holders from time to time of the Exchange Capital
Securities. As soon as practicable after the date hereof, the Exchange Guarantee
will be exchanged by the Company for the Original Guarantee for the benefit of
the holders from time to time of the Exchange Capital Securities. Bankers Trust
Company will act as Guarantee Trustee under the Guarantee. This summary of
certain provisions of the Exchange Guarantee and the Original Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Guarantee, including the definitions
therein of certain terms. A copy of the form of Guarantee is available upon
request from the Guarantee Trustee. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Capital Securities.
GENERAL
The Company has irrevocably agreed, with respect to the Original Guarantee,
and will irrevocably agree with respect to the Exchange Guarantee, to pay in
full on a subordinated basis, to the extent set forth herein, the Guarantee
Payments (as defined below) to the holders of the Capital Securities, as and
when due, regardless of any defense, right of set-off or counterclaim that the
Issuer Trust may have or assert other than the defense of payment. The following
payments with respect to the Capital Securities, to the extent not paid by or on
behalf of the Issuer Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
such Capital Securities, to the extent that the Issuer 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 that the Issuer Trust
has funds on hand available therefor at such time; and (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Issuer 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
accumulated and unpaid Distributions to the date of payment, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (b) the
amount of assets of the Issuer Trust remaining available for distribution to
holders of the Capital Securities on liquidation of the Issuer Trust. 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 Capital
Securities or by causing the Issuer Trust to pay such amounts to such holders.
The Original Guarantee, with respect to the Original Capital Securities,
and the Exchange Guarantee, with respect to the Exchange Capital Securities,
will be an irrevocable guarantee on a subordinated basis of the Issuer Trust's
obligations under the Capital Securities, but will apply only to the extent that
the Issuer Trust has funds sufficient to make such payments, and is not a
guarantee of collection.
If the Company does not make payments on the Junior Subordinated Debentures
held by the Issuer Trust, the Issuer Trust will not be able to pay any amounts
payable in respect of the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "-- Status of the
Exchange Guarantee." The Guarantee does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, including Senior Indebtedness,
whether under the Junior Subordinated Indenture, any other indenture that the
Company may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Capital Securities. No single document standing alone or
operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Capital Securities. See
"Relationship Among the Capital Securities, the Junior Subordinated Debentures
and the Guarantee."
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STATUS OF THE EXCHANGE GUARANTEE
The Exchange Guarantee will constitute an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company in the same manner as the Junior Subordinated
Debentures.
The Exchange Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
Trust or distribution to the holders of the Capital Securities or the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
Capital Securities. The manner of obtaining any such approval will be as set
forth under "Description of the Capital Securities -- Voting Rights; Amendment
of the Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
Trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
the Guarantee Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
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TERMINATION OF THE EXCHANGE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities, upon full
payment of the amounts payable with respect to the Capital Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Capital Securities. The Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of the Capital Securities must restore payment of any sums paid under the
Capital Securities or the Guarantee.
GOVERNING LAW
The Guarantee is governed by and construed in accordance with the laws of
the State of New York.
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for such payment) are
irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee." Taken together, the Company's obligations under the
Junior Subordinated Debentures, the Junior Subordinated Indenture, the Trust
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all the other documents constitutes such guarantee.
It is only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the Issuer Trust's
obligations in respect of the Capital Securities. If and to the extent that the
Company does not make payments on the Junior Subordinated Debentures, the Issuer
Trust will not have sufficient funds to pay Distributions or other amounts due
on the Capital Securities. The Guarantee does not cover payment of amounts
payable with respect to the Capital Securities when the Issuer Trust does not
have sufficient funds to pay such amounts. In such event, the remedy of a holder
of the Capital Securities is to institute a legal proceeding directly against
the Company for enforcement of payment of the Company's obligations under Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Capital Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Capital Securities, primarily because: (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Capital Securities
and Common Securities; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Capital Securities; (iii) the
Company will pay for all and any costs, expenses and liabilities of the Issuer
Trust except the Issuer Trust's obligations to holders of the Trust Securities;
and (iv) the Trust Agreement further provides that the Issuer Trust will not
engage in any activity that is not consistent with the limited purposes of the
Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
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ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Capital
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the Junior
Subordinated Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures -- Subordination."
