<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS Subject to completion, dated January 22, 1997
DATED , 1997
2,400,000 CAPITAL SECURITIES
CFB CAPITAL I
% Cumulative Capital Securities
(Liquidation Amount $25 per Capital Security)
Fully and Unconditionally Guaranteed, as Described Herein, by
[LOGO]
The % Cumulative Capital Securities (the "Capital Securities") offered hereby
represent undivided beneficial interests in the assets of CFB Capital I, a
statutory business trust formed under the laws of the State of Delaware ("CFB
Capital"). Community First Bankshares, Inc., a Delaware corporation (the
"Company"), will be the owner of all of the beneficial interests represented by
common securities of CFB Capital (the "Common Securities" and, collectively with
the Capital Securities, the "Trust Securities"). CFB Capital exists for the sole
purpose of issuing the Trust Securities and investing the proceeds thereof in
% Junior Subordinated Debentures (the "Junior Subordinated Debentures") to be
issued by the Company. The Junior Subordinated Debentures will mature on
February 1, 2027, which date may be shortened (such date, as it may be
shortened, the "Stated Maturity") to a date not earlier than February 1, 2002 if
certain conditions are met (including the Company having received prior approval
of the Board of Governors of the Federal Reserve System (the "Federal Reserve")
to do so if then required under applicable capital guidelines or policies of the
Federal Reserve). The Capital Securities will have a preference under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities, which will be
held by the Company. See "Description of the Capital Securities -- Subordination
of Common Securities of CFB Capital Held by the Company."
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" COMMENCING ON PAGE 13 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, BY ANY OTHER GOVERNMENTAL AGENCY, OR
OTHERWISE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Commission (1) CFB Capital (2)(3)
<S> <C> <C> <C>
Per Capital Security.................. $25.00 (2) $
Total................................. $ (2) $
</TABLE>
(1) The Company and CFB Capital have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that all of the proceeds of the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures, the
Company has agreed to pay the Underwriters as compensation for arranging the
investment therein of such proceeds, $ per Capital Security, or $ in
the aggregate. See "Underwriting."
(3) Before deducting offering expenses payable by the Company estimated at
$215,000.
The Capital Securities are being offered by the Underwriters named herein
subject to prior sale and when, as and if delivered to and accepted by the
Underwriters. It is expected that the Capital Securities will be ready for
delivery in book-entry form only through the facilities of The Depository Trust
Company in New York, New York, on or about , 1997, against payment
therefor in immediately available funds.
PIPER JAFFRAY INC.
DAIN BOSWORTH
INCORPORATED
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable quarterly in arrears on the 15th day of April, July, October and January
of each year (subject to possible deferral as described below), commencing April
15, 1997, at the annual rate of % of the Liquidation Amount of $25 per
Capital Security ("Distributions"). The amount of each distribution due with
respect to the Capital Securities will include amounts accrued through the date
the distribution payment is due. The Company will have the right to defer
payments of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all amounts then due, the Company may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the Junior
Subordinated Debentures are so deferred, Distributions on the Capital Securities
will also be deferred and the Company will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to its capital stock or to make any payment with respect to its debt
securities 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 Capital Securities are entitled will accumulate) at the rate of
% per annum, compounded quarterly, and holders of the Capital Securities will
be required to accrue income and will be required to pay United States federal
income tax on that income. See "Description of Junior Subordinated Debentures --
Option to Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
The Company has, through the Guarantee, Trust Agreement, Junior Subordinated
Debentures, Indenture and the Expense Agreement (each as defined herein), taken
together, fully, irrevocably and unconditionally guaranteed all of CFB Capital's
obligations under the Capital Securities. See "Relationship Among the Capital
Securities, the Junior Subordinated Debentures and the Guarantee -- Full and
Unconditional Guarantee." Under the Guarantee, the Company guarantees the
payment of Distributions by CFB Capital and payments on liquidation of or
redemption of the Capital Securities (subordinate to the right to payment of
Senior and Subordinated Debt of the Company, as defined herein) to the extent of
funds held by CFB Capital. The Guarantee does not cover payment of Distributions
when CFB Capital does not have sufficient funds to pay such Distributions. See
"Description of Guarantee." If the Company does not make required payments on
the Junior Subordinated Debentures held by CFB Capital, CFB Capital will have
insufficient funds to pay Distributions on the Capital Securities. In such
event, a holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce payment of such Distributions to such
holder. See "Description of Junior Subordinated Debentures -- Enforcement of
Certain Rights by Holders of the Capital Securities." The obligations of the
Company under the Guarantee and the Junior Subordinated Debentures are
subordinate and junior in right of payment to all Senior and Subordinated Debt
(as defined in "Description of Junior Subordinated Debentures -- Subordination")
of the Company.
The Capital Securities are subject to mandatory redemption, in whole or in part,
upon repayment of the underlying Junior Subordinated Debentures at maturity or
to the extent of their earlier redemption in an amount equal to the amount of
Junior Subordinated Debentures maturing or being redeemed. The redemption price
will equal the aggregate liquidation preference of the Capital Securities plus
any accumulated and unpaid Distributions thereon to the date of redemption. The
Junior Subordinated Debentures are redeemable prior to maturity at the option of
the Company, subject to any required prior approval of the Federal Reserve, (i)
on or after February 1, 2002, in whole at any time or in part from time to time,
or (ii) at any time, in whole (but not in part), upon the occurrence and
continuation of a Tax Event, an Investment Company Event or a Capital Treatment
Event (each as defined herein), in each case at a redemption price equal to the
accrued and unpaid interest on the Junior Subordinated Debentures to the date
fixed for redemption, plus 100% of the principal amount thereof. See
"Description of the Capital Securities -- Redemption."
(CONTINUED ON NEXT PAGE)
2
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The Company will have the right at any time to terminate CFB Capital and cause
the Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of CFB Capital, subject to the Company having received
prior approval of the Federal Reserve if required. See "Description of the
Capital Securities -- Redemption." The Junior Subordinated Debentures are
unsecured and subordinated to all Senior and Subordinated Debt. As of September
30, 1996, after giving effect to the Company's acquisition of Mountain Parks
Financial Corp. (see "Prospectus Summary -- The Company" and "Recent
Developments"), the Company had approximately $38.9 million aggregate principal
amount of Senior and Subordinated Debt outstanding. The terms of the Junior
Subordinated Debentures place no limitation on the amount of Senior and
Subordinated Debt that the Company can issue. See "Description of Junior
Subordinated Debentures -- Subordination."
In the event of the termination of CFB Capital, after satisfaction of
liabilities to creditors of CFB Capital as required by applicable law, the
holders of Capital Securities will be entitled to receive a liquidation amount
of $25 per Capital Security ("Liquidation Amount"), plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of such Like Amount (as defined herein) of Junior Subordinated
Debentures, subject to certain exceptions. See "Description of the Capital
Securities -- Liquidation Distribution Upon Termination."
The Company intends to include the Capital Securities for quotation on the
Nasdaq National Market. Although the Underwriters have indicated an intention to
make a market in the Capital Securities, the Underwriters are not obligated to
make a market in the Capital Securities, and any market making may be
discontinued at any time at the sole discretion of such Underwriters. There can
be no assurance that a market will develop for the Capital Securities. See "Risk
Factors -- Absence of Existing Public Market" and "Underwriting."
The Capital Securities will be represented by one or more global certificates
registered in the name of The Depository Trust Company (the "Depositary") or its
nominee. Beneficial interests in the Capital Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in the Depositary. Except as described herein, the Capital
Securities in certificate form will not be issued in exchange for global
certificates. See "Book-Entry Issuance."
AS USED HEREIN, (I) THE "INDENTURE" MEANS THE SUBORDINATED INDENTURE DATED AS OF
FEBRUARY , 1997, AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, BETWEEN THE
COMPANY AND WILMINGTON TRUST COMPANY AS TRUSTEE (THE "INDENTURE TRUSTEE"), UNDER
WHICH THE JUNIOR SUBORDINATED DEBENTURES WILL BE ISSUED, AND (II) THE "PROPERTY
TRUSTEE" AND "DELAWARE TRUSTEE" UNDER THE TRUST AGREEMENT EXECUTED BY THE
COMPANY, AS DEPOSITOR, WILMINGTON TRUST COMPANY, AS TRUSTEE, AND THE
ADMINISTRATIVE TRUSTEES NAMED THEREIN, TO BE AMENDED AND RESTATED PURSUANT TO AN
AMENDED AND RESTATED TRUST AGREEMENT EXECUTED BY SUCH PARTIES (AS AMENDED AND
RESTATED, THE "TRUST AGREEMENT") SHALL MEAN WILMINGTON TRUST COMPANY.
------------------------
Information included or incorporated by reference in this Prospectus includes
"forward looking statements," which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," or "continue," or the negative thereof or other variations thereon
or comparable terminology. The statements in "Risk Factors" beginning on page 13
of the Prospectus and other statements and disclaimers in the Prospectus
constitute cautionary statements identifying important factors, including
certain risks and uncertainties, with respect to such forward-looking statements
that could cause actual results to differ materially from those reflected in
such forward-looking statements.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the offering of the
securities offered hereby. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the Company
can be inspected and copies of such material can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048. The
Commission also maintains a Web site (http://www.sec.gov) at which reports,
proxy and information statements and other information regarding the Company may
be accessed. In addition, such reports, proxy statements and other information
can also be inspected at the offices of The Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:
(i) The Company's Annual Report on Form 10-K for the year ended December
31, 1995;
(ii) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1996; and
(iii) The Company's Current Reports on Form 8-K filed with the Commission
on October 18, 1996 and January 2, 1997, as amended on Form 8-K/A filed on
January 16, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus, except as so modified or superseded.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the oral or written request of any such
person, a copy of all documents which are incorporated by reference in this
Prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Mark A. Anderson, Executive Vice President,
Community First Bankshares, Inc., 520 Main Avenue, Fargo, North Dakota
58124-0001, telephone number (701) 298-5600.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CAPITAL SECURITIES ON THE NASDAQ
NATIONAL MARKET OR OTHERWISE, AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS OR IN THE DOCUMENTS INCORPORATED INTO THIS PROSPECTUS BY REFERENCE.
