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PROSPECTUS
FIRST KEYSTONE CAPITAL TRUST I
OFFER TO EXCHANGE ITS
9.70% SERIES B CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9.70% SERIES A CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
FIRST KEYSTONE FINANCIAL, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON MARCH 11, 1998, UNLESS EXTENDED
--------------------
First Keystone Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "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 $16,200,000 aggregate Liquidation Amount of its 9.70%
Series B Capital Securities (the "New Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its outstanding
9.70% Series A Capital Securities (the "Old Capital Securities"), of which
$16,200,000 aggregate Liquidation Amount is outstanding. Pursuant to the
Exchange Offer, First Keystone Financial, Inc., a Pennsylvania corporation
("First Keystone" or the "Corporation"), also is offering to exchange (i) its
guarantee of payments of cash distributions and payments on liquidation of the
Trust or redemption of the Old Capital Securities (the "Old Guarantee") for a
like guarantee in respect of the New Capital Securities (the "New Guarantee")
and (ii) all of its outstanding 9.70% Series A Junior Subordinated Deferrable
Interest Debentures due August 15, 2027 (the "Old Junior Subordinated
Debentures") for a like aggregate principal amount of its 9.70% Series B Junior
Subordinated Deferrable Interest Debentures due August 15, 2027 (the "New Junior
Subordinated Debentures"), which New Guarantee and New Junior Subordinated
Debentures also have been registered under the Securities Act. The Old Capital
Securities, the Old Guarantee and the Old Junior Subordinated Debentures are
collectively referred to herein as the "Old Securities" and the New Capital
Securities, the New Guarantee and the New Junior Subordinated Debentures are
collectively referred to herein as the "New Securities."
The terms of the New Securities are identical in all material respects to
the respective terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and therefore will not be subject
to certain restrictions on transfer under federal and state securities laws
applicable to the Old Securities, (ii) the New Capital Securities will not
provide for any increase in the Distribution rate thereon and (iii) the New
Junior Subordinated Debentures will not provide for any increase in the interest
rate thereon. See "Description of New Securities" and "Description of Old
Securities." The New Capital Securities are being offered for exchange in order
to satisfy certain obligations of the Corporation and the Trust under a
Registration Rights Agreement, dated as of August 26, 1997 (the "Registration
Rights Agreement"), among the Corporation, the Trust and the Initial Purchaser
(as defined herein). In the event that the Exchange Offer is consummated, any
Old Capital Securities which remain outstanding after consummation of the
Exchange Offer and the New Capital Securities issued in the Exchange Offer will
vote together as a single class for purposes of determining whether holders of
the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the 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 Old Capital Securities as of February 9, 1998.
See "Risk Factors" commencing on page 18 for certain information that should
be considered by holders in deciding whether to tender Old 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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 9, 1998.
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(Continued from the previous page)
The New Capital Securities and the Old Capital Securities represent
undivided beneficial interests in the assets of the Trust. The Corporation 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 August 15, 2027 (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 New
Securities--Description of Capital Securities--Subordination of Common
Securities."
As used herein, (i) the "Indenture" means the Indenture, dated as of August
26, 1997, between the Corporation and The Bank of New York, as Debenture Trustee
(the "Debenture Trustee"), as amended and supplemented from time to time, and
(ii) the "Trust Agreement" means the Amended and Restated Declaration of Trust
relating to the Trust among the Corporation, as Sponsor, The Bank of New York,
as Property Trustee (the "Property Trustee"), The Bank of New York (Delaware),
as the Delaware Trustee (the "Delaware Trustee"), the Administrative Trustees
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 Old Capital
Securities and the New Capital Securities, (ii) the term "Trust Securities"
means the Capital Securities and the Common Securities, (iii) the term "Junior
Subordinated Debentures" means the Old Junior Subordinated Debentures and the
New Junior Subordinated Debentures and (iv) the term "Guarantee" means the Old
Guarantee and the New Guarantee.
Except as provided below, the 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 Capital Securities will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. Beneficial interests in the 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
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 New Securities -- Description of Capital
Securities -- Form, Denomination, Book-Entry Procedures and Transfer."
Holders of the Capital Securities will be entitled to receive cumulative
cash distributions arising from the payment of interest on the Junior
Subordinated Debentures, accruing from August 26, 1997, and payable
semi-annually in arrears on February 15th and August 15th of each year,
commencing February 15, 1998 at the annual rate of 9.70% of the Liquidation
Amount of $1,000 per Capital Security ("Distributions"). So long as no Debenture
Event of Default (as defined herein) has occurred and is continuing, the
Corporation has the right to defer payments of interest on the Junior
Subordinated Debentures at any time and 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 end
on a date other than an Interest Payment Date (as defined herein) or extend
beyond the Stated Maturity Date. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Corporation may elect to
begin a new Extension Period, subject to the requirements set forth in the
Indenture. If and for so long as interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Trust Securities also will be
deferred and the Corporation will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to the Corporation's capital stock (which includes common and preferred
stock) or to make any payment with respect to debt securities of the Corporation
that rank pari passu 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
Trust Securities are entitled will accumulate) at the rate of 9.70% per annum,
compounded semi-annually, and holders of Trust Securities will be required to
accrue interest income for United States federal income tax purposes. See
"Description of New
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Securities--Description of Junior Subordinated Debentures--Option to Extend
Interest Payment Date" and "Certain Federal Income Tax
Considerations--Interest Income and Original Issue Discount."
The Corporation has, through the Guarantee, the guarantee agreement of the
Corporation relating to the Common Securities (the "Common Guarantee"), the
Trust Agreement, the Junior Subordinated Debentures and the Indenture, taken
together, fully, irrevocably and unconditionally guaranteed all of the Trust's
obligations under the Trust Securities. See "Relationship Among the Capital
Securities, the Junior Subordinated Debentures and the Guarantee--Full and
Unconditional Guarantee." The Guarantee and the Common Guarantee guarantee
payments of Distributions and payments on liquidation or redemption of the Trust
Securities, but in each case only to the extent that the Trust holds funds on
hand legally available therefor and has failed to make such payments, as
described herein. See "Description of New Securities--Description of Guarantee."
If the Corporation fails to make a required payment on the Junior Subordinated
Debentures, the Trust will not have sufficient funds to make the related
payments, including Distributions, on the Trust Securities. The Guarantee and
the Common Guarantee do not cover any such payment when the Trust does not have
sufficient funds on hand legally available therefor. In such event, under the
Indenture a holder of Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights in respect of such
payment. See "Description of New Securities--Description of Junior Subordinated
Debentures--Enforcement of Certain Rights By Holders of Capital Securities." The
obligations of the Corporation under the Guarantee, the Common Guarantee and the
Junior Subordinated Debentures are unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness of the Corporation to the extent and
in the manner set forth in the Indenture. See "Description of New
Securities--Description of Junior Subordinated Debentures--Subordination." In
addition, because the Corporation is a holding company, the Junior Subordinated
Debentures and the Guarantee effectively are subordinated to all existing and
future liabilities, including deposits, of the Corporation's subsidiaries.
The Trust Securities are subject to mandatory redemption in a Like Amount
(as defined herein), (i) in whole but not in part, on the Stated Maturity Date
upon repayment of the Junior Subordinated Debentures at a redemption price equal
to the principal amount of, plus accrued interest on, the Junior Subordinated
Debentures (the "Maturity Redemption Price"), (ii) in whole but not in part, at
any time before August 15, 2007 (the "Initial Optional Prepayment Date"),
contemporaneously with the optional redemption of the Junior Subordinated
Debentures, upon the occurrence and continuation of a Special Event (as defined
herein) at a redemption price equal to the Special Event Prepayment Price (as
defined below) (the "Special Event Redemption Price") and (iii) in whole or in
part, on or after the Initial Optional Prepayment Date, contemporaneously with
the optional redemption by the Corporation of the Junior Subordinated
Debentures, at a redemption price equal to the Optional Prepayment Price (as
defined below) (the "Optional Redemption Price"). Any of the Maturity Redemption
Price, the Special Event Redemption Price and the Optional Redemption Price may
be referred to herein as the "Redemption Price." See "Description of New
Securities--Description of Capital Securities--Redemption."
Subject to the Corporation having received any required regulatory approval,
the Junior Subordinated Debentures are prepayable prior to the Stated Maturity
Date at the option of the Corporation (i) on or after the Initial Optional
Prepayment Date, in whole or in part, at a price (the "Optional Prepayment
Price") equal to 104.850% of the principal amount thereof on the Initial
Optional Prepayment Date, declining ratably on each August 15th thereafter to
100% on or after August 15, 2017, plus, in each case, accrued and unpaid
interest thereon to the date of prepayment, or (ii) at any time prior to the
Initial Optional Prepayment Date, in whole but not in part, upon the occurrence
and continuation of a Special Event, at a prepayment price (the "Special Event
Prepayment Price") equal to the Make-Whole Amount (as defined below). The
"Make-Whole Amount" shall be equal to the greater of (a) 100% of the principal
amount of the Junior Subordinated Debentures or (b) the sum, as determined by a
Quotation Agent (as defined herein), of the present values of the remaining
scheduled payments of principal and interest on the Junior Subordinated
Debentures, discounted to the prepayment date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate
(as defined herein) plus, in the case of each of clauses (a) and (b), accrued
and unpaid interest thereon to the date of prepayment. Either of the Optional
Prepayment Price or the Special Event
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Prepayment Price may be referred to herein as the "Prepayment Price." See
"Description of New Securities -- Description of Junior Subordinated
Debentures -- Optional Prepayment" and "-- Special Event Prepayment."
The Corporation 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 Corporation 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 New Securities Description of Capital Securities -- Liquidation
of the Trust and Distribution of Junior Subordinated Debentures."
------------------------
The Trust is making the Exchange Offer of the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance
of the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other
transactions. However, neither the Corporation 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 Corporation and the Trust
believe that New Capital Securities issued pursuant to this Exchange Offer in
exchange for Old Capital Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
New Capital Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Capital Securities. However, any
holder of Old Capital Securities who is an "affiliate" of the Corporation 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 New Capital Securities, or any broker-dealer who
purchased Old Capital Securities from the Trust to resell pursuant to Rule
144A under the Securities Act ("Rule 144A") or any other available exemption
under the Securities Act, (i) will not be able to rely on the interpretations
of the staff of the Division of Corporation Finance of the Commission set
forth in the above-mentioned interpretive letters, (ii) will not be entitled
to tender such Old Capital Securities in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Old
Capital Securities (other than pursuant to the Exchange Offer) 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
Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such Participating Broker-Dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate of the Corporation or the Trust, (ii)
any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. The Letter of Transmittal contains the foregoing representations. In
addition, the Corporation and the Trust may require such holder, as a condition
to such holder's eligibility
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to participate in the Exchange Offer, to furnish to the Corporation 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act")) on behalf of whom such
holder holds Old Capital Securities to be exchanged in the Exchange Offer.
Each Participating Broker-Dealer that receives New 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 Old Capital
Securities for its own account as the result of market-making activities or
other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Capital Securities. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a 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 Corporation and the Trust believe that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with
respect to the New Capital Securities received upon exchange of such Old
Capital Securities (other than Old Capital Securities which represent an
unsold allotment from the original sale of the Old Capital Securities) with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
New Capital Securities. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its
own account as a result of market-making or other trading activities. Subject
to certain provisions set forth in the Registration Rights Agreement, the
Corporation and the Trust have agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Capital Securities for a
period ending 90-days after the Expiration Date (as defined herein) (subject
to extension under certain limited circumstances described below) or, if
earlier, when all such New 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 New Capital Securities received in exchange for Old
Capital Securities pursuant to the Exchange Offer must notify the Corporation
or the Trust, or cause the Corporation 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
Corporation or the Trust may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer--Resales of New Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message, that,
upon receipt of notice from the Corporation or the Trust of the occurrence of
any event or the discovery of any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of New Capital
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) pursuant to this Prospectus until the Corporation 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 Corporation or the Trust has given notice
that the sale of the New Capital Securities (or the New Guarantee or the New
Junior Subordinated Debentures, as applicable) may be resumed, as the case may
be. If the Corporation or the Trust gives such notice to suspend the sale of the
New Capital Securities (or the New Guarantee or the New 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 New Capital Securities by the number of days
during the period from and including the date of the
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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 New Capital Securities or to
and including the date on which the Corporation or the Trust has given notice
that the sale of New Capital Securities (or the New Guarantee or the New
Junior Subordinated Debentures, as applicable) may be resumed, as the case
may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New 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 New
Capital Securities. The Corporation and the Trust currently do not intend to
apply for listing of the New Capital Securities on any securities exchange or
for quotation through the National Association of Securities Dealers Automated
Quotation System.
Any Old Capital Securities not tendered and accepted in the Exchange
Offer will remain outstanding and will be entitled to all the same rights and
will be subject to the same limitations applicable thereto under the Trust
Agreement (except for those rights which terminate upon consummation of the
Exchange Offer). Following consummation of the Exchange Offer, the holders of
Old Capital Securities will continue to be subject to all of the existing
restrictions upon transfer thereof and neither the Corporation nor the Trust
will have any further obligation to such holders (other than under certain
limited circumstances) to provide for registration under the Securities Act
of the Old Capital Securities held by them. To the extent that Old Capital
Securities are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Old Capital Securities could be adversely
affected. See "Risk Factors--Consequences of a Failure to Exchange Old
Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on March 11, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Corporation 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 Old Capital Securities may be withdrawn at any time on
or prior to the Expiration Date. The Exchange Offer is not conditioned upon
any minimum Liquidation Amount of Old Capital Securities being tendered for
exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Corporation or the Trust and to the
provisions of the Registration Rights Agreement. Old 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
Corporation has agreed to pay all expenses of the Exchange Offer. See "The
Exchange Offer--Fees and Expenses."
Holders of Old Capital Securities as of the February 1, 1998 record date
for the initial Distribution on February 15, 1998, including such holders who
tender their Old Capital Securities pursuant to the Exchange Offer, will be
entitled to receive such Distribution. See "The Exchange Offer--Distributions
on New Capital Securities."
Neither the Corporation nor the Trust will receive any cash proceeds from
the issuance of the New Capital Securities offered hereby. No dealer-manager
is being used in connection with this Exchange Offer. See "Use of Proceeds"
and "Plan of Distribution."
THE NEW CAPITAL SECURITIES WILL BE ISSUED, AND CAPITAL SECURITIES MAY BE
TRANSFERRED, ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN
$100,000. ANY TRANSFER, SALE OR OTHER DISPOSITION OF CAPITAL SECURITIES IN A
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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
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION 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 CORPORATION 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.
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TABLE OF CONTENTS
PAGE
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Available Information...................................................... 9
Incorporation of Certain Documents by Reference............................ 9
Summary.................................................................... 11
Risk Factors............................................................... 18
The Trust.................................................................. 24
The Corporation............................................................ 24
Selected Consolidated Financial Data of
the Corporation........................................................... 26
Use of Proceeds............................................................ 28
Ratio of Earnings to Fixed Charges......................................... 28
Accounting Treatment....................................................... 28
Capitalization............................................................. 29
The Exchange Offer......................................................... 30
Description of New Securities.............................................. 39
Description of Old Securities.............................................. 60
Relationship Among the Capital Securities, the
Junior Subordinated Debentures and the Guarantee.......................... 60
Certain Federal Income Tax Considerations.................................. 62
ERISA Considerations....................................................... 65
Plan of Distribution....................................................... 66
Validity of New Securities................................................. 67
Experts.................................................................... 67
8
<PAGE>
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
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 Corporation also can be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
No separate financial statements of the Trust have been included herein.
The Corporation 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 "The Trust" and "Description
of New Securities." In addition, the Corporation 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 Corporation 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 Corporation, the Trust and the New Securities. Any statements contained
herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to 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 Corporation with the Commission are
incorporated by reference in this Prospectus:
1. The Corporation's Annual Report on Form 10-KSB for the year ended
September 30, 1997; and
2. The following portions of the Corporation's Annual Report to
Stockholders for the year ended September 30, 1997: selected
consolidated financial and other data (pages 2 to 3); management's
discussion and analysis of financial condition and results of
operations (pages 9 to 17); and audited consolidated financial
statements and notes thereto (pages 18 to 39).
All documents subsequently filed by the Corporation 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 New 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
9
<PAGE>
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.
This Prospectus is accompanied by the Corporation's 1997 Annual Report to
Stockholders. Copies of the other documents incorporated by reference herein
are available from the Corporation 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 Thomas M. Kelly, Chief
Financial Officer of the Corporation, at the principal executive offices
located at 22 West State Street, Media, Pennsylvania 19063. The Corporation's
telephone number is (610) 565-6210.
10
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements,
including the notes thereto, contained elsewhere in this Prospectus.
FIRST KEYSTONE FINANCIAL, INC.
The Corporation is a Pennsylvania-chartered, registered thrift holding
company headquartered in Media, Pennsylvania. The Corporation is the sole
stockholder of First Keystone Federal Savings Bank (the "Bank"), a federally
chartered savings bank, which has been engaged in the thrift business since
1934. The Corporation became the parent holding company of the Bank in
connection with the Bank's conversion from mutual to stock form in January
1995. The Bank conducts its business through five full-service offices
located in Delaware County. At September 30, 1997, the Corporation had total
consolidated assets of $373.4 million, total consolidated liabilities of
$332.5 million, including total consolidated deposits of $227.9 million, and
total consolidated stockholders' equity of $24.8 million.
FIRST KEYSTONE CAPITAL TRUST I
The Trust is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Secretary of State
of the State of Delaware. The Trust's affairs are conducted by the Issuer
Trustees: The Bank of New York as Property Trustee, The Bank of New York
(Delaware) as Delaware Trustee and three individual Administrative Trustees
who are employees or officers of or affiliated with the Corporation. 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 issued by the Corporation and
(iii) engaging in only those other activities necessary, advisable or
incidental thereto. Accordingly, the Junior Subordinated Debentures are the
sole assets of the Trust, and payments under the Junior Subordinated
Debentures are the sole revenue of the Trust. All of the Common Securities
are owned by the Corporation.
THE EXCHANGE OFFER
The Exchange Offer................... Up to $16,200,000 aggregate Liquidation
Amount of New Capital Securities are
being offered in exchange for a like
aggregate Liquidation Amount of Old
Capital Securities. Old Capital
Securities may be tendered for exchange
in whole or in part in a Liquidation
Amount of $100,000 (100 Capital
Securities) or any integral multiple of
$1,000 (one Capital Security) in excess
thereof. The Corporation and the Trust
are making the Exchange Offer in order
to satisfy their obligations under the
Registration Rights Agreement relating
to the Old Capital Securities. For a
description of the procedures for
tendering Old Capital Securities, see
"The Exchange Offer--Procedures for
Tendering Old Capital Securities."