LIMITED PURPOSE OF ISSUER TRUST
The Capital Securities represent preferred undivided beneficial interests
in the assets of the Issuer Trust, and the Issuer Trust exists for the sole
purpose of issuing its Capital Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Capital Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company payments on Junior Subordinated Debentures
held, while a holder of Capital Securities is entitled to receive Distributions
or other amounts distributable with respect to the Capital Securities from the
Issuer Trust (or from the Company under the Guarantee) only if and to the extent
the Issuer Trust has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of the Issuer Trust, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Issuer Trust
as required by applicable law, the holders of the Capital Securities will be
entitled to receive, out of assets held by the Issuer Trust, the Liquidation
Distribution in cash. See "Description of Capital Securities -- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Issuer Trust, as registered holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated and junior in right of payment to all Senior Indebtedness as set
forth in the Junior Subordinated Indenture, but entitled to receive payment in
full of all amounts payable with respect to the Junior Subordinated Debentures
before any shareholders of the Company receive payments or distributions. Since
the Company is the guarantor under the Guarantee and has agreed under the Junior
Subordinated Indenture to pay for all costs, expenses and liabilities of the
Issuer Trust (other than the Issuer Trust's obligations to the holders of the
Trust Securities), the positions of a holder of the Capital Securities and a
holder of such Junior Subordinated Debentures relative to other creditors and to
shareholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of Capital
Securities. The statements of law and legal conclusions set forth in this
summary regarding the tax consequences to the beneficial owners of Capital
Securities (the "Securityholders") represent the opinion of Muldoon, Murphy &
Faucette, Washington, D.C., counsel to the Company. This summary and the tax
opinion of counsel only address the tax consequences to a person that acquires
Capital Securities on their original issue at their original offering price.
This summary does not address all tax consequences that may be applicable to a
Securityholder, nor does it address the tax consequences to (i) persons that may
be subject to special treatment under United States federal income tax
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law, such as banks, insurance companies, thrift institutions, regulated
investment companies, real estate investment trusts, tax-exempt organizations
and dealers in securities or currencies, (ii) persons that will hold Capital
Securities as part of a position in a "straddle" or as part of a "hedging",
"conversion" or other integrated investment transaction for federal income tax
purposes, (iii) except with respect to the discussion under the caption "United
States Alien Securityholders", persons whose functional currency is not the
United States dollar or (iv) persons that do not hold Capital Securities as
capital assets.
This summary is based upon the Code, Treasury Regulations, Internal Revenue
Service (the "IRS") rulings and pronouncements and judicial decisions now in
effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of Capital Securities. In addition, the authorities
on which this summary is based (including authorities distinguishing debt from
equity) are subject to various interpretations, and it is therefore possible
that the federal income tax treatment of the Capital Securities may differ from
the treatment described below. No ruling has been received from the IRS
regarding the tax consequences of the Capital Securities. Counsel's opinion
regarding such tax consequences represents only counsel's best legal judgment
based on current authorities and is not binding on the IRS or the courts.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES, AS WELL AS THE
EFFECTS OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Exchange Capital Securities for Original Capital Securities
should not be a taxable event to holders for United States federal income tax
purposes. The exchange of Exchange Capital Securities for Original Capital
Securities pursuant to the Exchange Offer should not be treated as an "exchange"
for United States federal income tax purposes because the Original Capital
Securities should not be considered to differ materially in kind or extent from
the Exchange Capital Securities and because the exchange will occur by operation
of the terms of the Original Capital Securities. If, however, the exchange of
the Exchange Capital Securities for the Original Capital Securities were treated
as an exchange for United States federal income tax purposes, such exchange
should constitute a recapitalization for federal income tax purposes.
Accordingly, the Exchange Capital Securities should have the same issue price as
the Original Capital Securities, and a holder should have the same adjusted tax
basis and holding period in the Exchange Capital Securities as the holder had in
the Original Capital Securities immediately before the exchange.
CLASSIFICATION OF THE ISSUER TRUST
In the opinion of Muldoon, Murphy & Faucette, under current law and
assuming compliance with the terms of the Trust Agreement, the Issuer Trust will
be classified as a grantor Trust and not as an association taxable as a
corporation for United States federal income tax purposes. As a result, each
Securityholder will be treated as owning an undivided beneficial interest in the
Junior Subordinated Debentures. Accordingly, each Securityholder will be
required to include in its gross income its pro rata share of the interest,
including any original issue discount, and any other income received or accrued
with respect to the Junior Subordinated Debentures whether or not cash is
actually distributed to the Securityholders. See "Interest Income and Original
Issue Discount."