UNLESS THE CONTEXT CLEARLY SUGGESTS OTHERWISE, (I) REFERENCES TO THE COMPANY
INCLUDE THE COMPANY AND ITS SUBSIDIARIES AND (II) THE HISTORICAL FINANCIAL AND
BUSINESS INFORMATION OF THE COMPANY HAS BEEN RESTATED TO REFLECT THE ACQUISITION
OF MOUNTAIN PARKS FINANCIAL CORP. SEE "RECENT DEVELOPMENTS."
THE COMPANY
Community First Bankshares, Inc., a Delaware corporation (the "Company"), is
a multi-bank holding company that as of September 30, 1996 operated banks and
bank branches (the "Company Banks") in 79 communities in Colorado, Iowa,
Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin and had total
assets of approximately $3.0 billion. The Company operates community banks
primarily in small and medium-sized communities and the surrounding market
areas. The Company provides a full range of financial products and services to
individuals and businesses, including commercial and consumer banking, trust,
insurance and investments.
The Company's primary strategy is to operate and continue to acquire banks
and bank branches with approximately $20 million to $150 million in assets in
each of the Company's selected communities, which communities generally have
populations between 3,000 and 50,000 and are located in the key target
acquisition states of Colorado, Iowa, Kansas, Minnesota, Montana, Nebraska,
North Dakota, South Dakota, Wisconsin, and Wyoming, and additionally in the
adjacent states of Idaho, Illinois, Missouri, New Mexico, Oklahoma and Utah
(this sixteen state area is collectively referred to as the "Acquisition Area").
Such communities are believed to provide the Company with a stable, relatively
low-cost deposit base.
On December 18, 1996, the Company acquired Mountain Parks Financial Corp.
("Mountain Parks"), a bank holding company that operated a state chartered bank
with full service commercial banking facilities in 17 Colorado communities (the
bank and its branches are referred to as the "Mountain Parks Banks"). At
September 30, 1996, Mountain Parks had total assets of approximately $581.8
million. The Mountain Parks Banks are located in winter ski and summer
recreational areas in the Colorado mountains and in the greater Denver/Boulder
metropolitan area. As part of the acquisition of Mountain Parks, the Company
also acquired (i) an 85% interest in Equity Lending, Inc., a specialty consumer
mortgage company involved in originating, owning and servicing non-conforming
residential mortgages in Arizona, Colorado, Minnesota and Wisconsin, and (ii)
Mountain Parks Financial Services, Inc., a consumer finance company located in
Denver, Colorado that focuses on the purchase, origination and servicing of
consumer installment contracts, primarily sub-prime auto contracts. On January
3, 1997, the Company acquired the remaining 15% ownership in Equity Lending,
Inc. See "Recent Developments."
On October 1, 1996, the Company acquired Financial Bancorp, Inc. ("Financial
Bancorp"), a bank holding company located in Trinidad, Colorado. Financial
Bancorp owned all of the outstanding capital stock of Trinidad National Bank
(the "Trinidad Bank"). At September 30, 1996, Financial Bancorp had consolidated
total assets of approximately $69.5 million. The Trinidad Bank is a community
bank in southeastern Colorado that serves a wide range of commercial,
agricultural and consumer banking needs within its market. See "Recent
Developments."
The Company provides its banks (which include the Mountain Parks Banks and
the Trinidad Bank) with the advantages of affiliation with a multi-bank holding
company, such as data processing services, credit policy formulation and review,
investment management and specialized staff support, while granting substantial
autonomy to managers of the Company Banks with respect to day-to-day operations,
customer service decisions and marketing. The Company Banks are encouraged to
participate in community activities, support local charities and community
development, and otherwise to serve their communities.
The Company's principal executive offices are located at 520 Main Avenue,
Fargo, North Dakota 58124-0001 and its telephone number is (701) 298-5600. The
Company also maintains a Web site at http:// www.cfbx.com.
5
<PAGE>
CFB CAPITAL
CFB Capital is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement and (ii) the filing of a certificate of trust with
the Delaware Secretary of State on January 14, 1997. CFB Capital's business and
affairs are conducted by the Property Trustee, Delaware Trustee and three
individual Administrative Trustees who are officers of the Company. CFB Capital
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 Company, and (iii)
engaging in only those other activities necessary, advisable or incidental
thereto (such as registering the transfer of the Trust Securities). Accordingly,
the Junior Subordinated Debentures will be the sole assets of CFB Capital, and
payments by the Company under the Junior Subordinated Debentures and the Expense
Agreement will be the sole revenues of CFB Capital. All of the Common Securities
will be owned by the Company. The Common Securities will 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 under the
Trust Agreement resulting from an event of default under the Indenture, the
rights of the Company as holder of the Common Securities to payment in respect
of Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Capital Securities. See
"Description of the Capital Securities -- Subordination of Common Securities of
CFB Capital Held by the Company." The Company will acquire Common Securities in
an aggregate liquidation amount equal to 3% of the total capital of CFB Capital.
CFB Capital has a term of 31 years, but may terminate earlier as provided in the
Trust Agreement.
CFB Capital's principal executive offices are located at 520 Main Avenue,
Fargo, North Dakota 58124-0001 and its telephone number is (701) 298-5600.
THE OFFERING
<TABLE>
<S> <C>
Capital Securities issuer......... CFB Capital
Securities offered................ 2,400,000 Capital Securities. The Capital Securities
represent undivided beneficial interests in CFB
Capital's assets, which will consist solely of the
Junior Subordinated Debentures and payments thereunder.
Distributions..................... The Distributions payable on each Capital Security will
be fixed at a rate per annum of % of the Liquidation
Amount of $25 per Capital Security, will be cumulative,
will accrue from the date of issuance of the Capital
Securities, and will be payable quarterly in arrears on
the 15th day of April, July, October and January of each
year, commencing on April 15, 1997 (subject to possible
deferral as described below). The amount of each
distribution due with respect to the Capital Securities
will include amounts accrued through the date the
distribution payment is due. See "Description of the
Capital Securities -- Distributions."
Extension periods................. So long as no Debenture Event of Default (as defined
herein) has occurred and is continuing, the Company will
have the right, at any time, to defer payments of
interest on the Junior Subordinated Debentures by
extending the interest payment period thereon for a
period not exceeding 20 consecutive quarters with
respect to each deferral period (each an "Extension
Period"), provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated
Debentures. If interest payments are so deferred,
Distributions on the Capital
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Securities will also be deferred and the Company will
not be permitted, subject to certain exceptions
described herein, to declare or pay any cash
distributions with respect to the Company's capital
stock or debt securities that rank PARI PASSU with or
junior to the Junior Subordinated Debentures. During an
Extension Period, Distributions will continue to accrue
with income thereon compounded quarterly. Because
interest would continue to accrue and compound on the
Junior Subordinated Debentures, to the extent permitted
by applicable law, holders of the Capital Securities
will be required to accrue income for United States
federal income tax purposes. See "Description of Junior
Subordinated Debentures -- Option to Extend Interest
Payment Period" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount."
Maturity.......................... The Junior Subordinated Debentures will mature on
February 1, 2027, which date may be shortened (such
date, as it may be shortened, the "Stated Maturity") to
a date not earlier than February 1, 2002 if certain
conditions are met (including the Company having
received prior approval of the Federal Reserve to do so
if then required under applicable capital guidelines or
policies of the Federal Reserve).
Redemption........................ The Capital Securities are subject to mandatory
redemption upon repayment of the Junior Subordinated
Debentures at maturity or their earlier redemption in an
amount equal to the amount of Junior Subordinated
Debentures maturing on or being redeemed at a redemption
price equal to the aggregate Liquidation Amount of the
Capital Securities plus accumulated and unpaid
Distributions thereon to the date of redemption. Subject
to Federal Reserve approval, if then required under
applicable capital guidelines or policies of the Federal
Reserve, the Junior Subordinated Debentures are
redeemable prior to maturity at the option of the
Company (i) on or after February 1, 2002, in whole at
any time or in part from time to time, or (ii) at any
time, in whole (but not in part), upon the occurrence
and during the continuance of a Tax Event, an Investment
Company Event or a Capital Treatment Event, in each case
at a redemption price equal to 100% of the principal
amount of the Junior Subordinated Debentures so
redeemed, together with any accrued but unpaid interest
to the date fixed for redemption. See "Description of
the Capital Securities -- Redemption" and "Description
of Junior Subordinated Debentures -- Redemption."
Distribution of Junior
Subordinated Debentures.......... The Company has the right at any time to terminate CFB
Capital and cause the Junior Subordinated Debentures to
be distributed to holders of Capital Securities in
liquidation of CFB Capital, subject to the Company
having received prior approval of the Federal Reserve to
do so if then required under applicable capital
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
guidelines or policies of the Federal Reserve. See
"Description of the Capital Securities -- Distribution
of Junior Subordinated Debentures."