Expiration Date...................... 5:00 p.m., New York City time, on March
11, 1998, unless the Exchange Offer
is extended by the Corporation 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."
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<PAGE>
Conditions to the Exchange Offer..... The Exchange Offer is subject to
certain conditions, which may be waived
by the Corporation and the Trust in
their sole discretion. The Exchange
Offer is not conditioned upon any
minimum Liquidation Amount of Old
Capital Securities being tendered. See
"The Exchange Offer--Conditions to the
Exchange Offer."
Terms of the Exchange Offer.......... The Corporation and the Trust reserve
the right in their sole and absolute
discretion, subject to applicable law,
at any time and from time to time, (i)
to delay the acceptance of the Old
Capital Securities for exchange, (ii)
to terminate the Exchange Offer if
certain specified conditions have not
been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer
and retain all Old Capital Securities
tendered pursuant to the Exchange
Offer, subject, however, to the right
of holders of Old Capital Securities to
withdraw their tendered Old Capital
Securities or (iv) to waive any
condition or otherwise amend the terms
of the Exchange Offer in any respect.
See "The Exchange Offer--Terms of the
Exchange Offer."
Withdrawal Rights.................... Tenders of Old Capital Securities may
be withdrawn at any time on or prior to
the Expiration Date by delivering a
written notice of such withdrawal to
the Exchange Agent in conformity with
certain procedures set forth below
under "The Exchange Offer --Withdrawal
Rights."
Procedures for Tendering Old
Capital Securities................. Tendering holders of Old Capital
Securities must complete and sign a
Letter of Transmittal in accordance
with the instructions contained therein
and forward the same by mail, facsimile
or hand delivery, together with any
other required documents, to the
Exchange Agent, either with the Old
Capital Securities to be tendered or in
compliance with the specified
procedures for guaranteed delivery of
Old Capital Securities. Certain
brokers, dealers, commercial banks,
trust companies and other nominees also
may effect tenders by book-entry
transfer, including an Agent's Message
in lieu of a Letter of Transmittal.
Holders of Old Capital Securities
registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee are urged to contact
such person promptly if they wish to
tender Old Capital Securities pursuant
to the Exchange Offer. See "The
Exchange Offer--Procedures for
Tendering Old Capital Securities."
Letters of Transmittal and certificates
representing Old Capital Securities
should not be sent to the Corporation
or the Trust. Such documents should
only be sent to the Exchange Agent. See
"The Exchange Offer--Exchange Agent."
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<PAGE>
Resales of New Capital Securities.... The Corporation 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 Corporation 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 Corporation and the
Trust believe that New Capital
Securities issued pursuant to this
Exchange Offer in exchange for Old
Capital Securities may be offered for
resale, resold and otherwise
transferred by a holder thereof (other
than a holder who is a broker-dealer)
without further compliance with the
registration and prospectus delivery
requirements of the Securities Act,
provided that such New Capital
Securities are acquired in the ordinary
course of such holder's business and
that such holder is not participating,
and has no arrangement or understanding
with any person to participate, in a
distribution (within the meaning of the
Securities Act) of such New Capital
Securities. However, any holder of Old
Capital Securities who is an Affiliate
of the Corporation or the Trust or who
intends to participate in the Exchange
Offer for the purpose of distributing
the New Capital Securities, or any
broker-dealer who purchased the Old
Capital Securities from the Trust to
resell pursuant to Rule 144A or any
other available exemption under the
Securities Act, (i) will not be able to
rely on the interpretations of the
staff of the Division of Corporation
Finance of the Commission set forth in
the above-mentioned interpretive
letters, (ii) will not be permitted or
entitled to tender such Old Capital
Securities in the Exchange Offer and
(iii) must comply with the registration
and prospectus delivery requirements of
the Securities Act in connection with
any sale or other transfer of such Old
Capital Securities unless such sale is
made pursuant to an exemption from such
requirements. In addition, as described
below, if any broker-dealer holds Old
Capital Securities acquired for its own
account as a result of market-making or
other trading activities and exchanges
such Old Capital Securities for New
Capital Securities, then such
broker-dealer must deliver a prospectus
meeting the requirements of the
Securities Act in connection with any
resales of such New Capital Securities.
13
<PAGE>
Each holder of Old Capital Securities
who wishes to exchange Old Capital
Securities for New Capital Securities
in the Exchange Offer will be required
to represent in the Letter of
Transmittal or by transmission of an
Agent's Message that (i) it is not an
"affiliate" of the Corporation or the
Trust, (ii) any New Capital Securities
to be received by it are being acquired
in the ordinary course of its business,
(iii) it has no arrangement or
understanding with any person to
participate in a distribution (within
the meaning of the Securities Act) of
such New Capital Securities and (iv) if
such holder is not a broker-dealer,
such holder is not engaged in, and does
not intend to engage in, a distribution
(within the meaning of the Securities
Act) of such New Capital Securities.
The Letter of Transmittal contains the
foregoing representations. Each
Participating Broker-Dealer that
receives New 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 Old Capital
Securities for its own account as the
result of market-making activities or
other trading activities and must agree
that it will deliver a prospectus
meeting the requirements of the
Securities Act in connection with any
resale of such New Capital Securities.
The Letter of Transmittal states that,
by so acknowledging and by delivering a
prospectus, a 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 Corporation and the Trust believe
that Participating Broker-Dealers who
acquired Old 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 New Capital Securities
received upon exchange of such Old
Capital Securities (other than Old
Capital Securities which represent an
unsold allotment from the original sale
of the Old Capital Securities) with a
prospectus meeting the requirements of
the Securities Act, which may be the
prospectus prepared for an exchange
offer so long as it contains a
description of the plan of distribution
with respect to the resale of such New
Capital Securities. Accordingly, this
Prospectus, as it may be amended or
supplemented from time to time, may be
used by a Participating Broker-Dealer
in connection with resales of New
Capital Securities received in exchange
for Old Capital Securities where such
Old Capital Securities were acquired by
such Participating Broker-Dealer for
its own account as a result of
market-making or other trading
activities.
14
<PAGE>
Subject to certain provisions set forth
in the Registration Rights Agreement
and to the limitations described below
under "The Exchange Offer--Resales of
New Capital Securities," the
Corporation and the Trust have agreed
that this Prospectus, as it may be
amended or supplemented from time to
time, may be used by a Participating
Broker-Dealer in connection with
resales of such New Capital Securities
for a period ending 90 days after the
Expiration Date (subject to extension
under certain limited circumstances)
or, if earlier, when all such New
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 Affiliate of
the Corporation or the Trust may not
rely on such interpretive letters and
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
resale transaction. See "The Exchange
Offer--Resales of New Capital
Securities."
Exchange Agent......................... The exchange agent with respect to the
Exchange Offer is The Bank of New York
(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 Corporation nor the Trust
will receive any cash proceeds from the
issuance of the New Capital Securities
offered hereby. See "Use of Proceeds."
Certain Federal Income Tax
Considerations; ERISA Considerations. Holders of Old Capital Securities should
review the information set forth under
"Certain Federal Income Tax
Considerations" and "ERISA
Considerations" prior to tendering Old
Capital Securities in the Exchange
Offer.
THE NEW CAPITAL SECURITIES
Securities Offered..................... Up to $16,200,000 aggregate Liquidation
Amount of the Trust's New Capital
Securities which have been registered
under the Securities Act (Liquidation
Amount $1,000 per New Capital
Security). The New Capital Securities
will be issued and the Old Capital
Securities were issued under the Trust
Agreement. The New Capital Securities
and any Old 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
15
<PAGE>
Trust Agreement. See "Description of
New Securities-- Description of Capital
Securities--Voting Rights; Amendment of
the Trust Agreement." The terms of the
New Capital Securities are identical in
all material respects to the terms of
the Old Capital Securities, except that
the New Capital Securities have been
registered under the Securities Act and
therefore will not be subject to
certain restrictions on transfer under
federal and state securities laws and
will not provide for any increase in
the Distribution rate thereon. See "The
Exchange Offer--Purpose of the Exchange
Offer," "Description of New Securities"
and "Description of Old Securities."
Distribution Dates................... February 15th and August 15th of each
year.
Extension Periods.................... Distributions on the Capital Securities
will be deferred for the duration of
any Extension Period elected by the
Corporation 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 New
Securities--Description of Junior
Subordinated Debentures--Option to
Extend Interest Payment Date" and
"Certain Federal Income Tax
Considerations --Interest Income and
Original Issue Discount."
Ranking............................. The New Capital Securities will rank
PARI PASSU, and payments thereon will
be made pro rata, with the Old Capital
Securities and the Common Securities
except as described under "Description
of New Securities --Description of
Capital Securities --Subordination of
Common Securities." The New Junior
Subordinated Debentures will rank PARI
PASSU with the Old Junior Subordinated
Debentures, and all other junior
subordinated debentures issued by the
Corporation (the "Other Debentures")
and sold to other trusts established or
to be established by the Corporation,
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 Corporation to the extent
and in the manner set forth in the
Indenture. See "Description of New
Securities-- Description of Junior
Subordinated Debentures." The New
Guarantee will rank PARI PASSU with the
Old Guarantee, and all other guarantees
issued by the Corporation with respect
to capital securities issued or to be
issued by Other Trusts (the "Other
Guarantees") and will constitute an
unsecured obligation of the Corporation
and will rank subordinate and junior in
right of payment to all Senior
Indebtedness of the Corporation to the
extent
16
<PAGE>
and in the manner set forth in
the Guarantee Agreement. See
"Description of New
Securities--Description of Guarantee."
Redemption.......................... The Trust Securities are subject to
mandatory redemption in a Like Amount,
(i) in whole but not in part, on the
Stated Maturity Date upon repayment of
the Junior Subordinated Debentures, in
whole but not in part, at any time
before the Initial Optional Prepayment
Date contemporaneously with the
optional redemption of the Junior
Subordinated Debentures by the
Corporation upon the occurrence and
continuation of a Special Event (as
defined herein) and in whole or in
part, at any time on or after the
Initial Optional Prepayment Date
contemporaneously with the optional
redemption by the Corporation of the
Junior Subordinated Debentures, in each
case at the applicable Redemption
Price. See "Description of New
Securities--Description of Capital
Securities -- Redemption."
Transfer............................ The New Capital Securities will be
issued, and may be transferred, only in
blocks having a Liquidation Amount of
not less than $100,000 (100 New Capital
Securities). Any transfer, sale or
other disposition of New 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.
Absence of Market for the
New Capital Securities............. The New Capital Securities will be a new
issue of securities for which there
currently is no market. Sandler O'Neill &
Partners, L.P. the initial purchaser of
the Old Capital Securities (the
"Initial Purchaser"), has informed the
Corporation and the Trust that it
intends to make a market in the New
Capital Securities. However, the
Initial Purchaser is not obligated to
make a market in the Old Capital
Securities or the New Capital
Securities, 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 New
Capital Securities. The Trust and the
Corporation do not intend to apply for
listing of the New Capital Securities
on any securities exchange or for
quotation through the National
Association of Securities Dealers
Automated Quotation System. The New
Capital Securities are expected to be
eligible for quotation on PORTAL. See
"Plan of Distribution."
17
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors in connection
with the Exchange Offer and the New Capital Securities offered hereby.
Information contained in this Prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," "projected,"
"contemplates" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. The
following matters constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to vary materially
from the future results covered in such forward-looking statements. Other
factors, such as the general state of the economy, could also cause actual
results to vary materially from the future results covered in such
forward-looking statements.
Ranking of Subordinated Obligations under the Guarantee and the Junior
Subordinated Debentures; Limitations on Sources of Funds
The obligations of the Corporation under the Guarantee issued by it for
the benefit of holders of Capital Securities, as well as under the Junior
Subordinated Debentures are unsecured and rank subordinate and junior in
right of payment to all present and future Senior Indebtedness of the
Corporation to the extent and in the manner set forth in the Indenture and
the Guarantee, respectively. No payment may be made of the principal of, or
premium, if any, or interest on the Junior Subordinated Debentures, or in
respect of any redemption, retirement, purchase or other acquisition of any
of the Junior Subordinated Debentures, at any time when (i) there shall have
occurred and be continuing a default, in any payment in respect of any Senior
Indebtedness, or there has been an acceleration of the maturity thereof
because of a default, or (ii) in the event of the acceleration of the
maturity of the Junior Subordinated Debentures until payment has been made on
all Senior Indebtedness. At September 30, 1997, the Corporation had
outstanding Senior Indebtedness. Because the Corporation is a holding
company, the right of the Corporation to participate in any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization
or otherwise (and thus the ability of holders of the Capital Securities to
benefit indirectly from such distribution) is subject to the prior claims of
creditors of that subsidiary, except to the extent that the Corporation may
itself be recognized as a creditor of such subsidiary. At September 30, 1997,
the subsidiaries of the Corporation had total liabilities (excluding
liabilities owed to the Corporation) of approximately $332.5 million.
Accordingly, the Junior Subordinated Debentures effectively will be
subordinated to all existing and future liabilities of the Corporation's
subsidiaries (including the Bank's deposit liabilities, which aggregated
$227.9 million at September 30, 1997), and holders of Junior Subordinated
Debentures should look only to the assets of the Corporation for payments on
the Junior Subordinated Debentures. The Guarantee constitutes an unsecured
obligation of the Corporation and ranks subordinate and junior in right of
payment to all Senior Indebtedness of the Corporation in the same manner as
the Junior Subordinated Debentures. None of the 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
Corporation or any of its subsidiaries. See "Description of New Securities
- --Description of Guarantee -- Status of Guarantee" and "-- Description of
Junior Subordinated Debentures -- Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Corporation making payments on the Junior
Subordinated Debentures as and when required.
The Corporation is a holding company and almost all of the operating
assets of the Corporation are owned by the Corporation's subsidiaries. The
Corporation relies primarily on dividends from the Bank to meet its
obligations for payment of principal and interest on its outstanding debt
obligations and corporate expenses. There are regulatory limitations on the
payment of dividends directly or indirectly to the Corporation from the Bank.
As of September 30, 1997, under regulations of the Office of Thrift
Supervision ("OTS"), the total capital available for payment of dividends by
the Bank to the Corporation was approximately $5.6 million. However, the
18
<PAGE>
OTS has the power to prohibit any act, including the payment of dividends, if
such act would reduce the Bank's capital to a point that, in its opinion,
would render the Bank undercapitalized and thus constitute an unsafe or
unsound banking practice. In addition to restrictions on the payment of
dividends, the Bank is subject to certain restrictions imposed by federal law
on any extensions of credit to, and certain other transactions with, the
Corporation and certain other affiliates, and on investments in stock or
other securities thereof. Such restrictions prevent the Corporation and such
other affiliates from borrowing from the Bank unless the loans are secured by
various types of collateral. Further, such secured loans, other transactions
and investments by the Bank are generally limited in amount as to the
Corporation and as to each of such other affiliates to 10% of the Bank's
capital and surplus and as to the Corporation and all of such other
affiliates to an aggregate of 20% of the Bank's capital and surplus.
Option to Extend Interest Payment Period; Tax Consequences; Market Price
Consequences
So long as no Debenture Event of Default (as defined herein) shall have
occurred and be continuing, the Corporation has the right under the Indenture
to defer payments 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 shall end on a date other than an Interest Payment Date or
extend beyond the Stated Maturity Date. As a consequence of any such
deferral, semi-annual Distributions on the Trust Securities by the Trust will
be deferred (and the amount of Distributions to which holders of the Trust
Securities are entitled will accumulate additional Distributions thereon at
the rate of 9.70% per annum, compounded semi-annually, but not exceeding the
interest rate then accruing on the Junior Subordinated Debentures) from the
relevant payment date for such Distributions during any such Extension
Period. During the pendency of any Extension Period, the Corporation
generally will be prohibited from declaring or paying dividends on the
Corporation's capital stock. See "Description of New Securities --
Description of Capital Securities -- Distributions."
Prior to the termination of any Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods to
end on a date other than an Interest Payment Date or to extend beyond the
Stated Maturity Date. Upon the termination of any Extension Period and the
payment of all interest then accrued and unpaid on the Junior Subordinated
Debentures (together with interest thereon at the annual rate of 9.70%,
compounded semi-annually, to the extent permitted by applicable law), the
Corporation may elect to begin a new Extension Period, subject to the above
requirements. There is no limitation on the number of times that the
Corporation may elect to begin an Extension Period. See "Description of New
Securities -- Description of Capital Securities -- Distributions" and "--
Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Date."
The Corporation has no current plan to exercise its right to defer
payments of interest on the Junior Subordinated Debentures. However, should
the Corporation exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of Trust Securities will be
required to accrue income (as original issue discount ("OID")) in respect of
the deferred stated interest allocable to its Trust Securities for United
States federal income tax purposes, which will be allocated but not
distributed to holders of Trust Securities. As a result, each holder of
Capital Securities will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash
related to such income from the Trust if the holder disposes of the Capital
Securities prior to the record date for the payment of Distributions
thereafter. See "Certain Federal Income Tax Considerations -- Interest
Income and Original Issue Discount" and "-- Sales of Capital Securities."
Should the Corporation elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures 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
19
<PAGE>
return on its investment as a holder that continues to hold its Capital
Securities. In addition, the mere existence of the Corporation's right to
defer interest payments on the Junior Subordinated Debentures may cause the
market price of the Capital Securities to be more volatile than the market
prices of other securities on which OID accrues and that are not subject to
such deferrals.
Special Event Redemption
Upon the occurrence and continuation of a Special Event (including a Tax
Event or a Regulatory Capital Event (in each case as defined under
"Description of New Securities -- Description of Junior Subordinated
Debentures -- Special Event Prepayment")) prior to the Initial Optional
Prepayment Date, the Corporation will have the right to prepay the Junior
Subordinated Debentures in whole (but not in part) at the Special Event
Prepayment Price within 90 days following the occurrence of such Special
Event and therefore cause a mandatory redemption of the Trust Securities at
the Special Event Redemption Price. The exercise of such right is subject to
the Corporation having received any required regulatory approval. See
"Description of New Securities -- Description of Capital Securities --
Redemption."
Liquidation Distribution of Junior Subordinated Debentures
The Corporation has the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, to cause the Junior Subordinated Debentures to be distributed
to the holders of the Trust Securities in liquidation of the Trust. Such
right is subject to (i) the Corporation having received an opinion of counsel
to the effect that such distribution will not be a taxable event to the
holders of Capital Securities and (ii) receipt of any required regulatory
approval. Under current United States federal income tax law, a distribution
of Junior Subordinated Debentures upon the dissolution of the Trust would not
be a taxable event to holders of the Capital Securities. Upon the occurrence
of a Special Event, a dissolution of the Trust in which holders of the
Capital Securities receive cash would be a taxable event to such holders. See
"Certain Federal Income Tax Considerations -- Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."