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations applicable to debt instruments issued after
August 12, 1996 (the "Regulations"), a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with original issue discount ("OID"). The Company believes that the
likelihood of its exercising its option to defer payments of interest on the
Junior Subordinated Debentures is remote. Based on the foregoing, in the opinion
of Muldoon, Murphy & Faucette, the Junior Subordinated
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Debentures will not be considered to be issued with OID at the time of their
original issuance, and, accordingly, a Securityholder should include in gross
income such Securityholder's allocable share of interest on the Junior
Subordinated Debentures in accordance with such Securityholder's method of tax
accounting.
Under the Regulations, if the Company should actually exercise its option
to defer any payment of interest, the Junior Subordinated Debentures would at
that time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID so long as the Junior
Subordinated Debentures remained outstanding. In such event, all of a
Securityholder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for as OID on an economic accrual basis regardless
of such Securityholder's method of tax accounting, and actual payments of stated
interest would not be reported as taxable income. Consequently, a Securityholder
would be required to include in gross income OID even though the Company would
not make any cash payments during an Extension Period.
The Regulations have not 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 interpretation herein.
Because income on the Capital Securities will constitute interest or OID on
indebtedness issued by the Company, corporate holders of the Capital Securities
will not be entitled to a dividends-received deduction with respect to any
income recognized with respect to the Capital Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL SECURITIES
Except as noted below, under current law, a distribution by the Issuer
Trust of the Junior Subordinated Debentures as described under the caption
"Description of Exchange Capital Securities -- Liquidation Distribution Upon
Dissolution," would be a non-taxable event to Securityholders for United States
federal income tax purposes; such a distribution would result in a
Securityholder receiving directly its pro rata share of the Junior Subordinated
Debentures previously held indirectly through the Issuer Trust, with a holding
period and aggregate tax basis equal to the holding period and aggregate tax
basis such Securityholder had in its Capital Securities before such
distribution; and a Securityholder would account for interest in respect of
Junior Subordinated Debentures received from the Issuer Trust in the manner
described above under "-- Interest Income and Original Issue Discount." If,
however, the Junior Subordinated Debentures were distributed in connection with
a Tax Event that would cause the Issuer Trust to be subject to United States
federal income tax with respect to income received or accrued on the Junior
Subordinated Debentures, the distribution likely would be a taxable event to
Securityholders. In that case, Securityholders would recognize gain or loss
equal to the difference between their adjusted bases in their Capital Securities
and the fair market value of the Junior Subordinated Debentures distributed to
the Securityholders, and they would obtain new holding periods and fair market
value bases for such Junior Subordinated Debentures.
SALE OR REDEMPTION OF CAPITAL SECURITIES
Upon a sale (including redemption) of Capital Securities, a Securityholder
will recognize gain or loss equal to the difference between its adjusted tax
basis in the Capital Securities and the amount realized on the sale of such
Capital Securities (excluding any amount attributable to any accrued interest
with respect to such Securityholder's pro rata share of the Junior Subordinated
Debentures not previously included in income, which will be taxable as ordinary
income). Provided that the Company does not exercise its option to defer payment
of interest on the Junior Subordinated Debentures, and the Capital Securities
are not considered to be issued with OID, a Securityholder's adjusted tax basis
in the Capital Securities generally will be its initial purchase price. If the
Junior Subordinated Debentures are deemed to be issued with OID as a result of
the Company's deferral of any interest payment, a Securityholder's tax basis in
the Capital Securities generally will be its initial purchase price, increased
by OID previously includable in such Securityholder's gross income to the date
of disposition and decreased by distributions or other payments received on the
Capital Securities since and including the commencement date of the first
Extension Period. Such gain or loss generally will be a capital gain or loss and
generally will be a long-term capital gain or loss if the Capital Securities
have been held for more than 12 months.