Guarantee......................... Taken together, the Company's obligations under various
documents described herein, including the Guarantee,
provide a full guarantee of payments by CFB Capital of
distributions and other amounts due on the Capital
Securities. Under the Guarantee, the Company guarantees
the payment of Distributions by CFB Capital and payments
on liquidation of or redemption of the Capital
Securities (subordinate to the right to payment of
Senior and Subordinated Debt of the Company, as defined
herein) to the extent of funds held by CFB Capital. If
CFB Capital has insufficient funds to pay Distributions
on the Capital Securities (i.e., if the Company has
failed to make required payments under the Junior
Subordinated Debentures), a holder of the Capital
Securities would have the right to institute a legal
proceeding directly against the Company to enforce
payment of such Distributions to such holder. See
"Description of Junior Subordinated Debentures --
Enforcement of Certain Rights of Holders of the Capital
Securities," "Description of Junior Subordinated
Debentures -- Debenture Events of Default" and
"Description of Guarantee."
Ranking........................... The Capital Securities will rank PARI PASSU, and
payments thereon will be made pro rata, with the Common
Securities of CFB Capital held by the Company, except as
described under "Description of the Capital Securities
-- Subordination of Common Securities of CFB Capital
Held by the Company." The obligations of the Company
under the Guarantee, the Junior Subordinated Debentures
and other documents described herein are unsecured and
rank subordinate and junior in right of payment to all
current and future Senior and Subordinated Debt, the
amount of which is unlimited. At September 30, 1996, the
aggregate outstanding Senior and Subordinated Debt of
the Company was approximately $38.9 million. In
addition, because the Company is a holding company, all
obligations of the Company relating to the securities
described herein will be effectively subordinated to all
existing and future liabilities of the Company's
subsidiaries, including the Company Banks. The Company
may cause additional capital securities to be issued by
trusts similar to CFB Capital in the future, and there
is no limit on the amount of such securities that may be
issued. In this event, the Company's obligations under
the junior subordinated debentures to be issued to such
other trusts and the Company's guarantees of the
payments by such trusts will rank PARI PASSU with the
Company's obligations under the Junior Subordinated
Debentures and the Guarantee, respectively.
Voting Rights..................... The holders of the Capital Securities will generally
have limited voting rights relating only to the
modification of the Capital Securities, the dissolution,
winding-up or termination of CFB
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Capital and certain other matters described herein. See
"Description of the Capital Securities -- Voting Rights;
Amendment of Trust Agreement."
Proposed Nasdaq National Market
Symbol........................... CFBXL
Use of Proceeds................... The proceeds to CFB Capital from the sale of the Capital
Securities offered hereby will be invested by CFB
Capital in the Junior Subordinated Debentures of the
Company. The Company intends to use the net proceeds
from the issuance of the Junior Subordinated Debentures
for general corporate purposes, which may include
without limitation possible future acquisitions, funding
investments in, or extension of credit to, the Company's
subsidiaries, repayment of maturing obligations and
redemption of securities. The Company expects the
Capital Securities to qualify as Tier 1 capital under
the capital guidelines of the Federal Reserve. See "Use
of Proceeds."
</TABLE>
9
<PAGE>
SUMMARY SUPPLEMENTAL HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain consolidated financial data
concerning the Company. The summary financial data for each of the five years
ended December 31, 1995 is derived from the supplemental audited consolidated
financial statements of the Company, and related notes thereto, incorporated by
reference in this document. The financial data as of and for the nine months
ended September 30, 1996 and 1995 have been derived from the Company's
supplemental unaudited financial statements. The supplemental financial
statements from which this data has been derived have been restated to reflect
the Company's acquisition of Mountain Parks, which occurred on December 18, 1996
and was accounted for as a pooling of interests. The information below has not
been restated to reflect the acquisition of Financial Bancorp on the basis that
the effect of that acquisition is not material to this information. The
supplemental unaudited financial statements reflect, in the opinion of
management, all adjustments of a normal recurring nature necessary for a fair
presentation of financial condition and results of operations. The results for
the nine months ended September 30, 1996 are not necessarily indicative of the
results to be expected for the entire year. This information should be read in
conjunction with the supplemental consolidated financial statements of the
Company, and the related notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company's Form
8-K/A filed with the Commission on January 16, 1997 and incorporated by
reference herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income................... $ 167,912 $ 138,488 $ 192,868 $ 143,237 $ 121,146 $ 115,309 $ 120,012
Interest expense.................. 69,524 59,725 82,891 53,468 47,271 50,870 64,522
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income............... 98,388 78,763 109,977 89,769 73,875 64,439 55,490
Provision for loan losses......... 4,572 1,929 2,711 1,839 2,149 2,433 3,427
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses........ 93,816 76,834 107,266 87,930 71,726 62,006 52,063
Noninterest income................ 19,132 16,329 22,488 18,992 18,158 14,640 11,931
Noninterest expense............... 72,491 59,536 82,593 70,241 60,854 52,992 45,427
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes,
extraordinary item and cumulative
effect of accounting change...... 40,457 33,627 47,161 36,681 29,030 23,654 18,567
Provision for income taxes........ 13,995 12,298 17,208 13,952 10,775 8,546 6,285
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before extraordinary item
and cumulative effect of
accounting change................ 26,462 21,329 29,953 22,729 18,255 15,108 12,282
Extraordinary item (1)............ -- -- -- -- -- -- (653)
Cumulative effect of accounting
change........................... -- -- -- -- 359 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income........................ 26,462 21,329 29,953 22,729 18,614 15,108 11,629
Dividends on preferred stock...... 1,208 1,208 1,610 1,091 -- -- 655
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income applicable to common
equity........................... $ 25,254 $ 20,121 $ 28,343 $ 21,638 $ 18,614 $ 15,108 $ 10,974
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings per common and common
equivalent share:
Primary earnings per share
before extraordinary item and
cumulative effect of accounting
change......................... $ 1.53 $ 1.32 $ 1.82 $ 1.48 $ 1.29 $ 1.07 $ 0.92
Extraordinary item (1).......... -- -- -- -- -- -- (0.05)
Cumulative effect of accounting
change......................... -- -- -- -- 0.03 -- --
Primary earnings per share...... $ 1.53 $ 1.32 $ 1.82 $ 1.48 $ 1.32 $ 1.07 $ 0.87
Fully diluted earnings per share
before extraordinary item and
cumulative effect of accounting
change......................... $ 1.47 $ 1.26 $ 1.74 $ 1.42 $ 1.27 $ 1.07 $ 0.92
Extraordinary item (1).......... -- -- -- -- -- -- (0.05)
Cumulative effect of accounting
change......................... -- -- -- -- 0.03 -- --
Fully diluted earnings per
share.......................... $ 1.47 $ 1.26 $ 1.74 $ 1.42 $ 1.30 $ 1.07 $ 0.87
Average common and common
equivalent shares outstanding:
Primary......................... 16,532,714 15,280,976 15,543,129 14,580,309 14,098,585 14,080,526 12,621,595
Fully diluted................... 17,992,255 17,049,679 17,276,050 16,136,433 14,396,532 14,087,606 12,621,595
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RATIOS AND OTHER DATA:
Return on average assets (2)...... 1.26% 1.23% 1.24% 1.13% 1.10% 1.04% 0.88%
Return on average common
shareholders' equity (2)......... 17.73% 18.30% 18.19% 16.77% 16.64% 15.10% 13.90%
Net interest margin (2)........... 5.32% 5.05% 5.07% 4.95% 4.74% 4.85% 4.61%
Net charge-offs to average loans
(2).............................. 0.15% 0.12% 0.17% -- 0.08% 0.33% 0.55%
Ratio of earnings to fixed
charges (3):
Excluding interest on
deposits....................... 4.58x 4.29x 4.46x 5.23x 7.60x 8.53x 4.30x
Including interest on
deposits....................... 1.57x 1.55x 1.55x 1.66x 1.61x 1.46x 1.28x
FINANCIAL CONDITION DATA:
Assets............................ $ 2,999,736 $ 2,632,669 $ 2,769,976 $ 2,130,619 $ 1,883,794 $ 1,576,275 $ 1,414,860
Loans............................. 1,976,592 1,695,933 1,767,193 1,330,146 1,037,666 813,550 685,053
Investment securities (4)......... 736,270 699,967 717,342 613,239 653,722 579,078 554,115
Deposits.......................... 2,424,315 2,189,725 2,359,716 1,794,565 1,627,989 1,374,859 1,239,421
Long-term debt.................... 38,898 81,724 81,288 38,092 48,354 18,015 17,872
Preferred shareholders' equity.... 22,997 23,000 23,000 23,000 -- -- --
Common shareholders' equity....... 203,782 173,139 181,004 134,701 123,757 103,911 93,247
Book value per common share....... 12.39 10.77 11.25 9.23 8.68 7.64 6.94
Tangible book value per common
share............................ 10.16 8.83 9.08 8.09 7.84 7.01 6.60
FINANCIAL CONDITION RATIOS:
Nonperforming assets to total
loans and OREO................... 0.42% 0.33% 0.31% 0.34% 0.62% 1.13% 1.34%
Allowance for loan losses to total
loans............................ 1.30% 1.36% 1.29% 1.30% 1.38% 1.38% 1.53%
Allowance for loan losses to
nonperforming loans.............. 416% 576% 608% 537% 296% 224% 205%
REGULATORY CAPITAL RATIOS:
Tier 1 capital.................... 8.48% 8.66% 8.51% 10.64% 10.16% 10.97% 11.59%
Total capital..................... 10.77% 11.69% 11.18% 13.46% 13.44% 12.47% 13.29%
Leverage ratio.................... 6.35% 6.27% 6.10% 7.12% 6.12% 6.40% 6.69%
</TABLE>
- ------------------------------
(1) Represents the after-tax effect of prepayment penalties and unamortized debt
issuance costs in connection with redemption of certain indebtedness.