Possible Adverse Effect on Market Prices
There can be no assurance as to the market prices for Capital Securities
or Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a dissolution of the Trust were to occur. Accordingly,
the Capital Securities or the Junior Subordinated Debentures may trade at a
discount from the price that the investor paid to purchase the New Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures in liquidation of the Trust and because
Distributions are otherwise limited to payments on the Junior Subordinated
Debentures, prospective purchasers of New Capital Securities are also making
an investment decision with regard to the Junior Subordinated Debentures and
should carefully review all the information regarding the New Junior
Subordinated Debentures contained herein. See "Description of New Securities
- -- Description of Junior Subordinated Debentures."
Rights Under the Guarantee
The Guarantee guarantees to the holders of the Capital Securities the
following payments, to the extent not paid by or on behalf of the Trust: (i)
any accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Trust has funds on hand legally available
therefor at such time, (ii) the applicable Redemption Price with respect to
the Capital Securities called for redemption, to the extent that the Trust
has funds on hand legally available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of the Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Capital Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment,
to the extent that the Trust has funds on hand
20
<PAGE>
legally available therefor at such time, and (b) the amount of assets of the
Trust remaining available for distribution to holders of the Capital
Securities at such time, after the satisfaction of liabilities to creditors
of the Trust as provided by applicable law.
The holders of a majority in 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 power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of the Capital Securities
may institute a legal proceeding directly against the Corporation to enforce
its rights under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or entity. If
the Corporation defaults on its obligation to pay amounts payable under the
Junior Subordinated Debentures, the Trust will not have sufficient 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 will not be able to rely upon the Guarantee for payment of such
amounts. Instead, in the event a Debenture Event of Default shall have
occurred and be continuing and such event is attributable to the failure of
the Corporation to pay the principal of (or premium, if any) or interest
(including Additional Sums (as defined below) and Compounded Interest (as
defined below), if any) on 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 Corporation
for enforcement of payment to such holder of the principal of (or premium, if
any) or interest (including Additional Sums and Compounded Interest, if any)
on such Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Capital Securities of such holder (a "Direct
Action"). Notwithstanding any payments made to a holder of Capital Securities
by the Corporation in connection with a Direct Action, the Corporation shall
remain obligated to pay the principal of (and premium, if any) and interest
(including Additional Sums and Compounded Interest, if any) on the Junior
Subordinated Debentures, and the Corporation shall be subrogated to the
rights of the holder of such Capital Securities with respect to payments on
the Capital Securities to the extent of any payments made by the Corporation
to such holder in any 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 to assert
directly any other rights in respect of the Junior Subordinated Debentures.
See "Description of New Securities -- 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 Indenture. The Bank of New York acts
as Guarantee Trustee and holds the Guarantee for the benefit of the holders
of the Capital Securities. The Bank of New York also acts as Property Trustee
and as Debenture Trustee under the Indenture. The Bank of New York (Delaware)
acts as Delaware Trustee under the Trust Agreement.
Limited Voting Rights
Holders of Capital Securities generally have limited voting rights
relating only to the modification of the Capital Securities and the exercise
of the Trust's rights as holder of Junior Subordinated Debentures. Holders of
Capital Securities will not be entitled to vote to appoint, remove or
replace, or to increase or decrease the number of, the Issuer Trustees, which
voting rights are vested exclusively in the holder of the Common Securities
except upon the occurrence of certain events described herein. The Property
Trustee, the Administrative Trustees and the Corporation may amend the Trust
Agreement without the consent of holders of Capital Securities to ensure that
the Trust will be classified for United States federal income tax purposes as
a grantor trust, even if such action adversely affects the interests of such
holders. Holders of Capital Securities have no voting rights with respect to
any matters submitted to a vote of the Corporation's stockholders. See
"Description of New Securities -- Description of Capital Securities -- Voting
Rights; Amendment of the Trust Agreement" and "-- Removal of Issuer Trustees."
21
<PAGE>
Consequences of a Failure to Exchange Old Capital Securities
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements
of the Securities Act and any other applicable securities laws, or pursuant
to an exemption therefrom or in a transaction not subject thereto, and in
each case in compliance with certain other conditions and restrictions. Old
Capital Securities which remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of
Old Capital Securities which remain outstanding will not be entitled to any
rights to have such Old Capital Securities registered under the Securities
Act or to any similar rights under the Registration Rights Agreement. The
Corporation and the Trust do not intend to register under the Securities Act
any Old Capital Securities which remain outstanding after consummation of the
Exchange Offer.
To the extent that Old Capital Securities are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Old Capital
Securities could be adversely affected. In addition, although the Old Capital
Securities have been designated for trading in the Private Offerings, Resale
and Trading through Automated Linkages ("PORTAL") market, to the extent that
Old Capital Securities are tendered and accepted in connection with the
Exchange Offer, any trading market for Old Capital Securities which remain
outstanding after the Exchange Offer could be adversely affected.
The New Capital Securities and any Old 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 New Securities--Description of Capital Securities--Voting
Rights; Amendment of the Trust Agreement."
The Old Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed by
January 23, 1998 and declared effective by February 22, 1998, the
Distribution rate borne by the Old Capital Securities commencing on August
26, 1997 will increase by 0.25% per annum until the Exchange Offer is
consummated. Upon consummation of the Exchange Offer, holders of Old 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 New Capital Securities will not be entitled to any such
increase in the Distribution rate thereon. See "Description of Old Capital
Securities."
Trading Characteristics of the Capital Securities
The Capital Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) and who
disposes of its Capital Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest
on the Junior Subordinated Debentures through the date of disposition in
income as ordinary income (i.e., interest or, possibly, OID), and to add such
amount to its adjusted tax basis in its share of the underlying Junior
Subordinated Debentures deemed disposed of. To the extent the selling price
is less than the holder's adjusted tax basis (which will include all accrued
but unpaid interest), a holder will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes. See "Certain
Federal Income Tax Considerations -- Interest Income and Original Issue
Discount" and "-- Sales of Capital Securities."
22
<PAGE>
Absence of Public Market
The Old Capital Securities have not been registered under the Securities
Act and will continue to be subject to restrictions on transferability under
the Securities Act and applicable state securities laws if they are not
exchanged for New Capital Securities. Although the New Capital Securities
generally may be resold or otherwise transferred by the holders (who are not
Affiliates of the Corporation 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
Corporation and the Trust were advised by the Initial Purchaser in connection
with the offering of the Old Capital Securities that the Initial Purchaser
intends to make a market in the Capital Securities. However, the Initial
Purchaser is not obligated to do so and any market-making activity with
respect to the New Capital Securities may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer. Accordingly, no assurance can be given that an
active public or other market will develop for the New Capital Securities or
the Old Capital Securities or as to the liquidity of or the trading market
for the New Capital Securities or the Old Capital Securities. If an active
public market does not develop, the market price and liquidity of the New
Capital Securities may be adversely affected.
If a public trading market develops for the New Capital Securities,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the Corporation's results of operations
and the market for similar securities. Depending on prevailing interest
rates, the market for similar securities and other factors, including the
financial condition of the Corporation, the New Capital Securities may trade
at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are Affiliates of the Corporation or the Trust
may publicly offer for sale or resell the New Capital Securities only in
compliance with the provisions of Rule 144 under the Securities Act.
Each Participating Broker-Dealer that receives New Capital Securities for
its own account in exchange for Old Capital Securities must acknowledge that
it will deliver a prospectus in connection with any resale of such New
Capital Securities. See "Plan of Distribution."
Exchange Offer Procedures
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Trust of such Old Capital Securities, a properly completed and
duly executed Letter of Transmittal or Agent's Message in lieu thereof and
all other required documents. Therefore, holders of the Old Capital
Securities desiring to tender such Old Capital Securities in exchange for New
Capital Securities should allow sufficient time to ensure timely delivery.
None of the Corporation, the Trust or the Exchange Agent is under any duty to
give notification of defects or irregularities with respect to the tenders of
Old Capital Securities for exchange.
23
<PAGE>
THE TRUST
The Trust is a statutory business trust created under Delaware law upon
the filing of a certificate of trust with the Secretary of State of the State
of Delaware. The Trust exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, which represent undivided beneficial interests
in the assets of the Trust, (ii) investing the gross proceeds from the sale
of the Trust Securities in the Junior Subordinated Debentures and (iii)
engaging in only those other activities necessary, advisable or incidental
thereto. Accordingly, the Junior Subordinated Debentures are the sole assets
of the Trust and payments under the Junior Subordinated Debentures are the
sole revenues of the Trust. All of the Common Securities are owned directly
by the Corporation. 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 continuance of an Event of Default, the rights of
the Corporation as holder of the Common Securities to payments in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated and rank junior to the rights of the holders of the Capital
Securities. See "Description of New Securities -- Description of Capital
Securities -- Subordination of Common Securities." The Corporation acquired
Common Securities in a Liquidation Amount equal to 3% of the total capital of
the Trust. The Trust has a term of 31 years, but may dissolve earlier as
provided in the Trust Agreement. The Trust's business and affairs are
conducted by trustees (the "Issuer Trustees") appointed by the Corporation as
the direct holder of the Common Securities. The Issuer Trustees are The Bank
of New York as the Property Trustee (the "Property Trustee"), The Bank of New
York (Delaware) as the Delaware Trustee (the "Delaware Trustee") and three
individual trustees (the "Administrative Trustees"). The Bank of New York, as
Property Trustee, acts as sole indenture trustee under the Trust Agreement.
The Bank of New York also acts as indenture trustee under the Guarantee and
the Indenture. See "Description of New Securities -- Description of
Guarantee" and "-- Description of Junior Subordinated Debentures." The holder
of the Common Securities or, if an Event of Default under the Trust Agreement
has occurred and is continuing, the holders of not less than a majority in
Liquidation Amount of the Capital Securities, will be entitled to appoint,
remove or replace the Property Trustee and/or the Delaware Trustee. In no
event will the holders of the Capital Securities have the right to vote to
appoint, remove or replace the Administrative Trustees; such voting rights
will be vested exclusively in the holder of the Common Securities. The duties
and obligations of each Issuer Trustee are governed by the Trust Agreement.
The Corporation will pay directly all fees, expenses, debts and obligations
(other than the Trust Securities) related to the Exchange Offer, except as
provided herein, and will pay, directly or indirectly, all ongoing costs,
expenses and liabilities of the Trust. The principal executives office of the
Trust is c/o First Keystone Financial, Inc., 22 West State Street, Media,
Pennsylvania 19063.
THE CORPORATION
The Corporation is a Pennsylvania-chartered, registered thrift holding
company headquartered in Media, Pennsylvania. The Corporation is the sole
stockholder of the Bank, a federally chartered savings bank, which has been
engaged in the thrift business since 1934. The Corporation became the parent
holding company of the Bank in connection with the Bank's conversion from the
mutual to stock form in January 1995. The Bank conducts its business through
five full-service offices located in Delaware County. At September 30, 1997,
the Corporation had total consolidated assets of $373.4 million, total
consolidated liabilities of $332.5 million, including total consolidated
deposits of $227.9 million and total consolidated stockholders' equity of
$24.8 million.
The Bank is a traditional, community oriented federal savings bank
emphasizing customer service and convenience. The Bank's primary business is
attracting deposits from the general public and using these funds together
with other available sources of funds, such as borrowings, to originate
loans. A substantial portion of the Bank's deposits are comprised of core
deposits which amounted to $88.4 million or 38.8% of the Bank's total
deposits at September 30, 1997.
24
<PAGE>
The Bank's primary lending emphasis has been, and continues to be,
originating loans secured by first and second liens on single-family
(one-to-four units) residences located in Delaware and Chester Counties,
Pennsylvania and to a lesser degree, Montgomery County, Pennsylvania and New
Castle County, Delaware. Such loans totalled $135.2 million or 68.5% of total
loans at September 30, 1997. To a lesser extent, the Bank also originates
consumer loans (consisting almost entirely of home equity loans and lines of
credit), loans secured by commercial real estate and multi-family (over four
units) residential properties, construction and land loans, commercial
business and other mortgage loans secured by properties located in the Bank's
market area. These other types of loans generally have shorter terms,
adjustable or variable interest rates and higher yields and are attractive to
the Bank in light of the Bank's analysis that the markets have become more
stable. Multi-family and commercial real estate loans and commercial business
loans totalled $18.3 million and $2.0 million, respectively, or 9.3% and
1.0%, respectively, of total loans at September 30, 1997. The Bank's
origination of consumer loans has continued to increase as a direct result of
the Bank's emphasis on developing home equity type loan products. Consumer
loans amounted to $25.4 million or 12.9% of the total loan portfolio at
September 30, 1997.
Certain of the Bank's originations of fixed-rate mortgage loans are sold
into the secondary market while adjustable-rate mortgage loans and some
fixed-rate loans that complement the Bank's asset/liability strategies are
retained for portfolio. The Bank also sells, servicing released, origination
of non-conforming jumbo residential loans and loans to credit impaired
borrowers. Although the Bank has not purchased either whole loans or loan
participation interests in the past, depending on market conditions and
portfolio needs, the Bank may consider purchasing loans and participation
interests in the future.
In addition to its deposit gathering and lending activities, the Bank
invests in mortgage-backed and mortgage-related securities, substantially all
of which are issued or guaranteed by U.S. Government agencies and government
sponsored enterprises, as well as U.S. Treasury and federal government agency
obligations and other investment securities. At September 30, 1997, the
Bank's mortgage-related securities (including mortgage-related securities
available for sale) amounted to $125.2 million, or 33.5% of the Corporation's
total assets, and investment securities (including investment securities
available for sale) amounted to $20.2 million, or 5.4% of total assets.
The Corporation, as a registered thrift holding company, is subject to
examination and regulation by the Office of Thrift Supervision ("OTS") and is
subject to various reporting and other requirements of the Commission. The
Bank, as a federally chartered savings bank, is subject to comprehensive
regulation and examination by the OTS, as its chartering authority and
primary regulator, and by the Federal Deposit Insurance Corporation, which
administers the Savings Association Insurance Fund, which insures the Bank's
deposits to the maximum extent permitted by law. The Bank is a member of the
Federal Home Loan Bank ("FHLB") of Pittsburgh, which is one of the 12
regional banks which comprise the FHLB System. The Bank is further subject to
regulations of the Board of Governors of the Federal Reserve System governing
reserves required to be maintained against deposits and certain other matters.
The Corporation's principal executive offices are located at 22 West
State Street, Media, Pennsylvania 19063, and its telephone number is (610)
565-6210.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE CORPORATION
(Dollars in Thousands, Except Per Share Data)
The selected consolidated financial data below should be read in
connection with the financial information included in the Corporation's
Annual Report on Form 10-KSB for the year ended September 30, 1997. See
"Available Information" and "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets....................................... $ 373,430 $ 294,241 $ 280,879 $ 237,749 $ 233,516
Loans receivable, net.............................. 188,289 167,530 158,002 142,226 137,186
Mortgage-related securities, net................... 20,707 23,221 60,294 68,369 64,213
Investment securities.............................. 10,000 -- 10,710 12,145 11,238
Assets held for sale:
Mortgage-related and equity securities........... 104,472 60,211 19,538 251 946
Investment securities............................ 10,211 16,532 -- -- --
Loans............................................ 4,577 2,447 57 168 1,245
Real estate owned.................................. 1,672 1,557 465 503 971
Deposit accounts................................... 227,918 219,205 223,753 216,065 218,361
FHLB advances and other borrowings................. 99,987 46,740 28,411 5,267 343
Stockholders' equity............................... 24,752 23,084 24,463 11,622 11,206
Non-performing assets.............................. 3,749 6,909 3,621 5,879 6,455
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operations Data:
Interest income.......................................... $ 22,750 $ 19,837 $ 18,295 $ 15,547 $ 16,573
Interest expense......................................... 12,639 10,932 10,767 9,153 10,048
--------- --------- --------- --------- ---------
Net interest income...................................... 10,111 8,905 7,528 6,394 6,525
Provision for loan losses................................ 239 1,250 52 416 390
Net interest income after provision for loan losses...... 9,872 7,655 7,476 5,978 6,135
Other income (expense):
Service charges and other fees......................... 972 1,047 1,029 1,010 962
Net gain on sales of interest-earning assets........... 285 203 113 350 778
Net gain on sale of other assets....................... 46 -- -- -- --
Net gain (loss) on real estate activities.............. 7 2 (44) (47) 17
Other.................................................. 40 56 89 158 119
Operating expenses....................................... 6,921 8,645(1) 7,036 7,728 6,918
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
extraordinary item and cumulative effect
of change in accounting principle...................... 4,301 318 1,627 (279) 1,093
Income tax expense (benefit)............................. 1,644 (567) 504 (95) 127
Extraordinary item, utilization of state tax
carryforward........................................... -- -- -- -- 79
Cumulative effect of change in accounting for income
taxes.................................................. -- -- -- 600 --
--------- --------- --------- --------- ---------
Net income............................................... $ 2,637 $ 885(1) $ 1,123 $ 416 $ 1,045
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Primary earnings per common share........................ $ 2.27 $ 0.74(1) $ 0.74 N/A N/A
--------- --------- ---------
--------- --------- ---------
Fully diluted earnings per share......................... $ 2.27 $ 0.74(1) $ 0.74 N/A N/A
--------- --------- ---------
--------- --------- ---------
</TABLE>
(footnotes on following page)
26
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Ratios:
Average yield earned on interest-earning assets............... 7.54% 7.45% 7.37% 6.84% 7.31%
Average rate paid on interest-bearing liabilities............. 4.48 4.42 4.62 4.18 4.58
Average interest rate spread.................................. 3.07 3.03 2.75 2.66 2.73
Net interest margin........................................... 3.35 3.34 3.03 2.81 2.88
Ratio of interest-earning assets to interest-bearing
liabilities................................................. 106.82 107.65 106.55 103.77 103.33
Net interest income after provision for
loan losses to operating expenses........................... 142.64 88.55(3) 106.25 77.36 88.68
Operating expenses as a percent of average assets............. 2.21 3.14(3) 2.73 3.29 2.95
Return on average assets...................................... 0.84 0.32(3) 0.44 0.18 0.45
Return on average equity...................................... 11.46 3.92(3) 5.59 3.60 10.07
Ratio of average equity to average assets..................... 7.36 8.20 7.80 4.91 4.42
Asset Quality Ratios:(4)
Non-performing loans as a percent of gross loans receivable... 1.09% 3.15% 1.98% 3.74% 3.92%
Non-performing assets as a percent of total assets............ 1.00 2.35 1.29 2.47 2.76
Allowance for loan losses as a percent of gross loans
receivable.................................................. 0.86 1.54 0.93 1.07 0.91
Allowance for loan losses as a percent of non-performing
loans....................................................... 78.38 49.03 47.12 28.65 23.07
Net loans charged-off to average interest-earning loans
receivable.................................................. 0.68 0.07 0.07 0.10 0.89
Other Data:
Capital Ratios:(4)
Tangible capital ratio...................................... 8.12% 7.67% 8.23% 4.88% 4.80%
Core capital ratio.......................................... 8.12 7.67 8.23 4.88 4.80
Risk-based capital.......................................... 19.91 17.24 17.82 10.13 10.77
Full-service offices at end of period......................... 5 5 5 5 5
</TABLE>
- ------------------------
(1) Includes the effects of the one-time SAIF special assessment. The effects of
the assessment increased operating expenses and decreased income before
income taxes by $1.4 million. The effects of the assessment also decreased
net income and earnings per share by $876,000 and $0.74, respectively.