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Should the Company exercise its option to defer any payment of interest on
the Junior Subordinated Debentures, the Capital Securities may trade at a price
that does not accurately reflect the value of accrued but unpaid interest with
respect to the underlying Junior Subordinated Debentures. As a result, and
because a Securityholder will be required to include in income accrued but
unpaid interest on Junior Subordinated Debentures and to add such amount to its
adjusted tax basis, such Securityholder may recognize a capital loss on a sale
of Capital Securities during an Extension Period. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid and any OID accrued on the Capital Securities
to Securityholders (other than corporations and other exempt Securityholders)
will be reported to the IRS. It is expected that such income on the Capital
Securities will be reported to Securityholders on Form 1099 and mailed to
Securityholders by January 31 following each calendar year. "Backup" withholding
at a rate of 31% will apply to payments of interest and payments of disposition
(including redemption) proceeds to a non-exempt Securityholder unless the
Securityholder furnishes to the payor its taxpayer identification number,
certifies that such number is correct, and meets certain other conditions. Any
amounts withheld from a Securityholder under the backup withholding rules will
be allowable as a refund or a credit against such Securityholder's United States
federal income tax liability.
UNITED STATES ALIEN SECURITYHOLDERS
For purposes of this discussion, a United States Alien Securityholder is
any corporation, individual, partnership, estate or Trust that for United States
federal income tax purposes is a foreign corporation, non-resident alien
individual, foreign partnership, foreign estate or foreign Trust. This
discussion assumes that income with respect to the Capital Securities is not
effectively connected with a trade or business in the United States in which the
United States Alien Securityholder is engaged.
Under current United States federal income tax law:
(i) payments by the Issuer Trust or any of its paying agents to any
holder of Capital Securities that is a United States Alien Securityholder
generally will not be subject to withholding or other Untied States federal
income tax, provided that, in the case of payments with respect to interest
(including OID), (a) the beneficial owner of the Capital Securities 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, (b) the
beneficial owner of the Capital Securities is not a controlled foreign
corporation that is related to the Company through stock ownership, and (c)
either (A) the beneficial owner of the Capital Securities certifies to the
Issuer Trust or its agent, under penalties of perjury, that it is a United
States Alien Securityholder and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "Financial Institution") and holds the Capital Securities in such
capacity certifies to the Issuer Trust or its agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by a Financial Institution between it and the beneficial owner and
furnishes the Issuer Trust or its agent with a copy thereof; and
(ii) a United States Alien Securityholder of Capital Securities
generally will not be subject to withholding or other United States federal
income tax on any gain realized upon the sale or other disposition of
Capital Securities.
POSSIBLE TAX LAW CHANGES
In 1996 and 1997, the Clinton Administration proposed to amend the Code to
deny deductions of interest on instruments with features similar to those of the
Junior Subordinated Debentures when issued under arrangements similar to the
Issuer Trust. That proposal was not passed by Congress. The Clinton
Administration did not include this proposal in its fiscal year 1998 budget
proposal. However, there can be no assurance that future legislative proposals,
future regulations or official administrative pronouncements or future judicial
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decisions will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company, upon approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve,
to cause a redemption of the Capital Securities, as described more fully under
"Description of Capital Securities -- Redemption."
CERTAIN ERISA CONSIDERATIONS
Before authorizing an investment in the Capital Securities, fiduciaries of
pension, profit sharing or other employee benefit plans subject to ERISA
("Plans") should consider, among other matters, (i) ERISA's fiduciary standards
(including its prudence and diversification requirements), (ii) whether such
fiduciaries have authority to make such investment in the Capital Securities
under the applicable Plan investment policies and governing instruments, and
(iii) rules under ERISA and the Code that prohibit Plan fiduciaries from causing
a Plan to engage in a "prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from, among other things, engaging in certain transactions
involving "plan assets" with persons who are "parties in interest" under ERISA
or "disqualified persons" under the Code ("Parties in Interest") with respect to
such Plan. A violation of these "prohibited transaction" rules may result in an
excise tax or other liabilities under ERISA and/or Section 4975 of the Code for
such persons, unless exemptive relief is available under an applicable statutory
or administrative exemption. Employee benefit plans that are governmental plans
(as defined in Section 3(32) of ERISA), certain church plans (as defined in
Section 3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of
ERISA) are not subject to the requirements of ERISA or Section 4975 of the Code.
The Department of Labor (the "DOL") has issued a regulation (29 C.F.R.