(2) Annualized for the nine months ended September 30, 1996 and 1995.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income before income taxes, extraordinary items and fixed charges.
Fixed charges represent interest expense, including the interest component
of rental expense, and preferred stock dividends. Fixed charges attributable
to the preferred stock dividends are assumed to equal the amount of pre-tax
income that would be necessary to pay such dividends.
(4) Includes available-for-sale securities and held-to-maturity securities.
11
<PAGE>
[COMMUNITY FIRST LOGO AND MAP]
Community Banking Locations
Map of the United States indicating the Company's banking locations, the
locations of other Company offices and the locations of the Company's key
acquisition states and acquisition prospect states.
12
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING
FACTORS IN CONNECTION WITH A DECISION TO PURCHASE THE CAPITAL SECURITIES.
RANKING OF THE COMPANY'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES
AND THE GUARANTEE
The ability of CFB Capital to pay amounts due to holders of the Capital
Securities is solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required. All obligations of the Company
under the Guarantee, the Junior Subordinated Debentures and other documents
described herein are unsecured and rank subordinate and junior in right of
payment to all current and future Senior and Subordinated Debt, the amount of
which is unlimited. At September 30, 1996, the aggregate outstanding Senior and
Subordinated Debt of the Company was approximately $38.9 million. In addition,
because the Company is a holding company, all obligations of the Company
relating to the securities described herein will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, including the
Company Banks. As a holding company, the right of the Company 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 Company
may itself be recognized as a creditor of that subsidiary. Accordingly, holders
of the Capital Securities should look only to the assets of the Company, and not
of its subsidiaries, for principal and interest payments on 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 and Subordinated Debt, that may be incurred by the Company or
its subsidiaries. Further, there is no limitation on the Company's ability to
issue additional junior subordinated debentures in connection with any further
offerings of capital securities, and such additional debentures that would rank
PARI PASSU with the Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures -- Subordination" and "Description of Guarantee --
Status of the Guarantee."
DEPENDENCE ON DIVIDENDS FROM SUBSIDIARY BANKS
As a holding company, with the substantial majority of its assets
represented by its equity interest in its subsidiary banks, the Company's
ability to pay interest on the Junior Subordinated Debentures to CFB Capital
(and consequently CFB Capital's ability to pay Distributions on the Capital
Securities and the Company's ability to pay its obligations on the Guarantee)
depends primarily upon the cash dividends the Company receives from the
subsidiary banks. Dividend payments from the subsidiary banks are subject to
regulatory limitations, generally based on current and retained earnings,
imposed by the various regulatory agencies with authority over the respective
subsidiary banks. Payment of dividends is also subject to regulatory
restrictions if such dividends would impair the capital of the subsidiary banks.
Payment of subsidiary bank dividends is also subject to the bank's
profitability, financial condition and capital expenditures and other cash flow
requirements. No assurance can be given that the subsidiary banks will be able
to pay dividends at past levels, or at all, in the future.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES OF A DEFERRAL OF
INTEREST PAYMENTS
So long as no Debenture Event of Default (as defined herein) has occurred
and is continuing, the Company has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral, quarterly Distributions on the Capital Securities by CFB Capital
will be deferred (and the amount of Distributions to which holders of the
Capital Securities are entitled will accumulate additional amounts thereon at
the rate of % per annum, compounded quarterly, from the relevant payment
date for such Distributions, to the extent permitted by applicable law) during
any such Extension Period. During any such Extension Period, the Company will be
prohibited from making certain payments or distributions with respect to the
Company's capital stock
13
<PAGE>
(including dividends on or redemptions of common or preferred stock) and from
making certain payments with respect to any debt securities of the Company that
rank PARI PASSU with or junior in interest to the Junior Subordinated
Debentures; however, the Company will NOT be restricted from (a) paying
dividends or distributions in common stock of the Company, (b) redeeming rights
or taking certain other actions under a stockholders' rights plan, (c) making
payments under the Guarantee or (d) making purchases of common stock related to
the issuance of common stock or rights under any of the Company's benefit plans
for its directors, officers or employees. Further, during an Extension Period,
the Company would have the ability to continue to make payments on Senior and
Subordinated Debt. Prior to the termination of any Extension Period, the Company
may further extend such Extension Period provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarters or to extend
beyond the Stated Maturity. Upon the termination of any Extension Period and the
payment of all interest then accrued and unpaid (together with interest thereon
at the annual rate of %, compounded quarterly, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period subject
to the above requirements. There is no limitation on the number of times that
the Company may elect to begin an Extension Period. See "Description of the
Capital Securities -- Distributions" and "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment Period."
Because the Company believes the likelihood of it exercising its option to
defer payments of interest is remote, the Junior Subordinated Debentures will be
treated as issued without "original issue discount" for United States federal
income tax purposes. As a result, holders of Capital Securities will include
interest in taxable income under their own methods of accounting (i.e., cash or
accrual). If the Company exercises its right to defer payments of interest, the
holders of Capital Securities will be required to include their pro rata share
of original issue discount in gross income as it accrues for United States
federal income tax purposes in advance of the receipt of cash. See "Certain
Federal Income Tax Consequences -- Potential Extension of Interest Payment
Period and Original Issue Discount." The Company has no current intention of
exercising its right to defer payments of interest by extending the interest
payment period on the Junior Subordinated Debentures. However, should the
Company elect to exercise its right to defer payments of interest in the future,
the market price of the Capital Securities is likely to be adversely affected. A
holder that disposes of such holder's Capital Securities during an Extension
Period, therefore, might not receive the same return on such holder's investment
as a holder that continues to hold the Capital Securities.
TAX EVENT REDEMPTION, INVESTMENT COMPANY ACT REDEMPTION OR CAPITAL TREATMENT
EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, an
Investment Company Event or a Capital Treatment Event (whether occurring before
or after February 1, 2002), the Company has the right to redeem the Junior
Subordinated Debentures in whole (but not in part) at 100% of the principal
amount together with accrued but unpaid interest to the date fixed for
redemption within 90 days following the occurrence of such Tax Event, Investment
Company Event or Capital Treatment Event and therefore cause a mandatory
redemption of the Trust Securities. The exercise of such right is subject to the
Company having received prior approval of the Federal Reserve to do so if then
required under applicable guidelines or policies of the Federal Reserve. See
"Description of the Capital Securities -- Redemption."
A "Tax Event" means the receipt by the Company and CFB Capital 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 original issuance of
the Capital Securities, there is more than an insubstantial risk that (i) CFB
Capital 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 Company on the
Junior Subordinated Debentures is not, or within 90 days of such opinion, will
not be, deductible by the Company, in whole or in part, for United States
federal income tax purposes, or (iii) CFB Capital is, or will be within 90 days
of the date of the opinion, subject to more than a DE MINIMIS amount of other
taxes, duties or other
14
<PAGE>
governmental charges. See "-- Possible Tax Law Changes Affecting the Capital
Securities" below for a discussion of certain legislative proposals that, if
adopted, could give rise to a Tax Event, which may permit the Company to cause a
redemption of the Junior Subordinated Debentures (and therefore the Capital
Securities) prior to February 1, 2002.
An "Investment Company Event" means the receipt by the Company and CFB
Capital of an opinion of counsel experienced in such matters to the effect that,
as a result of any change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, CFB Capital is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the original issuance of
the Capital Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of any amendment to, or change (including any proposed
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such proposed change, pronouncement or decision is announced on or after the
date of issuance of the Capital Securities under the Trust Agreement, there is
more than an insubstantial risk of impairment of the Company's ability to treat
the Capital Securities (or any substantial portion thereof) as "Tier I Capital"
(or the then equivalent thereof) for purposes of the capital adequacy guidelines
of the Federal Reserve, as then in effect and applicable to the Company.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill") was
released which would, among other things, generally deny interest deductions for
interest on an instrument, issued by a corporation, that has a maximum term of
more than 20 years and that is not shown as indebtedness on the separate balance
sheet of the issuer or, where the instrument is issued to a related party (other
than a corporation), where the holder or some other related party issues a
related instrument that is not shown as indebtedness on the issuer's
consolidated balance sheet. It is possible that this provision could be adopted
with retroactive effect, in which event the Company might be unable to deduct
interest on the Junior Subordinated Debentures. However, on March 29, 1996, the
Chairmen of the Senate Finance and House Ways and Means Committees issued a
joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, will be no earlier
than the date of appropriate Congressional action. There can be no assurance,
however, that current or future legislative proposals or final legislation will
not affect the ability of the Company to deduct interest on the Junior
Subordinated Debentures. Such a change could give rise to a Tax Event, which may
permit the Company, upon approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve, to cause a
redemption of the Capital Securities. See "Description of the Capital Securities
- -- Redemption -- Tax Event Redemption" and "Description of the Junior
Subordinated Debentures -- Redemption." See also "Certain Federal Income Tax
Consequences -- Possible Tax Law Changes."
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL
SECURITIES
The Company will have the right at any time to terminate CFB Capital and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Capital Securities in liquidation of CFB Capital, subject to the receipt of any
required prior approval of the Federal Reserve. Because holders of the Capital
Securities may receive Junior Subordinated Debentures in liquidation of CFB
Capital and because Distributions are otherwise limited to payments on the
Junior Subordinated Debentures, prospective purchasers of the Capital Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of the Capital
Securities -- Liquidation Distribution Upon Termination" and "Description of the
Junior Subordinated Debentures."