(2) Annualized where appropriate.
(3) Includes the effects of the one-time SAIF special assessment of $1.4
million. Excluding the one-time effects, the ratio of net interest income
after provision for loan losses to operating expenses and operating expenses
as a percent of average assets were 106.04% and 2.62%, respectively. In
addition, return on average assets and return on average equity were 0.64%
and 7.79%, respectively, excluding the assessment.
(4) Asset Quality Ratios and Capital Ratios are end of period ratios, except for
charge-offs to average loans. With the exception of end of period ratios,
all ratios are based on average daily balances during the indicated periods.
27
<PAGE>
USE OF PROCEEDS
Neither the Corporation nor the Trust will receive any cash proceeds
from the issuance of the New Capital Securities offered hereby. The Old
Capital Securities surrendered in exchange for the New Capital Securities
will be retired and cancelled.
The proceeds to the Trust from the offering of the Old Capital
Securities was $16,200,000 (before giving effect to approximately $670,500 of
commissions and expenses of the offering payable by the Corporation). All of
the proceeds from the sale of Old Capital Securities were invested by the
Trust in the Junior Subordinated Debentures. The Corporation invested
approximately $6.0 million of the net proceeds in equity of the Bank. The
Bank intends to use such additional capital to increase its regulatory
capital ratios, seek to enhance core earnings and support the growth of its
business. Net proceeds retained by the Corporation will be used by the
Corporation for general corporate purposes, including the investment of funds
in the Corporation's subsidiaries and potential future acquisitions. There
currently are no agreements, arrangements or understandings with respect to
any potential acquisitions.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges
of the Corporation on a consolidated basis for the respective periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratios of Earnings to Fixed Charges:
Including interest on deposits.......... 1.34x 1.03x 1.15x 0.97x 1.11x
Excluding interest on deposits.......... 4.90x 7.17x 11.97x 216.44x 742.73x
</TABLE>
For purposes of computing the ratios of earnings to fixed charges,
earnings represent net income (loss) before extraordinary items and
cumulative effect of changes in accounting principles plus applicable income
taxes and fixed charges. Fixed charges, excluding interest on deposits,
include gross interest expense and the portion deemed representative of the
interest factor of rent expense, net of income from subleases. Fixed charges,
including gross interest on deposits, include all interest expense and the
portion deemed representative of the interest factor of rent expense, net of
income from subleases.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust is treated as a subsidiary of
the Corporation and, accordingly, the accounts of the Trust are included in the
consolidated financial statements of the Corporation. The Capital Securities
will be presented either as a separate line item in the consolidated statements
of financial condition of the Corporation, entitled "Corporation-Obligated
Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding Solely
Junior Subordinated Debentures of the Corporation", or as a liability in the
consolidated statements of financial condition, and in either case 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 Corporation. For financial reporting purposes, the
Corporation will record Distributions payable on the Capital Securities as
minority interest expense in its consolidated statements of income.
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation as of September 30, 1997, which reflects the consummation of the
offering of the Capital Securities. The following data should be read in
conjunction with the financial information included in documents incorporated
herein by reference or included herein. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Deposits.............................................. $227,918
Advances from the FHLB of Pittsburgh and reverse
repurchase agreements............................... 99,987
--------
Total deposits and borrowed funds..................... 327,905
--------
Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely
junior subordinated debentures of the
Corporation(1)...................................... 16,200
--------
Stockholders' equity:
Serial preferred stock, par value $0.01 per share,
10,000,000 shares authorized, none issued......... --
Common stock, par value $0.01 per share,
20,000,000 shares authorized,
1,228,419 shares issued........................... 14
Additional paid in capital.......................... 12,896
Common stock acquired by stock benefit plans........ (2,038)
Treasury stock at cost; 132,125 shares.............. (2,545)
Unrealized loss on available for sale securities net
of tax............................................ 408
Retain earnings (partially restricted).............. 16,017
--------
Total stockholders' equity............................ 24,752
--------
Total deposits and borrowed funds, minority interest
in subsidiaries and stockholders' equity............ $368,857
--------
--------
</TABLE>
- ------------------------
(1) Reflects the Capital Securities at their issue price. As described herein,
the sole assets of the Trust, which is a subsidiary of the Corporation, are
$16,702,000 aggregate principal amount of the Junior Subordinated Debentures
(including the amounts attributable to the issuance of the Common Securities
of the Trust), which will mature on August 15, 2027. The Corporation owns
all of the Common Securities issued by the Trust. The Corporation may in its
discretion determine to treat the Capital Securities as liabilities in its
consolidated statements of financial condition.
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
In connection with the sale of the Old Capital Securities, the
Corporation and the Trust entered into the Registration Rights Agreement with
the Initial Purchaser, pursuant to which the Corporation 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 Old Capital Securities for capital securities with terms
identical in all material respects to the terms of the Old Capital
Securities. A copy of the Registration Rights Agreement has been filed as an
Exhibit to the Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations
of the Corporation and the Trust under the Registration Rights Agreement.
The form and terms of the New Capital Securities are the same as the form and
terms of the Old Capital Securities except that the New Capital Securities
(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 Old Capital Securities
provide, among other things, that, if a registration statement relating to
the Exchange Offer has not been filed by January 23, 1998 and declared
effective by February 22, 1998, the Distribution rate borne by the Old
Capital Securities, commencing on August 26, 1997 will increase by 0.25% per
annum until the Exchange Offer is consummated. Upon consummation of the
Exchange Offer, holders of Old 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 Old Capital Securities" and "Description of Old Capital
Securities."
The Exchange Offer is not being made to, nor will the Trust accept
tenders for exchange from, holders of Old Capital Securities in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not
be in compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities
are registered on the books of the Trust or any other person who has obtained
a properly completed bond power from the registered holder, or any
participant in the DTC system whose name appears on a security position
listing as the holder of such Old Capital Securities and who desires to
deliver such Old Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee
and the Old Junior Subordinated Debentures, in an amount corresponding to the
Old Capital Securities accepted for exchange, for a like aggregate principal
amount of the New Junior Subordinated Debentures. The New Guarantee and the
New 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 $16,200,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date 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 $16,200,000 of New Capital Securities in exchange for a like aggregate
Liquidation Amount of outstanding Old Capital Securities tendered and
accepted in connection with the Exchange Offer. Holders may tender their Old
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 Old 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 Old Capital Securities being tendered. As of the date of this
Prospectus, $16,200,000 aggregate Liquidation Amount of the Old Capital
Securities is outstanding.
Holders of Old Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Old Capital
Securities which are not tendered for or are tendered but not accepted in
30
<PAGE>
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 Old Capital Securities" and
"Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set
forth herein or otherwise, certificates for any such unaccepted Old Capital
Securities will be returned, without expense, to the tendering holder thereof
promptly after the Expiration Date.
Holders who tender Old Capital Securities in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Old Capital Securities in connection with the
Exchange Offer. The Corporation 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 CORPORATION NOR ANY ISSUER TRUSTEE
OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL SECURITIES AS
TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR
OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE
HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER BASED ON SUCH HOLDERS OWN FINANCIAL POSITION AND REQUIREMENTS.
Expiration Date; Extensions; Amendments
The term "Expiration Date" means 5:00 p.m., New York City time, on March
11, 1998 unless the Exchange Offer is extended by the Corporation or the Trust
(in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended).
The Corporation and the Trust expressly reserve the right in their sole
and absolute discretion, subject to applicable law, at any time and from time
to time, (i) to delay the acceptance of the Old Capital Securities for
exchange, (ii) to terminate the Exchange Offer (whether or not any Old
Capital Securities have theretofore been accepted for exchange) if the
Corporation and the Trust determine, in their sole and absolute discretion,
that any of the events or conditions referred to under "--Conditions to the
Exchange Offer" have occurred or exist or have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer and retain all Old Capital
Securities tendered pursuant to the Exchange Offer, subject, however, to the
right of holders of Old Capital Securities to withdraw their tendered Old
Capital Securities as described under "--Withdrawal Rights," 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
Corporation and the Trust to constitute a material change, or if the
Corporation and the Trust waive a material condition of the Exchange Offer,
the Corporation and the Trust will promptly disclose such amendment by means
of a Prospectus supplement that will be distributed to the registered holders
of the Old Capital Securities, and the Corporation 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., New York City
time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Corporation and the Trust may
choose to make any public announcement and subject to applicable law, the
Corporation 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 news agency.
Acceptance for Exchange and Issuance of New 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, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
31
<PAGE>
In all cases, delivery of New Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent
of (i) Old Capital Securities or a book-entry confirmation of a book-entry
transfer of Old 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 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 Old 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 acknowledgement
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 Corporation may enforce such Letter of Transmittal
against such participant.
Subject to the terms and conditions of the Exchange Offer, the
Corporation and the Trust will be deemed to have accepted for exchange, and
thereby exchanged, Old Capital Securities validly tendered and not withdrawn
as, if and when the Trust gives oral or written notice to the Exchange Agent
of the Corporation's and the Trust's acceptance of such Old Capital
Securities for exchange pursuant to the Exchange Offer. The Exchange Agent
will act as agent for the Trust for the purpose of receiving tenders of Old
Capital Securities, Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Capital
Securities, Letters of Transmittal and related documents and transmitting New
Capital Securities to validly tendering holders. Such exchange will be made
promptly after the Expiration Date. If, for any reason whatsoever,
acceptance for exchange or the exchange of any Old Capital Securities
tendered pursuant to the Exchange Offer is delayed (whether before or after
the Trust's acceptance for exchange of Old Capital Securities) or the
Corporation and the Trust extend the Exchange Offer or are unable to accept
for exchange or exchange Old Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to the Corporation's and the Trust's
rights set forth herein, the Exchange Agent may, nevertheless, on behalf of
the Corporation and the Trust and subject to Rule 14e-1(c) under the Exchange
Act, retain tendered Old Capital Securities and such Old Capital Securities
may not be withdrawn except to the extent tendering holders are entitled to
withdrawal rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu
thereof, a holder of Old Capital Securities will warrant and agree in the
Letter of Transmittal that it has full power and authority to tender,
exchange, sell, assign and transfer Old Capital Securities, that the Trust
will acquire good, marketable and unencumbered title to the tendered Old
Capital Securities, free and clear of all liens, restrictions, charges and
encumbrances, and the Old Capital Securities tendered for exchange are not
subject to any adverse claims or proxies. The holder also will warrant and
agree that it will, upon request, execute and deliver any additional
documents deemed by the Corporation, the Trust or the Exchange Agent to be
necessary or desirable to complete the exchange, sale, assignment and
transfer of the Old Capital Securities tendered pursuant to the Exchange
Offer.
Procedures for Tendering Old Capital Securities
Valid Tender. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees, 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 Old
Capital Securities must be received by the Exchange Agent, or (ii) such Old
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 Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in
the appropriate box on the Letter of Transmittal or so indicate in an Agent's
Message in lieu of the Letter of Transmittal and the untendered Liquidation
Amount must be $100,000 or any integral multiple of $1,000 in excess thereof.
The entire amount of Old Capital Securities delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
32
<PAGE>
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 Old 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 Old Capital Securities
by causing DTC to transfer such Old Capital Securities into the Exchange
Agent's account at DTC in accordance with DTC's procedures for transfers.
However, although delivery of Old 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 Old Capital Securities need
not be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (i) a certificate for the Old 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 Old
Capital Securities must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power and
on the Letter of Transmittal guaranteed by a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii)
a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a
savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on behalf of such
Eligible Institution. See Instruction 1 to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Capital
Securities pursuant to the Exchange Offer and the certificates for such Old
Capital Securities are not immediately available or time will not permit all
required documents to reach the Exchange Agent on or prior to the Expiration
Date, or the procedure for book-entry transfer cannot be completed on a
timely basis, such Old Capital Securities may nevertheless be tendered,
provided that all of the following guaranteed delivery procedures are
complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), 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 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 New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old 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 New Capital Securities might
33
<PAGE>
not be made to all tendering holders at the same time, and will depend upon
when Old Capital Securities, book-entry confirmations with respect to Old
Capital Securities and other required documents are received by the Exchange
Agent.
The Corporation's and the Trust's acceptance for exchange of Old Capital
Securities tendered pursuant to any of the procedures described above will
constitute a binding agreement between the tendering holder, the Corporation
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 Old Capital Securities will be determined by the Corporation
and the Trust, in their sole discretion, whose determination shall be final
and binding on all parties. The Corporation 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 Corporation and
the Trust, be unlawful. The Corporation and the Trust also reserve the
absolute right, subject to applicable law, to waive any of the conditions of
the Exchange Offer as set forth under "--Conditions to the Exchange Offer" or
any condition or irregularity in any tender of Old Capital Securities of any
particular holder whether or not similar conditions or irregularities are
waived in the case of other holders.
The interpretation by the Corporation 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 Old 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
Corporation, the Trust, any affiliates or assigns of the Corporation 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
Corporation and the Trust, proper evidence satisfactory to the Corporation
and the Trust, in their sole discretion, of such person's authority to so act
must be submitted.
A beneficial owner of Old Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
Resales of New Capital Securities
The Trust is making the Exchange Offer for the New 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 Corporation 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 Corporation and the
Trust believe that New Capital Securities issued pursuant to this Exchange
Offer in exchange for Old Capital Securities may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a holder who
is a broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
New Capital Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Capital Securities. However, any
holder of Old Capital Securities who is an Affiliate of the Corporation or
the Trust or who intends to participate in the Exchange Offer for the purpose
of distributing New Capital Securities, or any broker-dealer who purchased
Old 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 Old Capital
Securities in the Exchange Offer and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or other transfer of such Old Capital Securities, unless such sale
is made pursuant to an exemption from such requirements. In addition, as
described below, Participating Broker-Dealers must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales
of New Capital Securities.
34
<PAGE>
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required
to represent that (i) it is not an Affiliate of the Corporation or the Trust,
(ii) any New Capital Securities to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Capital Securities and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does
not intend to engage in, a distribution (within the meaning of the Securities
Act) of such New Capital Securities. The Letter of Transmittal contains the
foregoing representations. In addition, the Corporation 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 Corporation and the
Trust (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act)
on behalf of whom such holder holds the Capital Securities to be exchanged in
the Exchange Offer. Each 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 Old Capital Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Capital
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a 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
Corporation and the Trust believe that Participating Broker-Dealers who
acquired Old 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 New Capital Securities
received upon exchange of such Old Capital Securities (other than Old Capital
Securities which represent an unsold allotment from the original sale of the
Old Capital Securities) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such New Capital Securities. Accordingly, this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of New Capital Securities received in exchange for Old Capital
Securities where such Old Capital Securities were acquired by such
Participating Broker-Dealer for its own account as a result of market-making
or other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Corporation and the Trust have agreed that
this Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of such
New Capital Securities for a period ending 90-days after the Expiration Date
(subject to extension under certain limited circumstances described below)
or, if earlier, when all such New 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 New Capital Securities received in exchange for Old
Capital Securities pursuant to the Exchange Offer must notify the Corporation
or the Trust, or cause the Corporation 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 "--Exchange Agent." Any person, including any
Participating Broker-Dealer, who is an Affiliate of the Corporation or the
Trust may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old
Capital Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Letter of Transmittal or delivery of an Agent's
Message in lieu thereof, that, upon receipt of notice from the Corporation or
the Trust of the occurrence of any event or the discovery of any fact which
makes any statement contained or incorporated by reference in this Prospectus
untrue in any material respect or which causes this Prospectus to omit to
state a material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which
they were made, not misleading or of the occurrence of certain other events
specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant
to this Prospectus until the Corporation 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 Corporation or the Trust has given notice
that the sale of the New Capital Securities (or the New Guarantee or the New
Junior Subordinated Debentures, as applicable) may be resumed, as the case
may be. If the Corporation or the Trust gives such notice to suspend the
sale of the New Capital Securities (or the New Guarantee or the New 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 New 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
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have received copies of the amended or supplemented Prospectus necessary to
permit resales of the New Capital Securities or to and including the date on
which the Corporation or the Trust has given notice that the sale of New
Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be.
Withdrawal Rights
Except as otherwise provided herein, tenders of Old Capital Securities
may be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth under "--Exchange Agent" on
or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Capital Securities to be
withdrawn, the aggregate principal amount of Old Capital Securities to be
withdrawn, and (if certificates for such Old Capital Securities have been
tendered) the name of the registered holder of the Old Capital Securities as
set forth on the Old Capital Securities, if different from that of the person
who tendered such Old Capital Securities. If Old Capital Securities have
been delivered or otherwise identified to the Exchange Agent, then prior to
the physical release of such Old Capital Securities, the tendering holder
must submit the certificate numbers shown on the particular Old Capital
Securities to be withdrawn and the signature on the notice of withdrawal must
be guaranteed by an Eligible Institution, except in the case of Old Capital
Securities tendered for the account of an Eligible Institution. If Old
Capital Securities have been tendered pursuant to the procedures for
book-entry transfer set forth in "--Procedures for Tendering Old Capital
Securities," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Old Capital Securities,
in which case a notice of withdrawal will be effective if delivered to the
Exchange Agent by written or facsimile transmission. Withdrawals of tenders
of Old Capital Securities may not be rescinded. Old Capital Securities
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to
the Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Corporation
and the Trust, in their sole discretion, whose determination shall be final
and binding on all parties. None of the Corporation, the Trust, any
affiliates or assigns of the Corporation 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 Old Capital Securities which have been
tendered but which are withdrawn will be returned to the holder thereof
promptly after withdrawal.