Section 2510.3-101) (the "Plan Assets Regulation") concerning the definition of
what constitutes the assets of a Plan. The Plan Assets 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.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Issuer Trust would not be deemed to be "plan assets" of investing
Plans if, immediately after the most recent acquisition of any equity interest
in the Issuer Trust, less than 25% of the value of each class of equity
interests in the Issuer Trust were held by Plans, other employee benefit plans
not subject to ERISA or Section 4975 of the Code (such as governmental, church
and foreign plans), and entities holding assets deemed to be "plan assets" of
any Plan (collectively, "Benefit Plan Investors"). No assurance can be given
that the value of the Capital Securities held by Benefit Plan Investors will be
less than 25% of the total value of such Capital Securities at the completion of
the initial offering or thereafter, and no monitoring or other measures will be
taken with respect to the satisfaction of the conditions to this exception. All
the Common Securities will be purchased and held directly by the Company.
Under another exception contained in the Plan Assets Regulation, if the
Exchange Capital Securities received as a result of an Exchange Offer were to
qualify as "publicly offered securities" under the Plan Assets Regulation, the
assets of the Issuer Trust would not be deemed to be "plan assets" by reason of
a Plan's acquisition or holding of such securities. The Exchange Capital
Securities would qualify as "publicly offered securities" if, among other
things, they are offered pursuant to an effective registration statement, are
owned by 100 or more investors independent of the issuer and each other at the
time of the offering, and are subsequently registered under the Exchange Act. It
is expected that the 100 investor requirement will not be satisfied and that the
Exchange Capital Securities will not be registered under the Exchange Act.
There can be no assurance that any of the exceptions set forth in the Plan
Assets Regulation will apply to the purchase 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
Issuer Trust. In the event that assets of the Issuer Trust are considered assets
of an investing Plan, the Trustees, the Company
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and/or other persons, in providing services with respect to the Junior
Subordinated Debentures, could be considered fiduciaries to such Plan and
subject to the fiduciary responsibility provisions of Title I of ERISA. In
addition, certain transactions involving the Issuer Trust and/or the Capital
Securities could be deemed to constitute direct or indirect prohibited
transactions under ERISA and Section 4975 of the Code with respect to a Plan.
For example, if the Company is a Party in Interest with respect to an investing
Plan (either directly or by reason of its ownership of the Banks or other
subsidiaries), extensions of credit between the Company and the Issuer Trust (as
represented by the Junior Subordinated Debentures and the Guarantee) would
likely be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B)
of the Code.
The DOL has issued five PTCEs that may provide exemptive relief for direct
or indirect prohibited transactions resulting from the purchase or holding of
the Capital Securities, assuming that assets of the Issuer Trust were deemed to
be "plan assets" of Plans investing in the Trust (see above). Those class
exemptions are PTCE 96-23 (for certain transactions determined by in-house asset
managers), PTCE 91-38 (for certain transactions involving bank collective
investment funds), PTCE 95-60 (for certain transactions involving insurance
company general accounts), PTCE 90-1 (for certain transactions involving
insurance company pooled separate accounts), and PTCE 84-14 (for certain
transactions determined by independent qualified asset managers).
Because of ERISA's prohibitions and those of Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any other person investing "plan assets"
of any Plan, unless such purchase or holding is covered by the exemptive relief
provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. If a purchaser or holder of the Capital Securities that is a Plan or
a Plan Asset Entity elects to rely on an exemption other than PTCE 96-23, 95-60,
91-38, 90-1 or 84-14, the Company and the Issuer Trust may require a
satisfactory opinion of counsel or other evidence with respect to the
availability of such exemption for such purchase and holding. Any purchaser or
holder of the Capital Securities that is a Plan or a Plan Asset Entity or is
purchasing such securities on behalf of or with "plan assets" will be deemed to
have represented by its purchase and holding thereof that (a) the purchase and
holding of the Capital Securities is covered by the exemptive relief provided by
PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption, (b) the
Company and the Administrators are not "fiduciaries," within the meaning of
Section 3(21) of ERISA and the regulations thereunder, with respect to such
person's interest in the Capital Securities or the Junior Subordinated
Debentures, and (c) in purchasing the Capital Securities, such person approves
the purchase of the Junior Subordinated Debentures and the appointment of the
Issuer Trustees.
Any plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Capital Securities should
consult with their own counsel.