LIMITATIONS ON DIRECT ACTIONS AGAINST THE COMPANY AND ON RIGHTS UNDER THE
GUARANTEE
Under the Guarantee, the Company guarantees the payment of Distributions by
CFB Capital and payments on liquidation of or redemption of the Capital
Securities (subordinate to the right to payment of
15
<PAGE>
Senior and Subordinated Debt of the Company) to the extent of funds held by CFB
Capital. If CFB Capital has insufficient funds to pay Distributions on the
Capital Securities (i.e., if the Company has failed to make required payments
under the Junior Subordinated Debentures), a holder of the Capital Securities
would have the right to institute a legal proceeding directly against the
Company for enforcement of payment to such holder of the principal of or
interest on such Junior Subordinated Debentures having a principal amount equal
to the aggregate Liquidation Amount of the Capital Securities of such holder (a
"Direct Action"). Except as described herein, holders of the Capital Securities
will not be able to exercise directly any other remedy available to the holders
of the Junior Subordinated Debentures or assert directly any other rights in
respect of the Junior Subordinated Debentures.
Under the Guarantee, Wilmington Trust Company will act as indenture trustee
(the "Guarantee Trustee"). The holders of not less than a majority in aggregate
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Guarantee Agreement.
Any holder of the Capital Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against CFB Capital, the Guarantee Trustee or any
other person or entity. The Trust Agreement provides that each holder of the
Capital Securities by acceptance thereof agrees to the provisions of the
Guarantee Agreement and the Indenture. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights of Holders of Capital Securities"
and "-- Debenture Events of Default" and "Description of Guarantee."
LIMITED COVENANTS
The covenants in the Indenture are limited, and there are no covenants
relating to the Company in the Trust Agreement. As a result, neither the
Indenture nor the Trust Agreement protects holders of Junior Subordinated
Debentures, or Capital Securities, respectively, in the event of a material
adverse change in the Company's financial condition or results of operations or
limits the ability of the Company or any subsidiary to incur additional
indebtedness. Therefore, the provisions of these governing instruments should
not be considered a significant factor in evaluating whether the Company will be
able to comply with its obligations under the Junior Subordinated Debentures or
the Guarantee.
LIMITED VOTING RIGHTS
Holders of the Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities and certain other
matters described herein. In the event that (i) there is a Debenture Event of
Default (as defined herein) with respect to the Junior Subordinated Debentures
(see "Description of the Junior Subordinated Debentures -- Events of Default"),
(ii) the Property Trustee fails to pay any distribution on the Capital
Securities for 30 days (subject to deferral of distributions as provided under
"Description of the Capital Securities -- Extension Periods"), (iii) the
Property Trustee fails to pay the redemption price on the Capital Securities
when due upon redemption, (iv) the Property Trustee fails to observe a covenant
in the Trust Agreement for the Capital Securities for 60 days after receiving a
Notice of Default, or (v) the Property Trustee is declared bankrupt or insolvent
and not replaced by the Company within 60 days, the holders of a majority of the
outstanding Capital Securities will be able to remove the Property Trustee and
the Indenture Trustee (but not the Administrative Trustees who may only be
removed by the Company as holder of the Common Securities). See "Description of
the Capital Securities -- Voting Rights; Amendment of the Trust Agreement" and
"-- Removal of Trustees."
ABSENCE OF EXISTING PUBLIC MARKET; MARKET PRICES
There is no existing market for the Capital Securities. The Capital
Securities have been approved for listing on the Nasdaq National Market. There
can be no assurance that an active and liquid trading market for the Capital
Securities will develop or that a continued listing of the Capital Securities
will be available on Nasdaq. Although the Underwriters have informed CFB Capital
and the Company that the Underwriters intend to make a market in the Capital
Securities offered hereby, the Underwriters are not obligated to do so
16
<PAGE>
and any such market making activity may be terminated at any time without notice
to the holders of the Capital Securities. Future trading prices of the Capital
Securities will depend on many factors including, among other things, prevailing
interest rates, the operating results and financial condition of the Company,
and the market for similar securities. There can be no assurance as to the
market prices for the Capital Securities or the Junior Subordinated Debentures
that may be distributed in exchange for the Capital Securities if the Company
exercises its right to terminate CFB Capital. Accordingly, the Capital
Securities that an investor may purchase, or the Junior Subordinated Debentures
that a holder of the Capital Securities may receive in liquidation of CFB
Capital, may trade at a discount from the price that the investor paid to
purchase the Capital Securities offered hereby.
RISKS INVOLVED IN ACQUISITION STRATEGY
The Company has grown and intends to continue to grow primarily through
acquisitions of banks and other financial institutions. Such acquisitions
involve risks of adversely changing results of operations, changes in the
Company's capital structure, including possible increased reliance on debt,
unforeseen liabilities or asset quality problems of acquired entities and other
conditions beyond the control of the Company, such as adverse personnel
relations, loss of customers because of change of identity, and deterioration in
local economic conditions. In connection with the recent acquisition of Mountain
Parks, such risks are heightened by the fact that Mountain Parks is the largest
institution acquired by the Company. See "Recent Developments."
Management believes future growth in the assets and earnings of the Company
will depend in significant part on consummation of acquisitions. The ability of
the Company to pursue this strategy depends in part on its capital position and,
in the case of cash acquisitions, on its cash assets or ability to acquire cash.
Further, acquisition candidates may not be available in the future on terms
favorable to the Company. The Company must compete with a variety of individuals
and institutions, including major regional bank holding companies, for suitable
acquisition candidates. Although the Company has focused its attention on
smaller markets, in which the Company believed there was less competition from
the money center banks and major regional bank holding companies, the Company
recently acquired operations in metropolitan areas. The Company may make further
acquisitions of companies with operations in metropolitan areas, in which case
it will face more competition for such acquisitions from larger institutions.
Further, certain regional holding companies have focused on the smaller markets
traditionally targeted by the Company, and there can be no assurance that the
acquisition activities of competitors in these markets will not increase. Such
competition is likely to affect the Company's ability to make acquisitions,
increase the price that the Company pays for certain acquisitions and increase
the Company's costs in analyzing possible acquisitions.
LOANS AND INVESTMENTS
In allocating assets among locally generated loans, investment assets and
other earning assets, the Company attempts to maximize its return while managing
risk at an acceptable level. Although the Company has a diversified loan
portfolio, the economic health of the Company's primary trade area, and the
ability of many of the Company Banks' borrowers to repay their loans (including
real estate, commercial and agricultural loans) is dependent to a large extent
on the health of the agricultural sector of the economy. The Company's asset
allocation strategies include an emphasis on quality local loan growth and the
diversification and performance of its earning asset portfolios. The Company has
purchased loan assets, including secured discounted lease payments and loan
participations, to enhance the performance of, and to diversify, its asset
portfolios. Many of such loan assets have been originated by regional banks in
the Midwest and national leasing and finance companies with whom the Company has
ongoing business relationships. Such assets are subject to the Company's
standard credit guidelines and bear the credit risks attendant to commercial and
industrial loans.
COMPETITION
Banking is a highly competitive industry. The Company Banks compete directly
with other banks and lending and financial institutions in their local
communities. The Company Banks also compete indirectly
17
<PAGE>
with regional and national financial institutions, especially in larger
metropolitan market areas in which the Company has increased its operations as a
result of recent acquisitions. Further, changes in government regulation of
banking, particularly recent legislation which removes restrictions on
interstate banking and permits interstate branching, are likely to increase
competition by out-of-state banking organizations or by other financial
institutions in the Company's smaller markets as well as its metropolitan market
areas.
INTEREST RATES
Banking companies' earnings depend largely on the relationship between the
cost of funds, primarily deposits, and the yield on earning assets. This
relationship, known as the interest rate spread, is subject to fluctuation and
is affected by economic and competitive factors which influence interest rates,
the volume and mix of interest-earning assets and interest-bearing liabilities,
and the level of non-performing assets. The Company is subject to interest rate
risk to the degree that its interest-bearing liabilities reprice or mature more
slowly or more rapidly or on a different basis than its interest earning assets.
Given the Company's current volume and mix of interest-bearing liabilities and
interest earning assets, the Company's interest rate spread could be expected to
increase during times of rising interest rates and, conversely, to decline
during times of falling interest rates. Although the Company believes its
current level of interest rate sensitivity is reasonable, declines in interest
rates may have an adverse effect on the Company's results of operations.
REGULATION
As a bank holding company, the Company is subject to extensive regulation by
the Federal Reserve. This regulation limits the manner in which the Company and
the Company Banks conduct their businesses, undertake new investments and
activities and obtain financing. This regulation is designed primarily for the
protection of the deposit insurance funds and national monetary policies, and
not to benefit holders of securities of financial institutions. In addition, the
Company Banks are each subject to extensive regulation under federal and state
laws, rules and policies, which are subject to change. In September 1996, the
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "1996 Act")
was enacted. The 1996 Act included extensive revisions to real estate and
consumer lending laws, as well as changes to bank application and examination
requirements and a financial restructuring of the deposit insurance funds which
will remove the competitive advantage over savings institutions enjoyed by
commercial banks, such as the Company Banks. In September 1994, the Interstate
Banking and Branching Efficiency Act of 1994 (the "1994 Act") was enacted,
generally eliminating all remaining legal restrictions on interstate banking.
The 1994 Act will permit interstate branching beginning June 1, 1997, subject to
states' rights to "opt-in" early, or "opt-out", and to impose certain limited
requirements on out-of-state entrants. To date, over 40 states have adopted
special legislation relating to interstate branching, most of which have
provided interstate branching opportunities in response to the federal law. The
1994 Act is anticipated to continue the trend of increasing consolidation within
the banking industry. The 1994 Act addressed the authority of banking
organizations to combine banking locations under interstate charters, but did
not override the authority of individual states to limit or restrict branching
by local and foreign banks alike. However, recent legislation in several states
has mirrored the trend in federal law to remove legal restrictions on expansion.