Distributions on New Capital Securities
Holders of Old Capital Securities as of February 1, 1998, the record
date for the initial Distribution on February 15, 1998, including such
holders who tender their Old Capital Securities pursuant to the Exchange
Offer, will be entitled to receive such Distribution. Distributions on the
New Capital Securities are payable semi-annually in arrears on February 15th
and August 15th of each year, commencing August 15, 1998, at the annual rate
of 9.70% of the Liquidation Amount to the holders of the New Capital
Securities on the relevant record dates. Distributions on the New Capital
Securities will accumulate from February 15, 1998, the date of the initial
Distribution on the Old Capital Securities.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Corporation and the Trust will not be
required to accept for exchange, or to exchange, any Old Capital Securities
for any New Capital Securities, and, as described below, may terminate the
Exchange Offer (whether or not any Old Capital Securities have theretofore
been accepted for exchange) or may waive any conditions to or amend the
Exchange Offer, if any of the following conditions have occurred or exists or
have not been satisfied:
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(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is an Affiliate of the
Corporation or the Trust) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Capital Securities are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any
person to participate in the distribution of such New Capital Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Corporation 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 Corporation's and the Trust's judgment, would
reasonably be expected to impair the ability of the Trust or the Corporation
to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or Pennsylvania or New York state authorities which, in the
Corporation's and the Trust's judgment, would reasonably be expected to
impair the ability of the Trust or the Corporation 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 Corporation's
and the Trust's judgment, would reasonably be expected to impair the ability
of the Issuer or the Corporation 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 Corporation or the Trust, threatened for that purpose, or any
governmental approval which either the Corporation 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 Corporation 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 Corporation and the Trust may, subject
to applicable law, terminate the Exchange Offer (whether or not any Old
Capital Securities have theretofore been accepted for exchange) or may waive
any such condition or otherwise amend the terms of the Exchange Offer in any
respect. If such waiver or amendment constitutes a material change to the
Exchange Offer, the Corporation 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 Old Capital Securities and will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
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Exchange Agent
The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent as follows:
By Registered or Certified Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
101 Barclay Street - 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Section Ground Level
Enrique Lopez New York, New York 10286
Attention: Reorganization Section
Enrique Lopez
Confirm by Telephone
or for Information call:
(212) 815-2742
Facsimile Transmission:
(Eligible Institutions Only)
(212) 815-6339
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
Fees and Expenses
The Corporation 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 Corporation 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 Old Capital
Securities, and in handling or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
New Capital Securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Old Capital
Securities tendered, or if a transfer tax is imposed for any reason other
than the exchange of Old Capital Securities in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
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 Corporation nor the Trust will make any payment to brokers,
dealers or other nominees soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF NEW SECURITIES
Description of Capital Securities
Pursuant to the terms of the Trust Agreement, the Trust has issued the
Old Capital Securities and the Common Securities and will issue the New
Capital Securities. The New Capital Securities will represent undivided
beneficial interests in the assets of the Trust and the holders of the New
Capital Securities and the Old Capital Securities will be entitled to a
preference over the Common Securities in certain circumstances with respect
to Distributions and amounts payable on redemption of the Trust Securities or
liquidation of the Trust. See "--Subordination of Common Securities." 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, the Common Securities and the Trust Agreement
describes the material terms of the Capital Securities but does not purport
to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Trust Agreement, including the
definitions therein of certain terms.
General. The Capital Securities (including the Old Capital Securities
and the New Capital Securities) are limited to $16,200,000 aggregate
Liquidation Amount at any one time outstanding. The Capital Securities rank
pari passu, and payments thereon will be made pro rata, with the Common
Securities except as described under "--Subordination of Common Securities."
Legal title to the Junior Subordinated Debentures is held by the Property
Trustee in trust for the benefit of the holders of the Capital Securities and
the holder of the Common Securities. The Guarantee is a guarantee on a
subordinated and junior basis with respect to the Capital Securities, but
does not guarantee payment of Distributions or amounts payable on redemption
of the Capital Securities or on liquidation of the Trust when the Trust does
not have funds on hand legally available for such payments. See "--Description
of Guarantee."
Distributions. Distributions on the New Capital Securities are payable
semi-annually in arrears on February 15th and August 15th of each year,
commencing August 15, 1998, at the annual rate of 9.70% of the Liquidation
Amount to the holders of the New Capital Securities on the relevant record
dates. Distributions on the New Capital Securities will accumulate from
February 15, 1998, the date of the initial Distribution on the Old Capital
Securities. The record dates are the first day of the month in which the
relevant Distribution Date (as defined below) falls. The amount of
Distributions payable for any period will be computed on the basis of a
360-day year of twelve 30-day months and, for any period of less than one
calendar month, the number of days elapsed in such month. In the event that
any date on which Distributions are payable on the Capital Securities is not
a Business Day (as defined below), payment of the Distribution payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect to any such delay), with the
same force and effect as if made on the date such payment was originally
payable (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in New
York, New York or Media, Pennsylvania are authorized or required by law or
executive order to remain closed.
So long as no Event of Default (as defined in the Indenture) with
respect to the Junior Subordinated Debentures (a "Debenture Event of
Default") shall have occurred and be continuing, the Corporation has the
right under the Indenture to elect 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 Date. Upon any such election, semi-annual Distributions on
the Capital Securities will be deferred by the Trust during any such
Extension Period. Distributions to which holders of the Capital Securities
are entitled during any such Extension Period will accumulate additional
Distributions thereon at the rate per annum of 9.70% thereof, compounded
semi-annually from the relevant Distribution Date. The term "Distributions,"
as used herein, shall include any such additional Distributions.
Prior to the termination of any such Extension Period, the Corporation
may further extend such Extension Period, provided that such extension does
not cause such Extension Period to exceed 10 consecutive semi-annual periods,
to end on a date other than an Interest Payment Date or to extend beyond the
Stated
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Maturity Date. Upon the termination of any such Extension Period and the
payment of all amounts then due on any Interest Payment Date, the Corporation
may elect to begin a new Extension Period, subject to the above requirements.
No interest shall be due and payable during an Extension Period, except at
the end thereof. The Corporation must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of
any such Extension Period (or an extension thereof) at least five Business
Days prior to the earlier of (i) the date the Distributions on the Capital
Securities would have been payable except for the election to begin such
Extension Period and (ii) the date the Administrative Trustees are required
to give notice to any securities exchange or automated quotation system or to
holders of the Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than five Business Days
prior to such record date. There is no limitation on the number of times that
the Corporation may elect to begin an Extension Period. See "--Description of
Junior Subordinated Debentures--Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Considerations--Interest Income and Original
Issue Discount."
During any such Extension Period, the Corporation may not (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of the Corporation's capital
stock, (ii) make any payment of principal of or premium, if any, or interest
on or repay, repurchase or redeem any debt securities of the Corporation
(including any Other Debentures) that rank pari passu with or junior in right
of payment to the Junior Subordinated Debentures or (iii) make any guarantee
payments with respect to any guarantee by the Corporation of the debt
securities of any subsidiary of the Corporation (including Other Guarantees)
if such guarantee ranks pari passu with or junior in right of payment to the
Junior Subordinated Debentures (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, common stock of the Corporation, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, (d) as a result of a reclassification of the Corporation's capital
stock or the exchange or conversion of one class or series of the
Corporation's capital stock for another class or series of the Corporation's
capital stock, (e) the purchase of fractional interests in shares of the
Corporation's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged and
(f) purchases of common stock related to the issuance of common stock or rights
under any of the Corporation's benefit plans for its directors, officers or
employees or any of the Corporation's dividend reinvestment plans). The
Corporation has no current intention to exercise its option to defer payments
of interest on the Junior Subordinated Debentures by extending the interest
payment period on the Junior Subordinated Debentures.
The revenue of the Trust available for distribution to holders of
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust has invested the proceeds from the issuance and
sale of the Trust Securities. See "--Description of Junior Subordinated
Debentures--General." If the Corporation does not make interest payments on
the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Capital Securities. The payment of
Distributions (if and to the extent the Trust has funds on hand legally
available for the payment of such Distributions) is guaranteed by the
Corporation on a limited basis as set forth herein under "--Description of
Guarantee."
Redemption. Upon repayment on the Stated Maturity Date or prepayment
in whole or in part prior to the Stated Maturity Date of the Junior
Subordinated Debentures (other than following the distribution of the Junior
Subordinated Debentures to the holders of the Trust Securities), the proceeds
from such repayment or prepayment 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 of a date of redemption (the
"Redemption Date"), at the applicable Redemption Price, which shall be equal
to (i) in the case of the repayment of the Junior Subordinated Debentures on
the Stated Maturity Date, the Maturity Redemption Price (equal to the
principal of, and interest on, the Junior Subordinated Debentures), (ii) in
the case of the optional redemption of the Junior Subordinated Debentures
before the Initial Optional Prepayment Date upon the occurrence and
continuation of a Special Event, the Special Event Redemption Price (equal to
the Special Event Prepayment Price in respect of the Junior Subordinated
Debentures) and (iii) in the case of the optional prepayment of the Junior
Subordinated Debentures on or after the Initial Optional Prepayment Date, the
Optional Redemption
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Price (equal to the Optional Prepayment Price in respect of the Junior
Subordinated Debentures). See "--Description of Junior Subordinated
Debentures--Optional Prepayment" and "--Special Event Prepayment." If less
than all of the Junior Subordinated Debentures are to be prepaid on a
Redemption Date, then the proceeds of such redemption shall be allocated to
the redemption pro rata of the Capital Securities and the Common Securities.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be paid in accordance
with their terms and (ii) with respect to a distribution of Junior
Subordinated Debentures upon the liquidation of the 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.
The Corporation has the option to prepay the Junior Subordinated
Debentures, (i) in whole or in part, on or after the Initial Optional
Prepayment Date, at the applicable Optional Prepayment Price and (ii) in
whole but not in part, at any time before the Initial Optional Prepayment
Date, upon the occurrence of a Special Event, at the Special Event Prepayment
Price, in each case subject to the receipt of any required regulatory
approval. See "Description of Junior Subordinated Debentures--Optional
Prepayment" and "--Special Event Prepayment."
Liquidation of the Trust and Distribution of Junior Subordinated
Debentures. The Corporation has the right at any time to dissolve the Trust
and, after satisfaction of liabilities to creditors of the Trust as required
by applicable law, to cause the Junior Subordinated Debentures to be
distributed to the holders of the Trust Securities in liquidation of the
Trust. Such right is subject to (i) the Corporation 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.
The Trust shall automatically dissolve upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the distribution of a Like Amount of the Junior Subordinated Debentures
to the holders of the Trust Securities, if the Corporation, as Sponsor, has
given written direction to the Property Trustee to dissolve the Trust (which
direction is optional and, except as described above, wholly within the
discretion of the Corporation, as Sponsor); (iii) redemption of all of the
Trust Securities as described under "--Redemption;" (iv) expiration of the
term of the Trust; and (v) the entry of an order for the dissolution of the
Trust by a court of competent jurisdiction.
If a dissolution occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the Issuer Trustees as expeditiously
as the Issuer Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of the Trust as provided by
applicable law, to the holders of the Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practicable, in which event such holders will be
entitled to receive out of the assets of the Trust legally available for
distribution to holders, after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, an amount equal to 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 because the Trust has
insufficient assets on hand legally available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on
the Trust Securities shall be paid on a pro rata basis, except that if a
Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a priority over the Common Securities. See
"--Subordination of Common Securities."
If the Corporation elects not to prepay the Junior Subordinated
Debentures prior to maturity in accordance with their terms and either elects
not to or is unable to liquidate the Trust and distribute the Junior
Subordinated Debentures to holders of the Trust Securities, the Trust
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures on the Stated Maturity Date.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) DTC or its
nominee
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will receive, in respect of each registered global certificate, if any,
representing Trust Securities and held by it, a registered global certificate
or certificates representing the Junior Subordinated Debentures to be
delivered upon such distribution and (iii) any certificates representing
Trust Securities not held by DTC or its nominee will be deemed to represent
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of such Trust Securities, and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid Distributions on
such Trust Securities until such certificates are presented to the
Administrative Trustees or their agent for cancellation, whereupon the
Corporation will issue to such holder, and the Debenture Trustee will
authenticate, a certificate representing such Junior Subordinated Debentures.
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 the Trust Securities if a dissolution and liquidation of the
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 Trust, may trade at a discount to the
price that the investor paid to purchase the Capital Securities offered
hereby.
Redemption Procedures. If applicable, Trust Securities shall be
redeemed at the applicable Redemption Price with the proceeds from the
contemporaneous repayment or prepayment of the Junior Subordinated
Debentures. Any redemption of Trust Securities shall be made and the
applicable Redemption Price shall be payable on the Redemption Date only to
the extent that the Trust has funds legally available for the payment of such
applicable Redemption Price. See also "--Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are legally available, with respect to the Capital
Securities held by DTC or its nominees, the Property Trustee will deposit or
cause the paying agent (as defined herein) to deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price. See "--Form,
Denomination, Book-Entry Procedures and Transfer." With respect to the
Capital Securities held in certificated form, the Property Trustee, to the
extent funds are legally 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 applicable Redemption Price to the holders thereof upon
surrender of their certificates evidencing the Capital Securities. See
"--Payment and Paying Agency." Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date shall be payable to the holders of
such Capital Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of the Capital Securities called for redemption will cease, except
the right of the holders of such Capital Securities to receive the applicable
Redemption Price, but without interest on such Redemption Price, and such
Capital Securities will cease to be outstanding. In the event that any
Redemption Date of Capital Securities is not a Business Day, then the
applicable Redemption Price payable on such date will be paid on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such next succeeding
Business Day falls in the next calendar year, such payment shall be made on
the immediately preceding Business Day. In the event that payment of the
applicable Redemption Price is improperly withheld or refused and not paid
either by the Trust or by the Corporation pursuant to the Guarantee as
described under "Description of Guarantee," (i) Distributions on Capital
Securities will continue to accumulate at the then applicable rate, from the
Redemption Date originally established by the Trust to the date such
applicable Redemption Price is actually paid and (ii) the actual payment date
will be the Redemption Date for purposes of calculating the applicable
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Corporation or its subsidiaries may at any time
and from time to time purchase outstanding Capital Securities by tender, in
the open market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days prior to the Redemption Date to each holder of Trust Securities
at its registered address. Unless the Corporation defaults in payment of the
applicable Redemption Price on, or in the repayment of, the Junior
Subordinated Debentures,
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on and after the Redemption Date Distributions will cease to accrue on the
Trust Securities called for redemption.
Subordination of Common Securities. Payment of Distributions on, and
the Redemption Price of, the Trust Securities, as applicable, shall be made
pro rata based on the Liquidation Amount of the Trust Securities; provided,
however, that if on any Distribution Date or Redemption Date a Debenture
Event of Default shall have occurred and be continuing, no payment of any
Distribution on, or applicable Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of the Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the applicable Redemption Price
the full amount of such Redemption Price, shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied
to the payment in full in cash of all Distributions on, or Redemption Price
of, the Capital Securities then due and payable.
In the case of any Event of Default, the Corporation as holder of the
Common Securities will be deemed to have waived any right to act with respect
to such Event of Default until the effect of such Event of Default shall have
been cured, waived or otherwise eliminated. Until any such Event of Default
has been so cured, waived or otherwise eliminated, the Property Trustee shall
act solely on behalf of the holders of the Capital Securities and not on
behalf of the Corporation as holder 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.
Events of Default; Notice. The occurrence of a Debenture Event of
Default (see "Description of Junior Subordinated Debentures--Debenture Events
of Default") constitutes an "Event of Default" under the Trust Agreement.
Within ten Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Corporation, as Sponsor, unless such Event of
Default shall have been cured or waived. The Corporation, as Sponsor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all
the conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Capital Securities shall have a preference over the Common Securities as
described under "--Liquidation of the Trust and Distribution of Junior
Subordinated Debentures" and "--Subordination of Common Securities."
Removal of Issuer Trustees. Unless a Debenture Event of Default shall
have occurred and be continuing, any Issuer Trustee may be removed at any
time by the holder of the Common Securities. If a Debenture Event of Default
has occurred and is continuing, the Property Trustee and the Delaware Trustee
may be removed at such time by the holders of a majority in Liquidation
Amount of the outstanding Capital Securities. In no event will the holders of
the Capital Securities have the right to vote to appoint, remove or replace
the Administrative Trustees, which voting rights are vested exclusively in
the Corporation as the holder of the Common Securities. No resignation or
removal of an Issuer Trustee and no appointment of a successor trustee shall
be effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees. Any Person into which the
Property Trustee, the Delaware Trustee or any Administrative Trustee that is
not a natural person may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Issuer Trustee shall be a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Issuer Trustee, shall be the successor of such Issuer Trustee under the Trust
Agreement, provided such Person shall be otherwise qualified and eligible.
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Mergers, Consolidations, Amalgamations or Replacements of the Trust.
The Trust may not merge with or into, consolidate, amalgamate, or be replaced
by, or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any corporation or other Person, except as
described below or as otherwise described under "--Liquidation of the Trust
and Distribution of Junior Subordinated Debentures." The Trust may, at the
request of the Corporation, as Sponsor, with the consent of the
Administrative Trustees but without the consent of the holders of the Capital
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to a trust organized as such under the laws of
any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Trust with respect to the Trust
Securities or (b) substitutes for the Trust Securities other securities
having substantially the same terms as the Trust Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Trust
Securities rank in priority with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Corporation expressly
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee with respect to the Junior Subordinated
Debentures, (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Trust Securities are
then listed or quoted, if any, (iv) if the Capital Securities (including any
Successor Securities) are rated by any nationally recognized statistical
rating organization prior to such transaction, such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Capital Securities (including any Successor Securities) or, if the Junior
Subordinated Debentures are so rated, the Junior Subordinated Debentures, to
be downgraded by any such nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including
any Successor Securities) in any material respect, (vi) such successor entity
has a purpose substantially identical to that of the Trust, (vii) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease, the Corporation has received an opinion from independent counsel to
the Trust 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 Trust Securities (including any Successor Securities) in any material
respect (other than any dilution of such holders' interests in the new
entity), and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such
successor entity will be required to register as an investment company under
the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and (viii) the Corporation or any permitted successor or assignee owns
all of the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least
to the extent provided by the Guarantee and the Common Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent
of holders of 100% in Liquidation Amount of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets as an entirety or 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 Trust or the successor entity not to be classified as a
grantor trust for United States federal income tax purposes. In addition, the
Property Trustee will be required pursuant to the Indenture to exchange, as
part of the Exchange Offer, the Junior Subordinated Debentures for the
Exchange Debentures, which will have terms substantially identical to the
Junior Subordinated Debentures. See "Exchange Offer; Registration Rights."
Voting Rights; Amendment of the Trust Agreement. Except as provided
below and under "--Mergers, Consolidations, Amalgamations or Replacements of
the Trust" and "--Description of Guarantee--Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the holders of the Capital
Securities have no voting rights.