Governmental Plans and certain church plans are not subject to ERISA, and
are also not subject to the prohibited transaction provisions of Section 4975 of
the Code. However, state laws or regulations governing the investment and
management of the assets of such plans may contain fiduciary and prohibited
transaction provisions similar to those under ERISA and the Code discussed
above. Accordingly, fiduciaries of governmental and church plans, in
consultation with the advisers, should consider the impact of their respective
state laws on investments in the Capital Securities and the considerations
discussed above to the extent applicable.
SUPERVISION, REGULATION AND OTHER MATTERS
The following information is not intended to be an exhaustive description
of the statutes and regulations applicable to the Company. The discussion is
qualified in its entirety by reference to all particular statutory or regulatory
provisions. Additional information regarding supervision and regulation is
included in the documents incorporated herein by reference. See "Available
Information."
The business of the Company is influenced by prevailing economic conditions
and governmental policies, both foreign and domestic. The actions and policy
directives of the Federal Reserve determine to a significant
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degree the cost and the availability of funds obtained from money market sources
for lending and investing. The Federal Reserve's policies and regulations also
influence, directly and indirectly, the rates of interest paid by commercial
banks on their time and savings deposits. The nature and impact on the Company
of future changes in economic conditions and monetary and fiscal policies, both
foreign and domestic, are not predictable.
The Company is subject to supervision and examination by federal bank
regulatory authorities. As a bank holding company regulated under the Bank
Holding Company Act of 1956 (the "BHC Act"), the Company's primary bank
regulatory authority is the Federal Reserve. Bank holding companies are expected
to serve as a source of strength to their subsidiary banks under the Federal
Reserve's regulations and policies. As a Maryland-chartered bank that is not a
member of the Federal Reserve System, the Bank's primary federal regulator is
the Federal Deposit Insurance Corporation (the "FDIC").
The federal bank regulatory authorities have each adopted risk-based
capital guidelines to which the Company and the Bank are subject. These
guidelines are based on an international agreement developed by the Basle
Committee on Banking Regulations and Supervisory Practices, which consists of
representatives of central banks and supervisory authorities in 12 countries
including the United States of America. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations, takes off-balance
sheet exposures into explicit account in assessing capital adequacy and
minimizes disincentives to holding liquid, low-risk assets. Risk-based assets
are determined by allocating assets and specified off-balance sheet commitments
and exposures into four weighted categories, with higher levels of capital being
required for the categories perceived as representing greater risk.
The Bank is required to maintain a minimum total risk-based ratio of 8%, of
which half (4%) must be Tier 1 capital. In addition, the federal bank regulators
established leverage ratio (Tier 1 capital to total adjusted average assets)
guidelines providing for a minimum leverage ratio of 3% for banks meeting
certain specified criteria, including excellent asset quality, high liquidity,
low interest rate exposure and the highest regulatory rating. Institutions not
meeting these criteria are expected to maintain a ratio which exceeds the 3%
minimum by at least 100 to 200 basis points. The federal bank regulatory
authorities may, however, set higher capital requirements when a bank's
particular circumstances warrant.
From time to time, the federal bank regulatory authorities, including the
Federal Reserve, propose amendments to and issue interpretations of their
risk-based capital guidelines and reporting instructions, which can affect
reported capital ratios and net risk-adjusted assets. Effective June 26, 1996,
the Federal Reserve, the Office of the Comptroller of the Currency and the FDIC
issued a joint policy statement that provides guidance on sound practices for
interest rate risk management and describes critical factors affecting the
agencies' evaluation of a bank's interest rate risk when making a determination
of capital adequacy.
The federal banking agencies possess broad powers to take corrective action
as deemed appropriate for an insured depository institution and its holding
companies. The extent of these powers depends upon whether the institution in
question is considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Generally, as an institution is deemed to be less well
capitalized, the scope and severity of the agencies' powers increase. The
agencies' corrective powers can include, among other things, requiring an
insured financial institution to adopt a capital restoration plan which cannot
be approved unless guaranteed by the institution's parent holding company;
placing limits on asset growth and restrictions on activities; placing
restrictions on transactions with affiliates; restricting the interest rates the
institution may pay on deposits; prohibiting the institution from accepting
deposits from correspondent banks; prohibiting the payment of principal or
interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval; and, ultimately,
appointing a receiver for the institution. Business activities may also be
influenced by an institution's capital classification. For instance, only a
"well capitalized" depository institution may accept brokered deposits without
prior regulatory approval and only an "adequately capitalized" depository
institution may accept brokered deposits with prior regulatory approval. At
March 31, 1998, the Bank exceeded the required capital ratios for classification
as a "well capitalized" bank.