For example, effective January 1, 1997, Colorado and North Dakota will permit
unrestricted statewide intrastate branching, which may increase competition in
previously-protected local markets served by the Company. There can be no
assurance that implementation of and changes in federal and state laws and
regulations affecting banking will not adversely affect the Company.
KEY PERSONNEL
Continued profitability of the Company Banks and the Company are dependent
on a limited number of key persons, including Donald R. Mengedoth, the President
and Chief Executive Officer, Mark A. Anderson, the Executive Vice President and
Chief Financial Officer, Ronald K. Strand, the Executive Vice President, Banking
Group, and David E. Groshong, the Executive Vice President, Financial Services,
of the Company. There would likely be a difficult transition period in case the
services of any of these individuals were lost to the Company because of death
or other reasons. There is no assurance that the Company will be able to retain
its current key personnel or attract additional qualified key persons as needed.
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<PAGE>
RECENT DEVELOPMENTS
In 1996, the Company completed the acquisitions described below, each of
which was accounted for as a pooling of interests.
MOUNTAIN PARKS FINANCIAL CORP. On December 18, 1996, the Company acquired
Mountain Parks Financial Corp. ("Mountain Parks"), a bank holding company that
operated a state chartered bank with full service commercial banking facilities
in 17 Colorado communities. At September 30, 1996, Mountain Parks had total
assets of approximately $581.8 million and total stockholders' equity of
approximately $57.1 million. Upon completion of the merger, the Company issued
approximately 5.2 million shares of common stock to the former holders of
Mountain Parks common stock. The market value of the Company's common stock
issued in the merger was approximately $142.2 million, based on the closing
price of Company common stock on the Nasdaq National Market on December 18,
1996.
The Mountain Parks Banks offer a full range of commercial and consumer
banking services and emphasize serving the needs and catering to the economic
strengths of the communities in which they are located. The Mountain Parks
Banks' primary lending focus is on commercial loans, real estate mortgage loans,
residential real estate construction loans and, to a lesser extent, consumer
loans. The operating strategy of the Mountain Parks Banks is to provide a high
level of personal and professional service and to promote employee participation
in community affairs in order to build long-term relationships with established
businesses and individual customers in its market areas.
The Mountain Parks Banks are located in winter ski and summer recreational
areas in the Colorado mountains (Breckenridge, Fairplay, Frisco, Kremmling,
Granby, Grand Lake and Silverthorne) and in the greater Denver/Boulder
metropolitan area (Aurora, Boulder, Conifer, Denver, Elizabeth, Englewood,
Evergreen, Kiowa, Louisville and Parker). Pursuant to an arrangement entered
into with the Federal Reserve to satisfy its concerns about market
concentrations in certain Colorado banking markets, the Company has pending
agreements to sell the Mountain Parks banking offices in Granby and Grand Lake.
As part of the acquisition of Mountain Parks, the Company also acquired (i)
an 85% interest in Equity Lending, Inc., a specialty consumer mortgage company
involved in originating, owning and servicing non-conforming residential
mortgages in Arizona, Colorado, Minnesota and Wisconsin, and (ii) Mountain Parks
Financial Services, Inc., a consumer finance company located in Denver, Colorado
that focuses on the purchase, origination and servicing of consumer installment
contracts, primarily sub-prime auto contracts. On January 3, 1997, the Company
acquired the remaining 15% interest in Equity Lending, Inc.
FINANCIAL BANCORP, INC. On October 1, 1996, the Company acquired Financial
Bancorp, Inc., Trinidad, Colorado ("Financial Bancorp"), the holding company of
Trinidad National Bank (the "Trinidad Bank"). At September 30, 1996, Financial
Bancorp had total assets of approximately $69.5 million and total stockholders'
equity of approximately $9.6 million. Upon completion of the merger, the Company
issued 538,803 shares of common stock to the former holders of Financial Bancorp
common stock. The market value of the Company's common stock issued in the
merger was approximately $12.7 million, based on the closing price of the
Company's common stock on the Nasdaq National Market on September 30, 1996. The
Trinidad Bank is a community bank located in southeastern Colorado which serves
a wide range of commercial, agricultural and consumer banking needs within its
market. The Trinidad Bank is primarily engaged in attracting deposits and
investing those funds in loans and investment securities.
USE OF PROCEEDS
All of the proceeds from the sale of Capital Securities will be invested by
CFB Capital in the Junior Subordinated Debentures. The net proceeds to the
Company from the sale of the Junior Subordinated Debentures of the Company are
estimated to be $ (net of estimated underwriting commission and other
estimated offering expenses). The Company intends to use the net proceeds for
general corporate purposes, which may include without limitation possible future
acquisitions, funding investments in, or
19
<PAGE>
extension of credit to, the Company's subsidiaries, repayment of maturing
obligations and redemption of securities. Although the Company does not have any
signed contracts, letters of intent or agreements in principle and is not
currently engaged in any significant negotiations, the Company routinely
solicits and reviews acquisition opportunities and, at any given time, may have
bids outstanding or may be involved in discussions with the owners of financial
institutions or other parties relative to a particular financial institution.
Pending their application, the net proceeds may be invested in short-term
investment grade financial instruments.
The Company is required by the Federal Reserve to maintain certain levels of
capital for bank regulatory purposes. On October 21, 1996, the Federal Reserve
announced that certain qualifying amounts of cumulative preferred securities
having the characteristics of the Capital Securities could be included as Tier 1
capital for bank holding companies. Such Tier 1 capital treatment, together with
the Company's ability to deduct, for federal income tax purposes, interest
payable on the Junior Subordinated Debentures, will provide the Company with a
cost-effective means of obtaining capital for bank regulatory purposes.
ACCOUNTING TREATMENT
For financial reporting purposes, CFB Capital will be treated as a
subsidiary of the Company and, accordingly, the accounts of CFB Capital will be
included in the consolidated financial statements of the Company. The Capital
Securities will be presented as a separate line item in the consolidated balance
sheet of the Company under the caption "Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated
Debentures," and appropriate disclosures about the Capital Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to consolidated financial statements. For financial reporting purposes, the
Company will record Distributions payable on the Capital Securities as an
expense in the consolidated statements of operations.
Future reports of the Company filed under the Exchange Act will include a
footnote to the financial statements stating that (i) CFB Capital is
wholly-owned, (ii) the sole assets of CFB Capital are the Junior Subordinated
Debentures (specifying the principal amount, interest rate and maturity date of
such Junior Subordinated Debentures), and (iii) the back-up obligations, in the
aggregate, constitute a full and unconditional guarantee by the Company of the
obligations of CFB Capital under the Capital Securities. CFB Capital will not
provide separate reports under the Exchange Act.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted to give effect to the issuance of the Capital
Securities by CFB Capital in this offering.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL (1) AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Capital leases......................................................................... $ 3,093 $ 3,093
Long-term bank debt.................................................................... 4,398 4,398
7.75% Subordinated Notes due 2000...................................................... 23,000 23,000
9.00% Exchangeable Subordinated Notes due 2005......................................... 11,500 11,500
---------- -----------
Total long-term debt................................................................. 41,991 41,991
Company obligated mandatorily redeemable preferred securities of subsidiary trust holding
solely junior subordinated debentures (2)............................................... -- 60,000
Shareholders' equity:
Preferred stock, $.01 par value, 1,770,000 shares authorized; no shares issued......... -- --
7% Cumulative Convertible Preferred Stock, $100 stated value; 230,000 shares
authorized; 229,975 shares issued and outstanding..................................... 22,997 22,997
Common stock, $.01 par value, 30,000,000 shares authorized; 16,532,714 shares issued
and outstanding (3)................................................................... 165 165
Capital surplus........................................................................ 70,114 70,114
Retained earnings...................................................................... 134,199 134,199
Treasury stock, 30,511 shares.......................................................... (696) (696)
---------- -----------
Total shareholders' equity........................................................... 226,779 226,779
---------- -----------
Total capitalization............................................................... $ 268,770 $ 328,770
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Actual capitalization as of September 30, 1996 has been restated to reflect
the acquisition of Mountain Parks, which occurred on December 18, 1996, but
has not been restated to reflect the acquisition of Financial Bancorp on the
basis that the effect of that acquisition is not material to this
information.
(2) The subsidiary trust is CFB Capital I, a wholly-owned subsidiary of the
Company that will hold the Junior Subordinated Debentures as its sole asset.
The Capital Securities are issued by CFB Capital. The sole assets of CFB
Capital consist of approximately $61.8 million principal amount of Junior
Subordinated Debentures issued by the Company to CFB Capital. The Junior
Subordinated Debentures will bear interest at the rate of % per annum
and will mature on February 1, 2027, which date may be shortened to a date
not earlier than February 1, 2002 if certain conditions are met. The Junior
Subordinated Debentures are redeemable prior to maturity at the option of
the Company, subject to any required prior approval of the Federal Reserve,
(i) on or after February 1, 2002, in whole at any time or in part from time
to time, or (ii) at any time, in whole (but not in part), upon the
occurrence and continuation of a Tax Event, an Investment Company Event or a
Capital Treatment Event (each as defined herein). See "Description of Junior
Subordinated Debentures -- Redemption." The Company owns all of the Common
Securities of CFB Capital.
(3) Excludes (i) 1,443,323 shares of common stock issuable upon the conversion
of the 229,975 shares of outstanding 7% Cumulative Convertible Preferred
Stock, (ii) 535,381 shares of common stock issuable pursuant to outstanding
stock options and (iii) 2,022,105 shares of common stock issuable pursuant
to options which may be granted under the Company's stock option plans.