The Trust Agreement may be amended from time to time by the Corporation,
the Property Trustee and the Administrative Trustees, without the consent of
the holders of the Trust 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, which shall not be
inconsistent with the other provisions of the Trust Agreement, (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Trust will be
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classified for United States federal income tax purposes as a grantor trust
at all times that any Trust Securities are outstanding or to ensure that the
Trust will not be required to register as an "investment company" under the
Investment Company Act or (iii) to modify, eliminate or add any provisions of
the Trust Agreement to such extent as shall be necessary to enable the Trust
or the Corporation to conduct an Exchange Offer in the manner contemplated by
the Registration Rights Agreement; provided, however, that in each such case
such action shall not adversely affect in any material respect the interests
of the holders of the Trust Securities. Any amendments of the Trust Agreement
pursuant to the foregoing shall become effective when notice thereof is given
to the holders of the Trust Securities. The Trust Agreement may be amended by
the Issuer Trustees and the Corporation (i) with the consent of holders
representing a majority (based upon Liquidation Amount) of the outstanding
Trust Securities and (ii) upon receipt by the Issuer Trustees of an opinion
of counsel experienced in such matters 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 Trust's status as a grantor trust for
United States federal income tax purposes or the Trust's exemption from
status as an "investment company" under the Investment Company Act, provided
that, without the consent of each holder of Trust Securities, the Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust
Securities to institute suit for the enforcement of any such payment on or
after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture
Trustee, or execute any trust or power conferred on the Debenture Trustee
with respect to the Junior Subordinated Debentures, (ii) waive certain past
defaults under the Indenture, (iii) exercise any right to rescind or annul a
declaration of acceleration of the maturity of the principal of the Junior
Subordinated Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Junior Subordinated Debentures, where
such consent shall be required, without, in each case, obtaining the prior
approval of the holders of a majority in Liquidation Amount of all
outstanding Capital Securities; provided, however, that where a consent under
the Indenture would require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior approval of each holder of the Capital Securities.
The Issuer Trustees shall not revoke any action previously authorized or
approved by a vote of the holders of the Capital Securities except by
subsequent vote of such holders. The Property Trustee shall 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 such holders of the Capital Securities, prior to taking any of
the foregoing actions, the Issuer Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation for United States
federal income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given
to each holder of record of Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required
for the Trust to redeem and cancel the Capital Securities in accordance with
the Trust Agreement.
Notwithstanding that holders of the Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Capital Securities that are owned by the Corporation, the Issuer Trustees or
any affiliate of the Corporation or any Issuer Trustees, shall, for purposes
of such vote or consent, be treated as if they were not outstanding.
Form, Denomination, Book-Entry Procedures and Transfer. New Capital
Securities initially will 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
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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 and only in amounts that would not cause a
holder to own less than 100 Capital Securities. Beneficial interests in the
Global Capital Securities may not be exchanged for Capital Securities in
certificated form except in the limited circumstances described below.
DTC has advised the Trust and the Corporation that DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system also is 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 also has advised the Trust and the Corporation 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 Purchaser with portions of the Liquidation 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
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).
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 in
its capacity as the registered holder under the Trust Agreement. Under the
terms of the Trust Agreement, the Property Trustee will treat the persons in
whose names the 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
Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Capital
Securities, or for maintaining, supervising or reviewing any of DTC's records
or any Participant's or Indirect Participant's records relating to the
beneficial 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
Corporation 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 New 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 Corporation. None of the
Trust, the
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Corporation or the Property Trustee will be liable for any delay by DTC or
any of its Participants in identifying the beneficial owners of the Capital
Securities, and the Trust, the Corporation and the Property Trustee may
conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
Beneficial interests in the Global 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,
subject in all cases to the rules and procedures of DTC and its participants.
DTC has advised the Trust and the Corporation that it will take any
action permitted to be taken by a holder of Capital Securities (including,
without limitation, the presentation of Old Capital Securities for exchange
pursuant to the Exchange Offer) 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 exchange the
Global Capital Securities for Capital Securities in certificated form and to
distribute such Capital Securities to its Participants.
So long as DTC or its nominee is the registered owner of the Global
Capital Securities, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Capital Securities represented by
the Global Capital Securities for all purposes under the Trust Agreement.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Trust and the Corporation believe to
be reliable, but neither the Trust nor the Corporation takes responsibility
for the accuracy thereof.
A Global Capital Security is exchangeable for 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 Corporation 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.
Payment and Paying Agency. Payments in respect of the Capital
Securities held in global form shall be made to the Depositary, which shall
credit the relevant accounts at the Depositary on the applicable Distribution
Dates. Payments in respect of Capital Securities that are not held by the
Depositary shall be made by check mailed to the address of the holder
entitled thereto as such address shall appear on the register maintained by
the Securities Registrar appointed under the Trust Agreement. The paying
agent (the "Paying Agent") shall initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Corporation. The Paying Agent shall be
permitted to resign as Paying Agent upon 30 days' written notice to the
Property Trustee, the Administrative Trustees and the Corporation. In the
event that the Property Trustee shall no longer be the Paying Agent, the
Administrative Trustees shall appoint a successor (which shall be a bank or
trust company acceptable to the Administrative Trustees and the Corporation)
to act as Paying Agent.
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) and multiples of $1,000 in excess thereof.
Any attempted sale, transfer 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 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.
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REGISTRAR AND TRANSFER AGENT. The Property Trustee acts as registrar
and transfer agent for the Capital Securities. Registration of transfers of
Capital Securities will be effected without charge by or on behalf of the
Trust, but upon payment of any tax or other governmental charges that may be
imposed in connection with any transfer or exchange. The Trust will not be
required to register or cause to be registered the transfer of the Capital
Securities after they 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, during the existence of an Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Agreement at the request of any holder of Trust
Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required
to decide between alternative courses of action, construe ambiguous
provisions in the Trust Agreement or is unsure of the application of any
provision of the Trust Agreement, and the matter is not one on which holders
of the Capital Securities or the Common Securities are entitled under the
Trust Agreement to vote, then the Property Trustee shall take such action as
is directed by the Corporation and, if not so directed, shall take such
action as it deems advisable and in the best interests of the holders of the
Trust Securities and will have no liability except for its own bad faith,
negligence or willful misconduct.
MISCELLANEOUS. The Administrative Trustees are authorized and directed
to conduct the affairs of and to operate the Trust in such a way that the
Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or classified as an association
or publicly-traded partnership taxable as a corporation for United States
federal income tax purposes and so that the Junior Subordinated Debentures
will be treated as indebtedness of the Corporation for United States federal
income tax purposes. In this connection, the Corporation and the
Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Trust or the Trust
Agreement, that the Corporation and the Administrative Trustees determine in
their discretion to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect the interests of the holders
of the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge
any of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures will be issued as a separate issue under the
Indenture. The Indenture has been qualified under the Trust Indenture Act.
This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Indenture describes the material terms thereof, but does
not purport to be complete, and where reference is made to particular
provisions of the Indenture, such provisions, including the definitions of
certain terms, some of which are not otherwise defined herein, are qualified
in their entirety by reference to all of the provisions of the Indenture and
those terms made a part of the Indenture by the Trust Indenture Act.
GENERAL. Concurrently with the issuance of the Old Capital Securities,
the Trust invested the proceeds thereof, together with the consideration paid
by the Corporation for the Common Securities, in Old Junior Subordinated
Debentures issued by the Corporation. Pursuant to the Exchange Offer, the
Corporation will exchange the Old Junior Subordinated Debentures, in an
amount corresponding to the Old Capital Securities accepted for exchange, for
a like aggregate principal amount of New Junior Subordinated Debentures as
soon as practicable after the date hereof.
The Junior Subordinated Debentures bear interest from August 26, 1997 at
the annual rate of 9.70% of the principal amount thereof, payable
semi-annually in arrears on February 15th and August 15th of each year
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(each, an "Interest Payment Date"), commencing February 15, 1998, to the
person in whose name each Junior Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the first day of
the month in which the relevant payment date falls. The Junior Subordinated
Debentures will mature on August 15, 2027. It is anticipated that, until the
liquidation, if any, of the Trust, each Junior Subordinated Debenture will be
held in the name of the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve 30-day
months and, for any period of less than a full calendar month, the number of
days elapsed in such month. In the event that any date on which interest is
payable on the Junior Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that if such next succeeding
Business Day falls in the next succeeding calendar year, then such payment
shall be made on the immediately preceding Business Day, in each case with
the same force and effect as if made on such date. Accrued interest that is
not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at the rate
per annum of 9.70% thereof, compounded semi-annually. The term "interest," as
used herein, shall include semi-annual interest payments, interest on
semi-annual interest payments not paid on the applicable Interest Payment
Date and Additional Sums (as defined below), as applicable.
The New Junior Subordinated Debentures will rank pari passu with the Old
Junior Subordinated Debentures and with all Other Debentures and are
unsecured and are subordinate and junior in right of payment to all Senior
Indebtedness to the extent and in the manner set forth in the Indenture. See
"--Subordination."
The Corporation is a holding company and almost all of the operating
assets of the Corporation are owned by the Corporation's subsidiaries. The
Corporation is a legal entity separate and distinct from its subsidiaries.
Holders of Junior Subordinated Debentures should look only to the Corporation
for payments on the Junior Subordinated Debentures. The principal sources of
the Corporation's income are dividends, interest and fees from its
subsidiaries. The Corporation relies primarily on dividends from the Bank to
meet its obligations for payment of principal and interest on its outstanding
debt obligations and corporate expenses. There are regulatory limitations on
the payment of dividends directly or indirectly to the Corporation from the
Bank. As of September 30, 1997, under OTS regulations, the total capital
available for payment of dividends by the Bank to the Corporation was
approximately $5.6 million. However, the OTS has the power to prohibit any
act, including the payment of dividends, if such act would reduce bank
capital to a point that, in its opinion, would render the Bank
undercapitalized and thus constitute an unsafe or unsound banking practice.
In addition, the Bank is subject to certain restrictions imposed by federal
law on any extensions of credit to, and certain other transactions with, the
Corporation and certain other affiliates, and on investments in stock or
other securities thereof. Such restrictions prevent the Corporation and such
other affiliates from borrowing from the Bank unless the loans are secured by
various types of collateral. Further, such secured loans, other transactions
and investments by the Bank are generally limited in amount as to the
Corporation and as to each of such other affiliates to 10% of the Bank's
capital and surplus and as to the Corporation and all of such other
affiliates to an aggregate of 20% of the Bank's capital and surplus.
Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary
upon such subsidiary's liquidation or reorganization or otherwise (and thus
the ability of holders of the Capital Securities to benefit indirectly from
such distribution), is subject to the prior claims of creditors of that
subsidiary (including depositors, in the case of the Bank), except to the
extent the Corporation may itself be recognized as a creditor of that
subsidiary. At September 30, 1997, the subsidiaries of the Corporation had
total liabilities (excluding liabilities owed to the Corporation) of $332.5
million. Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries (including the Bank's deposit liabilities) and all liabilities
of any future subsidiaries of the Corporation. The Indenture does not limit
the incurrence or issuance of other secured or unsecured debt of the
Corporation or any subsidiary, including Senior Indebtedness. See
"--Subordination."
FORM, REGISTRATION AND TRANSFER. If the Junior Subordinated Debentures
are distributed to the holders of the Trust Securities, the Junior
Subordinated Debentures may be represented by one or more global certificates
registered in the name of Cede & Co. as the nominee of DTC. The depositary
arrangements for such
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Junior Subordinated Debentures are expected to be substantially similar to
those in effect for the Capital Securities. For a description of DTC and the
terms of the depositary arrangements relating to payments, transfers, voting
rights, redemptions and other notices and other matters, see "Description of
Capital Securities--Form, Denomination, Book-Entry Procedures and Transfer."
The Junior Subordinated Debentures will be issuable only in registered
form without coupons in minimum denominations of $100,000 (100 Junior
Subordinated Debentures) and integral multiples of $1,000 in excess thereof.
PAYMENT AND PAYING AGENTS. Payment of principal of (and premium, if
any) and interest on Junior Subordinated Debentures will be made at the
office of the Debenture Trustee in the City of New York or at the office of
such Paying Agent or Paying Agents as the Corporation may designate from time
to time, except that at the option of the Corporation payment of any interest
may be made, except in the case of Junior Subordinated Debentures in global
form, (i) by check mailed to the address of the Person entitled thereto as
such address shall appear in the register for Junior Subordinated Debentures
or (ii) by transfer to an account maintained by the Person entitled thereto
as specified in such register, provided that proper transfer instructions
have been received by the relevant Record Date. Payment of any interest on
any Junior Subordinated Debenture will be made to the Person in whose name
such Junior Subordinated Debenture is registered at the close of business on
the Record Date for such interest, except in the case of defaulted interest.
The Corporation may at any time designate additional Paying Agents or rescind
the designation of any Paying Agent; however the Corporation will at all
times be required to maintain a Paying Agent in each place of payment for the
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Corporation in trust, for the payment of the principal of
(and premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the
Corporation, be repaid to the Corporation and the holder of such Junior
Subordinated Debenture shall thereafter look, as a general unsecured
creditor, only to the Corporation for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE. So long as no Debenture Event
of Default has occurred and is continuing, the Corporation will have the
right under the Indenture to defer the payment of interest on the Junior
Subordinated Debentures at any time and 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 shall end on a date other than an
Interest Payment Date or extend beyond the Stated Maturity Date. At the end
of such Extension Period, the Corporation must pay all interest then accrued
and unpaid (together with interest thereon at the annual rate of 9.70%,
compounded semi-annually, to the extent permitted by applicable law
("Compounded Interest")). During an Extension Period, interest will continue
to accrue and, if the Junior Subordinated Debentures have been distributed to
holders of the Trust Securities, holders of Junior Subordinated Debentures
(or holders of the Trust Securities while Trust Securities are outstanding)
will be required to accrue such deferred interest income for United States
federal income tax purposes prior to the receipt of cash attributable to such
income. See "Certain Federal Income Tax Considerations--Interest Income and
Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of the Corporation's capital
stock, (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation (including
any Other Debentures) that rank pari passu with or junior in right of payment
to the Junior Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by the Corporation of the debt securities of
any subsidiary of the Corporation (including any Other Guarantees) if such
guarantee ranks pari passu with or junior in right of payment to the Junior
Subordinated Debentures (other than (a) dividends or distributions in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
common stock of the Corporation, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto,
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(c) payments under the Guarantee, (d) as a result of a reclassification of
the Corporation's capital stock or the exchange or conversion of one class or
series of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in
shares of the Corporation's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, and (f) purchases of common stock related to the issuance of
common stock or rights under any of the Corporation's benefit plans for its
directors, officers or employees or any of the Corporation's dividend
reinvestment plans).
Prior to the termination of any such Extension Period, the Corporation
may further extend such Extension Period, provided that such extension does
not cause such Extension Period to exceed 10 consecutive semi-annual periods,
end on a date other than an Interest Payment Date or extend beyond the Stated
Maturity Date. Upon the termination of any such Extension Period and the
payment of all amounts then due on any Interest Payment Date, the Corporation
may elect to begin a new Extension Period, subject to the above requirements.
No interest shall be due and payable during an Extension Period, except at
the end thereof. The Corporation must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of
any Extension Period (or an extension thereof) at least five Business Days
prior to the earlier of (i) the date the Distributions on the Trust
Securities would have been payable except for the election to begin or extend
such Extension Period or (ii) the date the Administrative Trustees are
required to give notice to any securities exchange or to holders of Capital
Securities of the record date or the date such Distributions are payable, but
in any event not less than five Business Days prior to such record date. The
Debenture Trustee shall give notice of the Corporation's election to begin or
extend a new Extension Period to the holders of the Capital Securities. There
is no limitation on the number of times that the Corporation may elect to
begin an Extension Period.
OPTIONAL PREPAYMENT. The Junior Subordinated Debentures will be
prepayable, in whole or in part, at the option of the Corporation on or after
the Initial Optional Prepayment Date, subject to the Corporation having
received any required regulatory approval, at a prepayment price (the
"Optional Prepayment Price") equal to the percentage of the outstanding
principal amount of the Junior Subordinated Debentures specified below, plus,
in each case, accrued and unpaid interest thereon to the date of prepayment
if prepaid during the 12-month period beginning August 15th of the years
indicated below:
Year Percentage
---- ----------
2007 .......................................................... 104.850%
2008 .......................................................... 104.365%
2009 .......................................................... 103.880%
2010 .......................................................... 103.395%
2011 .......................................................... 102.910%
2012 .......................................................... 102.425%
2013 .......................................................... 101.940%
2014 .......................................................... 101.455%
2015 .......................................................... 100.970%
2016 .......................................................... 100.485%
2017 and thereafter ........................................... 100.000%
SPECIAL EVENT PREPAYMENT. If a Special Event shall occur and be
continuing prior to the Initial Prepayment Date, the Corporation may, at its
option and subject to receipt of any required regulatory approval, prepay the
Junior Subordinated Debentures in whole (but not in part) at any time (i)
within 90 days of the occurrence of such Special Event and (ii) prior to
August 15, 2007, at a prepayment price (the "Special Event Prepayment Price")
equal to the Make-Whole Amount (as defined below). The "Make-Whole Amount"
shall be equal to the greater of (x) 100% of the principal amount of the
Junior Subordinated Debentures to be prepaid or (y) the sum, as determined by
a Quotation Agent (as defined herein), of the present values of the scheduled
payments of principal and interest on the Junior Subordinated Debentures from
the prepayment date to the Maturity Date discounted to the prepayment date on
a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate, plus, in the case of each of clauses
(x) and (y), accrued and unpaid interest thereon to the date of prepayment.
If, following the occurrence of a Special Event, the
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Corporation exercises its option to prepay the Junior Subordinated
Debentures, then the proceeds of that prepayment must be applied to redeem a
Like Amount of Trust Securities at the Special Event Redemption Price (equal
to the Special Event Prepayment Price in respect of the Junior Subordinated
Debentures). See "Description of Capital Securities - Redemption."
A "Special Event" means a Tax Event or a Regulatory Capital Event, as
the case may be.