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The deposits of the Bank are insured by the FDIC and are subject to FDIC
insurance assessments. The amount of FDIC assessments paid by individual insured
depository institutions is based on their relative risk as measured by
regulatory capital ratios and certain other factors. Currently, the Bank is not
assessed any premiums for deposits insured by either the Bank Insurance Fund
("BIF") or the Savings Association Insurance Fund ("SAIF"). A portion of the net
proceeds from the Company's sale of the Junior Subordinated Debentures to the
Issuer Trust likely will be used by the Company to make a capital contribution
to the Bank. See "Use of Proceeds." The Bank, however, continues to pay premiums
based on deposit levels to service debt on Financing Corporation bonds.
If any insured depository institution becomes insolvent and the FDIC is
appointed its conservator or receiver, the FDIC may disaffirm or repudiate any
contract or lease to which such institution is a party, the performance of which
is determined to be burdensome and the disaffirmance or repudiation of which is
determined to promote the orderly administration of the institution's affairs.
If Federal law were construed to permit the FDIC to apply these provisions to
debt obligations of an insured depository institution, the result could be that
such obligations would be prepaid without premium. Federal law also accords the
claims of a receiver of an insured depository institution for administrative
expenses and the claims of holders of deposit liabilities of such an institution
priority over the claims of general unsecured creditors of such an institution
in the event of a liquidation or other resolution of such institution.
The BHC Act currently permits adequately capitalized and adequately managed
bank holding companies from any state to acquire banks and bank holding
companies located in any other state, subject to certain conditions. Therefore,
the Company has the ability, subject to certain restrictions, including state
opt-out provisions, to acquire by acquisition or merger branches outside of its
home state. Competition may increase as banks branch across state lines and
enter new markets.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Capital Securities for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange 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 Exchange Capital Securities received in exchange for
Original Capital Securities if such Original 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 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 Exchange Capital Securities for a period ending 90 days after the
Expiration Date (subject to extension under certain limited circumstances
described herein) or, if earlier, when all such Exchange Capital Securities have
been disposed of by such Participating Broker-Dealer. However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of Exchange Capital Securities received in exchange for Original Capital
Securities pursuant to the Exchange Offer must notify the Company or the Trust,
or cause the Company or the Trust to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be delivered
to the Exchange Agent at one of the addresses set forth herein under "The
Exchange Offer--Exchange Agent." See "The Exchange Offer--Resales of Exchange
Capital Securities."
The Company or the Trust will not receive any cash proceeds from the
issuance of the Exchange Capital Securities offered hereby. Exchange 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 Exchange 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 Exchange Capital Securities.
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Any broker-dealer that resells Exchange Capital Securities that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Capital
Securities may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Exchange 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.
For a period of 90 days after the Expiration Date, the Trust and the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Trust and the Company have
agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Capital Securities) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Capital Securities (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Exchange
Capital Securities, the enforceability of the Trust Agreement and the creation
of the Issuer Trust will be passed upon by Richards, Layton & Finger, P.A.,
special Delaware counsel to the Company and the Issuer Trust. The validity of
the Exchange Guarantee and the Junior Subordinated Debentures will be passed
upon for the Company by Muldoon, Murphy & Faucette, Washington, D.C., counsel to
the Company. Muldoon, Murphy & Faucette will rely as to certain matters of
Delaware law on the opinion of Richards, Layton & Finger, P.A.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets of Provident Bankshares Corporation and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, cash flows and changes in shareholders' equity for each of
the three years in the period ended December 31, 1997, incorporated by reference
from the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (which report is incorporated by reference), have been audited by
PricewaterhouseCoopers, LLP, independent accountants, as indicated in their
report thereon, which report is based in part on the report of Arthur Andersen,
LLP (independent accountants of First Citizens Financial Corporation) for the
years ended December 31, 1996 and 1995 (which report also is incorporated herein
by reference).
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