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<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Donald R. Mengedoth 52 President, Chief Executive Officer and Chairman of the Board
Mark A. Anderson, CFA 39 Executive Vice President, Chief Financial Officer, Secretary
and Treasurer
Ronald K. Strand 50 Executive Vice President Banking Group
David E. Groshong 48 Executive Vice President Financial Services
Thomas E. Hansen 44 Senior Vice President and Central Region Manager
Bruce A. Heysse 45 Senior Vice President Acquisitions
Thomas A. Hilt 54 Senior Vice President Operations and Administration
Gary A. Knutson 49 Senior Vice President and Western Region Manager
David A. Lee 53 Senior Vice President and Eastern Region Manager
Patricia J. Staples 41 Senior Vice President Marketing
Patricia A. Adam 60 Director
James T. Anderson 57 Director
Patrick E. Benedict 63 Director
Patrick Delaney 54 Director
John H. Flittie 60 Director
Cargill MacMillan, Jr. 69 Director
Dennis M. Mathisen 57 Director
Dean E. Smith 65 Director
Thomas C. Wold 59 Director
Harvey L. Wollman 61 Director
</TABLE>
Donald R. Mengedoth has been President, Chief Executive Officer, Chairman of
the Board and a director of the Company since its organization in 1986. He was
Senior Vice President of First Bank System, Inc. ("FBS") from 1982 to 1987 and
has worked in the banking business since 1966, including management positions in
retail banking operations, human resources and commercial lending. From 1984 to
1987, Mr. Mengedoth was Regional Managing Director of FBS. From 1979 to 1982,
Mr. Mengedoth was Vice President -- Operations for FBS. Prior to that time, he
was Senior Vice President of First Bank Milwaukee.
Mark A. Anderson has been Executive Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since its organization in 1986. He was
Vice President and Regional Controller for FBS from 1984 to 1987. From 1979 to
1984, he held various positions with FBS-affiliated banks in the finance and
credit analysis areas. Mr. Anderson is a Chartered Financial Analyst and a
Certified Management Accountant.
Ronald K. Strand has been Executive Vice President Banking Group since
February 1993. He was previously Senior Vice President and Regional Manager for
South Dakota and North Dakota for the Company from January 1991 to February
1993. Previously, Mr. Strand had been Vice President and
22
<PAGE>
Regional Manager for the Company and President, Chief Executive Officer and a
director of the Company's affiliate bank in Wahpeton, North Dakota since 1988.
Prior to his affiliation with the Company, he served as President and Chief
Executive Officer of Norwest Bank of North Dakota, N.A., Wahpeton, from 1985
until 1988. He was employed by Norwest for a total of 15 years, having
previously worked in Norwest banks in Jamestown, North Dakota and Moorhead,
Minnesota.
David E. Groshong has been Executive Vice President Financial Services since
May 1996. He was previously Chairman and Chief Executive Officer of the
Company's affiliate bank in Alliance, Nebraska from May 1995 to May 1996.
Previously, Mr. Groshong had been President and Chief Executive of the Company's
affiliate bank in Fergus Falls, Minnesota since 1992 and as Senior Vice
President and Senior Loan Officer of the Fargo Bank since 1985. He was employed
by Norwest Bank of Minnesota, N.A. for a total of eight years and prior to that
worked in the consumer finance industry.
Thomas E. Hansen has been Senior Vice President and Central Region Manager
since April 1993. He also served as President, Chief Executive Officer and
director of the Company's affiliate bank in Fargo, North Dakota from April 1993
to December 1996. Previously, he was employed by Norwest Bank Fargo for 19
years, most recently as President.
Bruce A. Heysse has been Senior Vice President Acquisitions since June 1996.
He was Senior Vice President and Integration Manager of the Company since
November 1995. He was Vice President and Senior Credit Officer of the Company
from 1987 to November 1995. He began his banking career at the Company's
affiliate bank in Wahpeton, North Dakota, and had a total of 11 years of banking
experience prior to joining the Company.
Thomas A. Hilt has been Senior Vice President Operations and Administration
of the Company since 1987 and President of Community First Service Corporation,
the Company's data processing subsidiary, since 1988. He was Vice President and
Manager Operations Support for the Regional Division of FBS from 1984 to 1987.
Prior to 1984, he held various positions with FBS since 1967, including
responsibility for systems development, programming, audit and examination
functions.
Gary A. Knutson has been Senior Vice President and Western Region Manager of
the Company since September 1993. He was President, Chief Executive Officer and
director of the Company's affiliate bank in Wahpeton, North Dakota from January
1991 to September 1993. He began his banking career at the Company's affiliate
bank in Lidgerwood, North Dakota, and had a total of 14 years of banking
experience prior to joining the Company.
David A. Lee has been Senior Vice President and Eastern Region Manager of
the Company since January 1991. He had been a Region Manager of the Company
since 1987. He was President and Chief Executive Officer and a director of the
Company's affiliate bank in Little Falls from 1988 to January 1993. Mr. Lee held
various positions with FBS from 1966 to 1982.
Patricia J. Staples has been Senior Vice President Marketing since July
1994. Previously, Ms. Staples was employed as the public relations manager with
MeritCare Health System for 10 years.
Patricia A. Adam is Secretary to the South Dakota Senate and is active in
various service, civic and community organizations in Pierre, South Dakota. Ms.
Adam is or has been a member of the Boards of Directors of the South Dakota
Historical Society, where she serves as President, of the South Dakota Discovery
Center and Aquarium, where she served as President, of the Children's Care
Hospital and School in Sioux Falls, South Dakota, the University of South Dakota
Foundation, the Associated School Board of South Dakota, where she served as
President for two years, and the Pierre, South Dakota Independent School Board
where she served as President for five years. Ms. Adam previously served as a
member of the Board of Directors of First National Bank, Selby, South Dakota.
She has been a director of the Company since 1987.
James T. Anderson has been the Vice President and Treasurer of U S WEST,
Inc., a telecommunications service provider located in Englewood, Colorado,
since 1984. Mr. Anderson held various positions in the Bell System from 1963 to
1984. Mr. Anderson has been a director of the Company since August 1993.
23
<PAGE>
Patrick E. Benedict is the owner of Benedict Farms, Inc., a 6,000-acre
farming operation in Sabin, Minnesota. Mr. Benedict has been an advisory
director to the Board of Directors of the Company's affiliate bank in Fargo,
North Dakota since 1995 and was a director of the Company's affiliate bank in
Fargo, North Dakota from 1984 to 1995. Mr. Benedict is chairman of Golden
Growers Coop and of Pro Gold LLC, a North Dakota corn processing company that is
49% owned by Golden Growers. He also serves on the executive committee and Board
of Directors of the Neuropsychiatric Research Institute, the Board of Directors
of MeritCare Health System, and is chairman of Northern Grain Company, all in
Fargo, North Dakota. Mr. Benedict is chairman emeritus of American Crystal Sugar
Company and past chairman of the Moorhead State University Foundation, both in
Moorhead, Minnesota. He has been a director of the Company since 1992.
Patrick Delaney is a partner in the Minneapolis, Minnesota law firm of
Lindquist & Vennum P.L.L.P., counsel to the Company. He has been a lawyer since
1967. Mr. Delaney is the secretary of MTS Systems Corporation, a
Minneapolis-based manufacturer of systems for materials testing, measurement and
simulation. He is also a director and the Secretary of CNS, Inc. and a director
and Secretary of Applied Biometrics, Inc., both of which companies are medical
device manufacturers based in Minneapolis. He has been a director of the Company
since 1987.
John H. Flittie has been the President and Chief Operating Officer of
ReliaStar Financial Corp., formerly The NWNL Companies, Inc., a
Minneapolis-based insurance and financial services company, since July 1993. Mr.
Flittie held various positions with NWNL and Northwestern National from 1985 to
July 1993. From 1976 to 1985, Mr. Flittie was a partner at Touche Ross & Co., an
audit and consulting firm. Mr. Flittie is a member of the Board of Directors of
ReliaStar Financial Corp. and various subsidiaries of ReliaStar. He has been a
director of the Company since 1993.
Cargill MacMillan, Jr. is a director of Cargill Incorporated of Minnetonka,
Minnesota. Mr. MacMillan has spent his entire career with Cargill and until 1987
served as Chairman of the Finance Committee and until 1989 served as Senior Vice
President. He has served previously as a bank director and is currently a member
of the board of directors of several civic and charitable organizations. He has
been a director of the Company since 1987.
Dennis M. Mathisen served as Chairman of the Board, President and Chief
Executive Officer of Mountain Parks from its formation in 1981 until the
acquisition of Mountain Parks by the Company in December 1996. Since 1974, he
served as a director and principal officer of rural and suburban commercial
banks located in Colorado and Minnesota. He has also served as the President of
Marshall Financial Group (a provider of management, financing and merger and
acquisition services) since 1989. Mr. Mathisen is a member of the Board of
Directors of Transportation Corporation of America, a midwestern trucking
company; the Harlem Globetrotters, International, an international sports
entertainment company; and Horizon Asset Management, LLP, a registered asset
management company. Mr. Mathisen has been a director of the Company since
December 1996.
Dean E. Smith, a private investor, was the Managing General Partner of The
Robins Group, a private investment partnership, from 1983 to 1996. Mr. Smith
held various positions with First National Bank of Minneapolis from 1955 to
1967. Mr. Smith has served previously as a director of Citizens State Bank of
Green Isle, Green Isle, Minnesota, and Resource Bank and Trust Company,
Minneapolis, Minnesota. Mr. Smith has been a director of the Company since 1993.
Thomas C. Wold has been a practicing attorney in Fargo, North Dakota since
1962 and is President and a shareholder of the law firm of Wold Johnson, P.C. He
is active in the development of motels, apartments and other real estate
projects. He has been actively involved in a number of civic and charitable
organizations. He has been a director of the Company since 1987.