A "Tax Event" means the receipt by the Corporation and the Trust of an
opinion of counsel experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws or any regulations thereunder of the United States or
any political subdivision or taxing authority thereof or therein, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change
is effective or such pronouncement or decision is announced on or after the
Issue Date, there is more than an insubstantial risk that (i) the Trust is,
or will be within 90 days of the date of such opinion, subject to United
States federal income tax with respect to income received or accrued on the
Junior Subordinated Debentures, (ii) interest payable by the Corporation on
the Junior Subordinated Debentures is not, or within 90 days of the date of
such opinion will not be, deductible by the Corporation, in whole or in part,
for United States federal income tax purposes or (iii) the Trust is, or will
be within 90 days of the date of such opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
A "Regulatory Capital Event" means that the Corporation shall have
become, or pursuant to law or regulation will become within 180 days, subject
to capital requirements under which, in the written opinion of independent
bank regulatory counsel experienced in such matters, the Capital Securities
would not constitute Tier 1 Capital (as that concept is used in the
guidelines or regulations issued by the Board of Governors of the Federal
Reserve System) applied as if the Corporation (or its successor) were a bank
holding company, or the then-equivalent of such Tier 1 Capital.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such prepayment date plus (i) 3.04% if such prepayment
date occurs prior to August 15, 1998 and (ii) 2.49% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the
remaining term to maturity of the Junior Subordinated Debentures (the
"Remaining Life") to be prepaid that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States Treasury security has a maturity which is within a
period from three months before to three months after the Remaining Life, the
two most closely corresponding United States Treasury securities as selected
by the Quotation Agent shall be used as the Comparable Treasury Issue, and
the Treasury Rate shall be interpolated or extrapolated on a straight-line
basis, rounding to the nearest month.
"Treasury Rate" means (i) the yield, under the heading which represents
the average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities" for the maturity corresponding to the Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields
for the two published maturities most closely corresponding to the Remaining
Life shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the
nearest month), or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated equal to the Comparable
Treasury Price for such prepayment date. The Treasury Rate shall be
calculated on the third Business Day preceding the prepayment date.
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"Quotation Agent" means the Reference Treasury Dealer appointed by the
Corporation. "Reference Treasury Dealer" means a nationally-recognized U.S.
Government securities dealer in New York City selected by the Corporation.
"Comparable Treasury Price" means, with respect to any prepayment date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor
release) is not published or does not contain such prices on such Business
Day, (A) the average of the Reference Treasury Dealer Quotations for such
prepayment date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Debenture Trustee obtains fewer
than three such Reference Treasury Dealer Quotations, the average of all such
Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined
by the Debenture Trustee, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the Debenture Trustee by such Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third Business Day preceding
such prepayment date.
Notice of any prepayment will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Corporation
defaults in payment of the prepayment price, on and after the prepayment date
interest ceases to accrue on such Junior Subordinated Debentures called for
prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional amounts on the Junior Subordinated Debentures such amounts as
shall be necessary in order that the amount of Distributions then due and
payable by the Trust on the outstanding Trust Securities shall not be reduced
as a result of any additional taxes, duties and other governmental charges to
which the Trust has become subject as a result of a Tax Event ("Additional
Sums").
CERTAIN COVENANTS OF THE CORPORATION. The Corporation has agreed 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
Corporation's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities of
the Corporation (including Other Debentures) that rank pari passu with or
junior in right of payment to the Junior Subordinated Debentures or (iii)
make any guarantee payments with respect to any guarantee by the Corporation
of the debt securities of any subsidiary of the Corporation (including under
Other Guarantees) if such guarantee ranks pari passu or junior in right of
payment to the Junior Subordinated Debentures (other than (a) dividends or
distributions in shares of, or options, warrants or rights to subscribe for
or purchase shares of, common stock of the Corporation, (b) any declaration
of a dividend in connection with the implementation of a stockholders' rights
plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, (c) payments
under the Guarantee, (d) as a result of a reclassification of the
Corporation's capital stock or the exchange or conversion of one class or
series of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in
shares of the Corporation's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, and (f) purchases of common stock related to the issuance of
common stock or rights under any of the Corporation's benefit plans for its
directors, officers or employees or any of the Corporation's dividend
reinvestment plans) if at such time (1) there shall have occurred any event
of which the Corporation has actual knowledge that (a) is, or with the giving
of notice or the lapse of time, or both, would be, a Debenture Event of
Default and (b) in respect of which the Corporation shall not have taken
reasonable steps to cure, (2) the Corporation shall be in default with
respect to its payment of any obligations under the Guarantee or (3) the
Corporation shall have given notice of its election of an Extension Period as
provided in the Indenture and shall
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not have rescinded such notice, and such Extension Period, or any extension
thereof, shall have commenced and be continuing.
So long as the Trust Securities remain outstanding, the Corporation also
has agreed (i) to directly or indirectly maintain 100% direct or indirect
ownership of the Common Securities, provided, however, that any permitted
successor of the Corporation under the Indenture may succeed to the
Corporation's ownership of such Common Securities, (ii) to use its reasonable
efforts to cause the Trust (a) to remain a business trust, except in
connection with the distribution of Junior Subordinated Debentures to the
holders of Trust Securities in liquidation of the Trust, the redemption of
all of the Trust Securities of the Trust, or certain mergers, consolidations
or amalgamations, each as permitted by the Trust Agreement, and (b) to
otherwise continue to be classified as a grantor trust for United States
federal income tax purposes and (iii) to use its reasonable efforts to cause
each holder of Trust Securities to be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures.
MODIFICATION OF INDENTURE. From time to time the Corporation and the
Debenture Trustee may, without the consent of the holders of Junior
Subordinated Debentures, amend, waive or supplement the Indenture for
specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies or enabling the Corporation and the Trust to
conduct an Exchange Offer as contemplated by the Registration Rights
Agreement, provided that any such action does not materially adversely affect
the interest of the holders of Junior Subordinated Debentures), and
qualifying, or maintaining the qualification of, the Indenture under the
Trust Indenture Act. The Indenture contains provisions permitting the
Corporation and the Debenture Trustee, with the consent of the holders of a
majority in principal amount of Junior Subordinated Debentures, to modify the
Indenture in a manner affecting the rights of the holders of Junior
Subordinated Debentures; provided that no such modification may, without the
consent of the holders of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated Maturity Date, or reduce the principal amount
of the Junior Subordinated Debentures or reduce the amount payable on
redemption thereof or reduce the rate or extend the time of payment of
interest thereon except pursuant to the Corporation's right under the
Indenture to defer the payment of interest as provided therein (see "--Option
to Extend Interest Payment Date") or make the principal of, or interest or
premium on, the Junior Subordinated Debentures payable in any coin or
currency other than that provided in the Junior Subordinated Debentures, or
impair or affect the right of any holder of Junior Subordinated Debentures to
institute suit for the payment thereof, or (ii) reduce the percentage of
principal amount of Junior Subordinated Debentures, the holders of which are
required to consent to any such modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT. The Indenture provides that any one or
more of the following described events with respect to the Junior
Subordinated Debentures constitutes a "Debenture Event of Default" (whatever
the reason for such Debenture Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body): (i) failure for 30 days to pay
any interest (including Compounded Interest and Additional Sums, if any) on
the Junior Subordinated Debentures or any Other Debentures, when due (subject
to the deferral of any due date in the case of an Extension Period); (ii)
failure to pay any principal or premium, if any, on the Junior Subordinated
Debentures or any Other Debentures when due whether at maturity, upon
redemption, by declaration of acceleration of maturity or otherwise; (iii)
failure to observe or perform in any material respect certain other covenants
contained in the Indenture for 90 days after written notice to the
Corporation from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures have, subject to certain exceptions, the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Debenture Trustee. The Debenture Trustee or the
holders of not less than 25% in aggregate outstanding principal amount of the
Junior Subordinated Debentures may declare the principal due and payable
immediately upon a Debenture Event of Default. The holders of a majority in
aggregate outstanding principal amount of the Junior Subordinated Debentures
may annul such declaration and
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waive the default if the default (other than the non-payment of the principal
of the Junior Subordinated Debentures which has become due solely by such
acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures affected thereby may, on behalf of the
holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) on or
interest (unless such default has been cured and a sum sufficient to pay all
matured installments of interest (and premium, if any) and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee)
or a default in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Junior Subordinated Debenture.
The Indenture requires the annual filing by the Corporation with the
Debenture Trustee of a certificate as to the absence of certain defaults
under the Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of
a Debenture Event of Default from the holders of the Junior Subordinated
Debentures if the Debenture Trustee considers it in the interest of such
holders to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES. If a
Debenture Event of Default shall have occurred and be continuing and shall be
attributable to the failure of the Corporation to pay the principal of (or
premium, if any), or interest (including Compounded Interest and Additional
Sums, if any) on the Junior Subordinated Debentures on the due date, a holder
of Capital Securities may institute a Direct Action. The Corporation may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Capital
Securities. Notwithstanding any payments made to a holder of Capital
Securities by the Corporation in connection with a Direct Action, the
Corporation shall remain obligated to pay the principal of (or premium, if
any) or interest (including Compounded Interest and Additional Sums, if any)
on the Junior Subordinated Debentures, and the Corporation shall be
subrogated to the rights of the holder of such Capital Securities with
respect to payments on the Capital Securities to the extent of any payments
made by the Corporation to such holder in any Direct Action.
The holders of the Capital Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See
"Description of Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS. The
Indenture provides that the Corporation shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties as an
entirety or substantially as an entirety to any Person, and no Person shall
consolidate with or merge into the Corporation or convey, transfer or lease
its properties as an entirety or substantially as an entirety to the
Corporation, unless: (i) in case the Corporation consolidates with or merges
into another Person or conveys or transfers its properties substantially as
an entirety to any Person, the successor Person is organized under the laws
of the United States or any State or the District of Columbia, and such
successor Person expressly assumes the Corporation's obligations on 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 become a Debenture Event of Default, shall have occurred
and be continuing; and (iii) certain other conditions as prescribed in the
Indenture are met.
The general provisions of the Indenture do not afford holders of the
Junior Subordinated Debentures protection in the event of a highly leveraged
or other transaction involving the Corporation that may adversely affect
holders of the Junior Subordinated Debentures.
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SATISFACTION AND DISCHARGE. The Indenture provides that when, among
other things, all Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation (i) have become due and payable or
(ii) will become due and payable at maturity or called for redemption within
one year, and the Corporation deposits or causes to be deposited with the
Debenture Trustee funds, in trust, for the purpose and in an amount
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 to the
date of the deposit or to the Stated Maturity Date, as the case may be, then
the Indenture will cease to be of further effect (except as to the
Corporation's obligations to pay all other sums due pursuant to the Indenture
and to provide the officers' certificates and opinions of counsel described
therein), and the Corporation will be deemed to have satisfied and discharged
the Indenture.
SUBORDINATION. In the Indenture, the Corporation has covenanted and
agreed that any Junior Subordinated Debentures issued thereunder will be
subordinate and junior in right of payment to all Senior Indebtedness to the
extent provided in the Indenture. Upon any payment or distribution of assets
to creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings in
connection with any insolvency or bankruptcy proceeding of the Corporation,
all Senior Indebtedness must be paid in full before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full of such
Senior Indebtedness before the holders of Junior Subordinated Debentures will
be entitled to receive or retain any payment in respect of the Junior
Subordinated Debentures.
No payments on account of principal, or premium, if any, or interest, if
any, in respect of the Junior Subordinated Debentures may be made if there
shall have occurred and be continuing a default in any payment with respect
to Senior Indebtedness, or an event of default with respect to any Senior
Indebtedness resulting in the acceleration of the maturity thereof, or if any
judicial proceeding shall be pending with respect to any such default.
"Indebtedness" means (i) every obligation of the Corporation for money
borrowed; (ii) every obligation of the Corporation 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 Corporation with
respect to letters of credit, banker's acceptances or similar facilities
issued for the account of the Corporation; (iv) every obligation of the
Corporation 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 Corporation; (vi) all indebtedness of the Corporation whether incurred on
or prior to the date of the Indenture or thereafter incurred, for claims in
respect of derivative products, including interest rate, foreign exchange
rate and commodity forward contracts, options and swaps and similar
arrangements; and (vii) every obligation of the type referred to in clauses
(i) through (vi) of another Person and all dividends of another Person the
payment of which, in either case, the Corporation has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"Indebtedness Ranking on a Parity with the Junior Subordinated
Debentures" means (i) Indebtedness, whether outstanding on the date of
execution of the Indenture or thereafter created, assumed or incurred, to the
extent such indebtedness by its terms ranks equally with and not prior to the
Junior Subordinated Debentures in the right of payment upon the happening of
the dissolution or winding-up or liquidation or reorganization of the
Corporation and (ii) all other debt securities, and guarantees in respect of
those debt securities, issued to any other trust, or a trustee of such trust,
partnership or other entity affiliated with the Corporation that is a
financing vehicle of the Corporation (a "financing entity") in connection
with the issuance by such financing entity of equity securities or other
securities guaranteed by the Corporation pursuant to an instrument that ranks
pari passu with or junior in right of payment to the Guarantee. The securing
of any Indebtedness, otherwise constituting Indebtedness Ranking on a Parity
with the Junior Subordinated Debentures, shall not be deemed to prevent such
Indebtedness from constituting Indebtedness Ranking on a Parity with the
Junior Subordinated Debentures.
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"Indebtedness Ranking Junior to the Junior Subordinated Debentures" means
any Indebtedness, whether outstanding on the date of execution of the Indenture
or thereafter created, assumed or incurred, to the extent such indebtedness by
its terms ranks junior to and not equally with or prior to the Junior
Subordinated Debentures (and any other Indebtedness Ranking on a Parity with the
Junior Subordinated Debentures) in right of payment upon the happening of the
dissolution or winding-up or liquidation or reorganization of the Corporation.
The securing of any Indebtedness, otherwise constituting Indebtedness Ranking
Junior to the Junior Subordinated Debentures, shall not be deemed to prevent
such Indebtedness from constituting Indebtedness Ranking Junior to the Junior
Subordinated Debentures.
"Senior Indebtedness" means all Indebtedness, whether outstanding on the
date of execution of the Indenture or thereafter created, assumed or incurred,
except Indebtedness Ranking on a Parity with the Junior Subordinated Debentures
or Indebtedness Ranking Junior to the Junior Subordinated Debentures, and any
deferrals, renewals or extensions of such Senior Indebtedness.
The Corporation is a holding company and almost all of the operating assets
of the Corporation are owned by the Corporation's subsidiaries. The Corporation
relies primarily on dividends from the Bank to meet its obligations for payment
of principal and interest on its outstanding debt obligations and corporate
expenses. The Corporation is a legal entity separate and distinct from its
subsidiaries. Holders of Junior Subordinated Debentures should look only to the
Corporation for payments on the Junior Subordinated Debentures. There are
regulatory limitations on the payment of dividends directly or indirectly to the
Corporation from the Bank. See "--General." In addition, the Bank is subject to
certain restrictions imposed by federal law on any extensions of credit to, and
certain other transactions with, the Corporation and certain other affiliates,
and on investments in stock or other securities thereof. Such restrictions
prevent the Corporation and such other affiliates from borrowing from the Bank
unless the loans are secured by various types of collateral. Further, such
secured loans, other transactions and investments by the Bank are generally
limited in amount as to the Corporation and as to each of such other affiliates
to 10% of the Bank's capital and surplus and as to the Corporation and all of
such other affiliates to an aggregate of 20% of the Bank's capital and surplus.
Accordingly, the Junior Subordinated Debentures will be effectively subordinated
to all existing and future liabilities of the Corporation's subsidiaries.
Because the Corporation is a holding company, the right of the Corporation
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary (including
depositors, in the case of the Bank), except to the extent the Corporation may
itself be recognized as a creditor of that subsidiary. At September 30, 1997,
the subsidiaries of the Corporation had total liabilities (excluding liabilities
owed to the Corporation) of $332.5 million. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries (including the
subsidiaries' deposit liabilities) and all liabilities of any future
subsidiaries of the Corporation. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Corporation or any
subsidiary, including Senior Indebtedness. See "--Subordination."
Restrictions on Transfer. The Junior Subordinated Debentures 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) and
multiples of $1,000 in excess thereof. 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 Indenture and the Junior Subordinated Debentures are
governed by and will be construed in accordance with the laws of the State of
New York.
Information Concerning the Debenture Trustee. Following the Exchange Offer
and the qualification of the Indenture under the Trust Indenture Act, the
Debenture Trustee shall have and be subject to all the duties
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and responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is under
no obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
Description of Guarantee
The Old Guarantee was executed and delivered by the Corporation
concurrently with the issuance by the Trust of the Old Capital Securities for
the benefit of the holders from time to time of the Old Capital Securities. As
soon as practicable after the date hereof, the Old Guarantee will be exchanged
by the Corporation for the New Guarantee for the benefit of the holders from
time to time of the New Capital Securities. The Guarantee Agreement has been
qualified under the Trust Indenture Act. This summary of certain provisions of
the Guarantee Agreement describes the material terms of the Guarantee, but does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Guarantee Agreement, including the
definitions therein of certain terms, and the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Capital Securities.
General. The Corporation has agreed to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined below)
to the holders of the Capital Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Capital Securities, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), are subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Trust has funds on hand legally available therefor at such time,
(ii) the Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Trust has funds on hand legally available
therefor at such time, or (iii) upon a voluntary or involuntary dissolution,
winding-up or liquidation of the Trust (other than in connection with the
distribution of the Junior Subordinated Debentures to holders of the Capital
Securities or the redemption of all Capital Securities), the lesser of (a) the
Liquidation Distribution, to the extent the Trust has funds legally available
therefor at the time, and (b) the amount of assets of the Trust remaining
available for distribution to holders of Capital Securities upon liquidation of
the Trust after satisfaction of liabilities to creditors of the Trust as
required by applicable law. The Corporation's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Corporation to the holders of the Capital Securities or by causing the Trust to
pay such amounts to such holders.
The Guarantee ranks subordinate and junior in right of payment to all
Senior Indebtedness to the extent provided therein. See "--Status of the
Guarantee." Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary upon
such subsidiary's liquidation or reorganization or otherwise is subject to the
prior claims of creditors of that subsidiary, except to the extent the
Corporation may itself be recognized as a creditor of that subsidiary.
Accordingly, the Corporation's obligations under the Guarantee effectively are
subordinated to all existing and future liabilities, including deposits, of the
Corporation's subsidiaries, and claimants should look only to the assets of the
Corporation for payments thereunder. See "--Description of Junior Subordinated
Debentures--General." The Guarantee does not limit the incurrence or issuance
of other secured or unsecured debt of the Corporation, including Senior
Indebtedness, whether under the Indenture, any other indenture that the
Corporation may enter into in the future or otherwise.
The Corporation has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guaranteed all of the Trust's obligations under the Capital
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
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Capital Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee."
Status of Guarantee. The Guarantee constitutes an unsecured obligation of
the Corporation and ranks subordinate and junior in right of payment to all
Senior Indebtedness in the same manner as Junior Subordinated Debentures.
The New Guarantee ranks pari passu with the Old Guarantee and with all
Other Guarantees issued by the Corporation. The Guarantee constitutes a
guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the Corporation to enforce its
rights under the Guarantee without first instituting a legal proceeding against
any other person or entity). The Guarantee will be held 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 Trust
or upon distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures. The Guarantee does not place a limitation on the amount
of additional Senior Indebtedness that may be incurred by the Corporation.
Events of Default. An event of default under the Guarantee will occur upon
the failure of the Corporation to perform any of its payment or other
obligations thereunder, provided, however, that except with respect to a default
in payment of any Guarantee Payment, the Corporation shall have received notice
of default and shall not have cured such default within 60 days after receipt of
such notice. The holders of not less than a majority in Liquidation Amount of
the Capital Securities will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
The Corporation, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
Amendments and Assignment. Except with respect to any changes that 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 a majority of the Liquidation Amount of
outstanding Capital Securities. The manner of obtaining any such approval is as
set forth under "--Description of Capital Securities--Voting Rights; Amendment
of the Trust Agreement." All guarantees and agreements contained in the
Guarantee Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Corporation and shall inure to the benefit of the holders
of the Capital Securities then outstanding.
Termination. The Guarantee will terminate and be of no further force and
effect upon full payment of the applicable Redemption Price of the Capital
Securities, upon full payment of the Liquidation Amount payable upon liquidation
of the 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.
Information Concerning the Guarantee Trustee. The Guarantee Trustee, other
than during the occurrence and continuance of a default by the Corporation in
performance of the Guarantee, will undertake to perform only such duties as are
specifically set forth in the Guarantee and, after default with respect to the
Guarantee, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee will be 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
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unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
Governing Law. The Guarantee is governed by and will be construed in
accordance with the laws of the State of New York.
DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all materials respects to
the New Securities, except that (i) the Old Securities have not been registered
under the Securities Act, are subject to restrictions on transfer under federal
and state securities laws and are entitled to certain rights under the
Registration Rights Agreement (which rights will terminate upon consummation of
the Exchange Offer), (ii) the New Capital Securities will not provide for any
increase in the Distribution rate thereon and (iii) the New Junior Subordinated
Debentures will not provide for any increase in the interest rate thereon. The
Old Securities provide that, in the event that a registration statement relating
to the Exchange Offer has not been filed by January 23, 1998 and declared
effective by February 22, 1998, or, in certain limited circumstances, in the
event a shelf registration statement (the "Shelf Registration Statement") with
respect to the resale of the Old Capital Securities is not declared effective by
February 22, 1998, then interest will accrue (in addition to the stated interest
rate on the Old Junior Subordinated Debentures) at the rate of 0.25% per annum
on the principal amount of the Old Junior Subordinated Debentures and
Distributions will accrue (in addition to the stated Distribution rate on the
Old Capital Securities) at the rate of 0.25% per annum on the Liquidation Amount
of the Old Capital Securities, for the period from the occurrence of such event
until such time as such required Exchange Offer is consummated or any required
Shelf Registration Statement is effective. The New Securities are not, and upon
consummation of the Exchange Offer the Old Securities will not be, entitled to
any such additional interest or Distributions. Accordingly, holders of Old
Capital Securities should review the information set forth under "Risk Factors
- --Consequences of a Failure to Exchange Old Capital Securities" and "Description
of New Securities."
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 Trust has funds on hand legally available for the payment of
such Distributions) are irrevocably guaranteed by the Corporation as and to the
extent set forth under "Description of New Securities--Description of
Guarantee." Taken together, the Corporation's obligations under the Junior
Subordinated Debentures, the 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
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Capital Securities. If and to the extent that the Corporation does not make the
required payments on the Junior Subordinated Debentures, the Trust will not have
sufficient funds to make the related payments, including Distributions, on the
Capital Securities. The Guarantee does not cover any such payment when the
Trust does not have sufficient funds on hand legally available therefor. In
such event, the remedy of a holder of Capital Securities is to institute a
Direct Action. The obligations of the Corporation under the Guarantee are
subordinate and junior in right of payment to all Senior Indebtedness.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because: (i) the aggregate principal amount or Prepayment Price of the Junior
Subordinated
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Debentures will be equal to the sum of the Liquidation Amount or Redemption
Price, as applicable, of the Trust Securities, (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Trust Securities; (iii) the Corporation, as Sponsor, shall pay for all and any
costs, expenses and liabilities of the Trust except the Trust's obligations to
holders of Trust Securities under such Trust Securities; and (iv) the Trust
Agreement provides that the Trust is not authorized to engage in any activity
that is not consistent with the limited purposes thereof.
Enforcement Rights of Holders of Capital Securities
A holder of any Capital Security may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or an Event of Default under the Trust Agreement. However,
in the event of payment defaults under, or acceleration of, Senior Indebtedness,
the subordination provisions of the 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. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default under the Trust Agreement.
Limited Purpose of the Trust
The Trust exists for the sole purpose of issuing and selling the Trust
Securities, using the proceeds from the sale of the Trust Securities to acquire
the Junior Subordinated Debentures and engaging in only those other activities
necessary, advisable or incidental thereto. The Capital Securities represent
beneficial ownership interests in the Trust. A principal difference between the
rights of a holder of Capital Securities and a holder of Junior Subordinated
Debentures is that a holder of Junior Subordinated Debentures is entitled to
receive from the Corporation the principal amount of (and premium, if any) and
interest on Junior Subordinated Debentures held, while a holder of Capital
Securities is entitled to receive Distributions from the Trust (or, in certain
circumstances, from the Corporation under the Guarantee) if and to the extent
the Trust has funds on hand legally available for the payment of such
Distributions.
Rights Upon Termination
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary dissolution, winding-up or
liquidation of the Trust, after satisfaction of the liabilities of creditors of
the Trust as required by applicable law, the holders of the Trust Securities
will be entitled to receive, out of assets held by the Trust, the Liquidation
Distribution in cash. See "Description of New Securities--Description of
Capital Securities--Liquidation of the Trust and Distribution of Junior
Subordinated Debentures." Upon any voluntary or involuntary liquidation or
bankruptcy of the Corporation, the Property Trustee, as holder of the Junior
Subordinated Debentures, would be a subordinated creditor of the Corporation,
subordinated in right of payment to all Senior Indebtedness as set forth in the
Indenture, but entitled to receive payment in full of principal (and premium, if
any) and interest, before any stockholders of the Corporation receive payments
or distributions. Since the Corporation is the guarantor under the Guarantee
and has agreed to pay for all costs, expenses and liabilities of the Trust
(other than the Trust's obligations to the holders of its Trust Securities), the
positions of a holder of Capital Securities and a holder of Junior Subordinated
Debentures relative to other creditors and to stockholders of the Corporation in
the event of liquidation or bankruptcy of the Corporation are expected to be
substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
In the opinion of Elias, Matz, Tiernan & Herrick L.L.P., special federal
income tax counsel to the Corporation and the Trust ("Tax Counsel"), the
following is a summary of certain of the material United States federal income
tax consequences of the purchase, ownership and disposition of Capital
Securities held as capital assets by a holder. This summary does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Capital Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not
address the tax consequences to persons that have a functional currency other
than the U.S. dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of Capital Securities. Further, it does not include
any description of any alternative minimum tax consequences or the tax laws of
any state or local government or of any foreign government that may be
applicable to the Capital Securities. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder,
the administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis. An opinion
of Tax Counsel is not binding on the Internal Revenue Service (the "IRS") or the
courts. No rulings have been or are expected to be sought from the IRS with
respect to any of the transactions described herein and no assurance can be
given that the IRS will not take contrary positions. Moreover, no assurance can
be given that any of the opinions expressed herein will not be challenged by the
IRS or, if challenged, that such a challenge would not be successful.
Exchange of Capital Securities
The exchange of Old Capital Securities for New Capital Securities should
not be a taxable event to holders for United States federal income tax purposes.
The exchange of Old Capital Securities for New Capital Securities pursuant to
the Exchange Offer should not be treated as an "exchange" for United States
federal income tax purposes because the New Capital Securities should not be
considered to differ materially in kind or extent from the Old Capital
Securities and because the exchange will occur by operation of the terms of the
Old Capital Securities. If, however, the exchange of the Old Capital Securities
for the New 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 New Capital Securities should
have the same issue price as the Old Capital Securities, and a holder should
have the same adjusted tax basis and holding period in the New Capital
Securities as the holder had in the Old Capital Securities immediately before
the exchange.
Classification of the Junior Subordinated Debentures
In connection with the issuance of the Old Junior Subordinated Debentures,
Tax Counsel has rendered its opinion generally to the effect that, under then
current law and assuming full compliance with the terms of the Indenture (and
certain other documents), and based on certain facts and assumptions contained
in such opinion, the Old Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the Corporation.
The Corporation, the Trust and the holders of the Capital Securities (by
acceptance of a beneficial interest in a Capital Security) will agree to treat
the Junior Subordinated Debentures as indebtedness for all United States federal
income tax purposes.
Classification of the Trust
In connection with the issuance of the Old Capital Securities, Tax Counsel
has rendered its opinion generally to the effect that, under then current law
and assuming full compliance with the terms of the Trust Agreement and the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each holder of Capital Securities generally will be considered the
owner of an undivided interest in
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the Junior Subordinated Debentures, and each holder will be required to include
in its gross income any interest (or OID accrued) with respect to its allocable
share of those Junior Subordinated Debentures.
Interest Income and Original Issue Discount
Under recently issued Treasury regulations (the "Regulations") applicable
to debt instruments issued on or after August 13, 1996, a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with OID. The Corporation believes that the
likelihood of its exercising its option to defer payments of interest is
"remote" since exercising that option would prevent the Corporation from
declaring dividends on any class of its equity securities. Accordingly, the
Corporation intends to take the position, based on the advice of Tax Counsel,
that the Junior Subordinated Debentures will not be considered to be issued with
OID and, accordingly, stated interest on the Junior Subordinated Debentures
generally will be taxable to a holder as ordinary income at the time it is paid
or accrued in accordance with such holder's method of accounting.
Under the Regulations, if the Corporation were to exercise its option to
defer payments 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 as long as the Junior
Subordinated Debentures remain outstanding. In such event, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures would
thereafter be accounted for on an economic accrual basis regardless of such
holder's method of tax accounting, and actual distributions of stated interest
would not be reported as taxable income. Consequently, a holder of Capital
Securities would be required to include in gross income OID even though the
Corporation would not make actual cash payments during an Extension Period.
Moreover, under the Regulations, if the option to defer the payment of interest
was determined not to be "remote," the Junior Subordinated Debentures would be
treated as having been originally issued with OID. In such event, all of a
holder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for on an economic accrual basis regardless of
such holder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income.
The Regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to Tax Counsel's interpretation herein.
Because income on the Capital Securities will constitute interest or OID,
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.
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the Trust
The Corporation will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by law,
cause the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities. Under current law, such a distribution, for United States
federal income tax purposes, would be treated as a nontaxable event to each
holder, and each holder would receive an aggregate tax basis in the Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
Capital Securities. A holder's holding period in the Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Capital Securities were held by such holder. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Junior Subordinated Debentures may constitute a taxable
event to holders of Capital Securities and a holder's holding period in Junior
Subordinated Debentures would begin on the date such Junior Subordinated
Debentures were received.
Under certain circumstances described herein (see "Description of New
Securities -- Description of New Capital Securities"), the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. Under current
law, such a redemption would, for United States federal income tax purposes,
constitute a taxable disposition of the
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redeemed Capital Securities, and a holder could recognize gain or loss as if it
sold such redeemed Capital Securities for cash. See "--Sales of Capital
Securities."
Sales of Capital Securities
A holder that sells Capital Securities (including a redemption of the
Capital Securities either on the Stated Maturity Date or upon an optional
redemption of the Junior Subordinated Debentures by the Corporation) 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 (other than with respect to accrued and unpaid interest which has not
yet been included in income, which will be treated as ordinary income). A
holder's adjusted tax basis in the Capital Securities generally will be its
initial purchase price increased by OID (if any) previously includable in such
holder's gross income to the date of disposition and decreased by payments (if
any) received on the Capital Securities in respect of OID. 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 one
year.
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. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) who disposes of
his Capital Securities between record dates for payments of distributions
thereon will be required to include accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include all accrued but unpaid
interest), a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for United States federal income tax purposes.
A "U.S. Holder" is a holder of Capital Securities who or which is a citizen
or individual resident (or is treated as a citizen or individual resident) of
the United States for federal income tax purposes, a corporation or partnership
created or organized (or treated as created or organized for federal income tax
purposes) in or under the laws of the United States or any political subdivision
thereof, or a trust or estate the income of which is includible in its gross
income for federal income tax purposes without regard to its source. (For
taxable years beginning after December 31, 1996 (or for the immediately
preceding taxable year, if the trustee of a trust so elects), a trust is a U.S.
Holder for federal income tax purposes if, and only if, (i) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (ii) one or more United States trustees have the authority to
control all substantial decisions of the trust.)
Under present United States federal income tax laws: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the Capital
Security does not actually or constructively own 10 percent or more of the total
combined voting power of all classes of stock of the Corporation entitled to
vote, (b) the beneficial owner of the Capital Security is not a controlled
foreign corporation that is related to the Corporation through stock ownership,
and (c) either (A) the beneficial owner of the Capital Security certifies to the
Trust or its agent, under penalties of perjury, that it is not a United States
holder 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 Security in such capacity, certifies to the
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
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between it and the beneficial owner and furnishes the Trust or its agent with a
copy thereof; and (ii) a United States Alien Holder of a Capital Security will
not be subject to United States federal withholding tax on any gain realized
upon the sale or other disposition of a Capital Security.
As discussed above, changes in legislation affecting the United States
federal income tax treatment of the Junior Subordinated Debentures are possible,
and could adversely affect the ability of the Corporation to deduct the interest
payable on the Junior Subordinated Debentures. Moreover, any such legislation
could, as the Proposed Legislation would have, adversely affect United States
Alien Holders by characterizing income derived from the Junior Subordinated
Debentures as dividends, generally subject to a 30% income tax (on a withholding
basis) when paid to a United States Alien Holder, rather than as interest which,
as discussed above, is generally exempt from income tax in the hands of a United
States Alien Holder.
A United States Alien Holder that holds Capital Securities in connection
with the active conduct of a United States trade or business will be subject to
income tax on all income and gains recognized with respect to its proportionate
share of the Junior Subordinated Debentures.
Information Reporting to Holders
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
Backup Withholding
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Corporation, the obligor with respect to the Junior Subordinated
Debentures held by the Trust, and its affiliates and the Property Trustee may be
considered a "party in interest" (within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to many employee
benefit plans ("Plans") that are subject to ERISA. Any purchaser proposing to
acquire Capital Securities with assets of any Plan should consult with its
counsel. The purchase and/or holding of Capital Securities by a Plan that is
subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975 of the Code (including individual
retirement arrangements and other plans described in Section 4975(e)(1) of the
Code) and with respect to which the Corporation, the Property Trustee or any
affiliate is a service provider (or otherwise is a party in interest or a
disqualified person) may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, unless such Capital Securities are acquired
pursuant to and in accordance with an applicable exemption, such as Prohibited
Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts), PTCE 95-60 (an exemption for
transactions
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involving certain insurance company general accounts) or PTCE 95-23 (an
exemption for certain transactions determined by an in-house manager). In
addition, as described below, a Plan fiduciary considering the acquisition of
Capital Securities should be aware that the assets of the Trust may be
considered "plan assets" for ERISA purposes. In such event, service providers
with respect to the assets of the Trust may become parties in interest or
disqualified persons with respect to investing Plans, and any discretionary
authority exercised with respect to the Junior Subordinated Debentures by such
persons could be deemed to constitute a prohibited transaction under ERISA or
the Code. In order to avoid such prohibited transactions, each investing Plan,
by acquiring the Capital Securities, will be deemed to have directed the Trust
to invest in the Junior Subordinated Debentures and to have consented to the
appointment of the Property Trustee. In this regard, it should be noted that,
in an Event of Default, the Corporation may not remove the Property Trustee
without the approval of a majority of the holders of the Capital Securities.
A Plan fiduciary should consider whether the acquisition of Capital
Securities could result in a delegation of fiduciary authority to the Property
Trustee, and, if so, whether such a delegation of authority is permissible under
the Plan's governing instrument or any investment management agreement with the
Plan. In making such determination, a Plan fiduciary should note that the
Property Trustee is a U.S. bank qualified to be an investment manager (within
the meaning of section 3(38) of ERISA) to which such a delegation of authority
generally would be permissible under ERISA. Further, prior to an Event of
Default with respect to the Junior Subordinated Debentures, the Property Trustee
will have only limited custodial and ministerial authority with respect to Trust
assets.
Under the U.S. Department of Labor regulations defining "plan assets" for
ERISA purposes (the "Plan Assets Regulations"), the assets of the Trust will be
considered plan assets of Plans owning Capital Securities unless the aggregate
investment in Capital Securities by "benefit plan investors" is not deemed
"significant" or another exception in the Plan Assets Regulations was
applicable. For this purpose, equity participation by benefit plan investors
will not be considered "significant" on any date only if, immediately after the
most recent acquisition of Capital Securities, the aggregate interest in the
Capital Securities held by benefit plan investors will be less than 25% of the
value of the Capital Securities. Although it is possible that the equity
participation by benefit plan investors in Capital Securities on any date will
not be "significant" for purposes of the Plan Assets Regulations, such result
cannot be assured.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Corporation and the Trust have
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Capital Securities for a period ending 90 days after the Expiration
Date (subject to extension under certain limited circumstances described herein)
or, if earlier, when all such New 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 New Capital
Securities received in exchange for Old Capital Securities pursuant to the
Exchange Offer must notify the Corporation or the Trust, or cause the
Corporation 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 New Capital
Securities."
The Corporation or the Trust will not receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. New Capital Securities
received by broker-dealers for their own accounts in
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connection with the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Capital Securities or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Capital Securities.
Any broker-dealer that resells New Capital Securities that were received by
it for its own account in connection with the Exchange Offer and any broker or
dealer that participates in a distribution of such New Capital Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
VALIDITY OF NEW SECURITIES
Certain matters of Delaware law relating to the validity of the New Capital
Securities will be passed upon on behalf of the Trust by Richards, Layton &
Finger, P.A., special Delaware counsel to the Trust and the Corporation. The
validity of the New Guarantee and the New Junior Subordinated Debentures will be
passed upon for the Corporation by Elias, Matz, Tiernan & Herrick L.L.P.,
Washington, D.C. Certain matters relating to United States federal income tax
considerations will be passed upon for the Corporation by Elias, Matz, Tiernan &
Herrick L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of the Corporation incorporated by
reference from the Corporation's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1997 has been audited by Deloitte & Touche LLP,
independent auditors as stated in their report, which is incorporated herein
by reference, and has been so incorporated in reliance upon the report of
such firm given their authority as experts in accounting and auditing.
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