Harvey L. Wollman is a farmer in Frankfurt, South Dakota. Mr. Wollman served
in the South Dakota State Senate from 1968 to 1974, was Lieutenant Governor from
1974 to 1977, and served as Governor of South Dakota in 1978. Mr. Wollman has
served on various State government committees and is active in various service,
civic and community organizations. He has been a director of the Company since
1987.
24
<PAGE>
DESCRIPTION OF THE CAPITAL SECURITIES
The Capital Securities and the Common Securities will be issued pursuant to
the terms of the Trust Agreement. The Trust Agreement will be qualified as an
indenture under the Trust Indenture Act. Initially, Wilmington Trust Company
will be the Delaware Trustee and the Property Trustee and will act as trustee
for the purpose of complying with the Trust Indenture Act. The terms of the
Capital Securities will include those stated in the Trust Agreement and those
made part of the Trust Agreement by the Trust Indenture Act. This summary of
certain terms and provisions of the Capital Securities and the Trust Agreement
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, and the Trust Indenture Act. Wherever
particular defined terms of the Trust Agreement (as amended or supplemented from
time to time) are referred to herein, such defined terms are incorporated
herein. The form of the Trust Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative Trustees on
behalf of CFB Capital will issue the Capital Securities and the Common
Securities (collectively, the "Trust Securities"). The Capital Securities will
represent preferred undivided beneficial interests in the assets of CFB Capital
and the holders thereof will be entitled to a preference in certain
circumstances with respect to Distributions and amounts payable on redemption or
liquidation over the Common Securities of CFB Capital (which will be held by the
Company), as well as other benefits as described in the Trust Agreement.
The Capital Securities will rank PARI PASSU, and payments will be made
thereon pro rata, with the Common Securities of CFB Capital except as described
under "Subordination of Common Securities of CFB Capital Held by the Company"
below.
Legal title to the Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the Trust
Securities. The Guarantee executed by the Company for the benefit of the holders
of the Capital Securities (the "Guarantee") will be a guarantee on a
subordinated basis and will not guarantee payment of Distributions or amounts
payable on redemption of the Capital Securities or on liquidation of the Capital
Securities if CFB Capital does not have funds on hand available to make such
payments. See "Description of Guarantee."
DISTRIBUTIONS
PAYMENT OF DISTRIBUTIONS. Distributions on the Capital Securities will be
payable at the annual rate of % of the stated Liquidation Amount of $25,
payable quarterly in arrears on the 15th day of April, July, October and January
in each year, commencing April 15, 1997 to the holders of the Capital Securities
on the relevant record dates (each date on which Distributions are payable in
accordance with the foregoing, a "Distribution Date"). The amount of each
distribution due with respect to the Capital Securities will include amounts
accrued through the date the distribution payment is due. Distributions on the
Capital Securities will be payable to the holders thereof as they appear on the
register of CFB Capital on the relevant record date which, for so long as the
Capital Securities remain in book-entry form, will be one Business Day (as
defined below) prior to the relevant Distribution Date and, in the event the
Capital Securities are not in book-entry form, will be the 1st day of the month
in which the relevant Distribution Date occurs. Distributions will accumulate
from the date of original issuance. The first Distribution Date for the Capital
Securities will be April 15, 1997.
The amount of Distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which Distributions are payable on the Capital Securities is not a Business Day,
payment of the Distribution payable on such date will be made on the next
Business Day (and without any interest or other payment in respect to any such
delay) except that, if such Business Day is in the next succeeding calendar
year, payment of such Distribution shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on the date
such payment was
25
<PAGE>
originally payable. As used in this Prospectus, a "Business Day" shall mean any
day other than a Saturday or a Sunday, or a day on which banking institutions in
the State of Minnesota are authorized or required by law or executive order to
remain closed or a day on which the corporate trust office of the Property
Trustee or the Indenture Trustee is closed for business.
The funds of CFB Capital available for distribution to holders of its
Capital Securities will be limited to payments by the Company under the Junior
Subordinated Debentures in which CFB Capital will invest the proceeds from the
issuance and sale of its Capital Securities. See "Description of Junior
Subordinated Debentures." If the Company 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 CFB Capital has funds legally available for
the payment of such Distributions and cash sufficient to make such payments) is
guaranteed by the Company. See "Description of Guarantee."
EXTENSION PERIOD. So long as no Debenture Event of Default has occurred and
is continuing, the Company has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each such period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. As a consequence of any such election, quarterly Distributions on
the Capital Securities will be deferred by CFB Capital during any such Extension
Period. Distributions to which holders of Capital Securities are entitled will
accumulate additional amounts thereon at the rate per annum of % thereof,
compounded quarterly from the relevant Distribution Date, to the extent
permitted under applicable law. The term "Distributions" as used herein shall
include any such additional accumulated amounts. During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock (which includes common and preferred stock)
or (ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU
with or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks PARI PASSU
with or junior in interest to the Junior Subordinated Debentures (other than (a)
dividends or distributions in common stock of the Company, (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 and (d) purchases of common stock for issuance under any of the
Company's benefit plans for its directors, officers or employees). Prior to the
termination of any such Extension Period, the Company may further extend such
Extension Period, provided that such extension does not cause such Extension
Period to exceed 20 consecutive quarters or extend beyond the Stated Maturity.
Upon the termination of any such Extension Period and the payment of all amounts
then due, and subject to the foregoing limitations, the Company may elect to
begin a new Extension Period. Subject to the foregoing, there is no limitation
on the number of times that the Company may elect to begin an Extension Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
REDEMPTION
MANDATORY REDEMPTION. Upon the repayment or redemption at any time, in
whole or in part, of any Junior Subordinated Debentures, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days' notice of a date of redemption (the "Redemption Date"),
at the Redemption Price (as defined below). See "Description of Junior
Subordinated Debentures -- Redemption." If less than all of
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the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption of the Trust Securities pro rata.
OPTIONAL REDEMPTION. The Company will have the right to redeem the Junior
Subordinated Debentures (i) on or after February 1, 2002, in whole at any time
or in part from time to time at a redemption price equal to the accrued and
unpaid interest on the Junior Subordinated Debentures so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof, or (ii) at any
time, in whole (but not in part), upon the occurrence of a Tax Event, an
Investment Company Event or a Capital Treatment Event at a redemption price
equal to the accrued and unpaid interest on the Junior Subordinated Debentures
so redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof, in each case subject to receipt of prior approval by the Federal
Reserve if then required under applicable capital guidelines or policies of the
Federal Reserve. See "Description of Junior Subordinated Debentures --
Redemption."
TAX EVENT REDEMPTION, INVESTMENT COMPANY EVENT REDEMPTION, CAPITAL TREATMENT
EVENT REDEMPTION OR DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES. If a Tax
Event, an Investment Company Event or a Capital Treatment Event shall occur and
be continuing, the Company has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption
of the Trust Securities in whole (but not in part) at the Redemption Price (as
defined below) within 90 days following the occurrence of such Tax Event,
Investment Company Event or Capital Treatment Event, in each case subject to
receipt of prior approval by the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve. In the event a
Tax Event, an Investment Company Event or Capital Treatment Event has occurred
and is continuing and the Company does not elect to redeem the Junior
Subordinated Debentures and thereby cause a mandatory redemption of the Trust
Securities or to liquidate CFB Capital and cause the Junior Subordinated
Debentures to be distributed to holders of the Trust Securities in liquidation
of CFB Capital as described below, such Trust Securities will remain outstanding
and Additional Sums (as defined below) may be payable on the Junior Subordinated
Debentures.
DEFINITIONS.
"Additional Sums" means the additional amounts as may be necessary to be
paid by the Company with respect to the Junior Subordinated Debentures in order
that the amount of Distributions then due and payable by CFB Capital on the
outstanding Trust Securities of CFB Capital shall not be reduced as a result of
any additional taxes, duties and other governmental charges to which CFB Capital
has become subject.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Capital Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of CFB Capital, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, allocated on a pro rata basis (based on
Liquidation Amounts) among the Trust Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to the Company having received prior approval of the Federal Reserve
if so required under applicable capital guidelines or policies of the Federal
Reserve, the Company will have the right at any time to liquidate CFB Capital
and, after satisfaction of the liabilities of creditors of CFB Capital as
provided by
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applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of Trust Securities in liquidation of CFB Capital. After the
liquidation date fixed for any distribution of Junior Subordinated Debentures
for Capital Securities (i) such Capital Securities will no longer be deemed to
be outstanding, (ii) the Depositary or its nominee, as the record holder of the
Capital Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing Capital Securities not held
by the Depositary or its nominee will be deemed to represent the Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of such Capital Securities, and bearing accrued and unpaid interest in an
amount equal to the accrued and unpaid Distributions on the Capital Securities
until such certificates are presented to the Administrative Trustees or their
agent for transfer or reissuance.
There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
the Capital Securities if a dissolution and liquidation of CFB Capital 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 CFB Capital, may trade at a discount to the price that the
investor paid to purchase the Capital Securities offered hereby.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that CFB Capital has funds on hand available
for the payment of such Redemption Price. See "-- Subordination of Common
Securities of CFB Capital Held by the Company" and "-- Guarantee."
If CFB Capital gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, Minneapolis time, on the Redemption Date, to
the extent funds are available, the Property Trustee will deposit with the
Depositary funds sufficient to pay the aggregate Redemption Price and will give
the Depositary irrevocable instructions and authority to pay the Redemption
Price to the holders of such Capital Securities. See "Book-Entry Issuance." If
such Capital Securities are no longer in book-entry form, the Property Trustee,
to the extent funds are available, will deposit with the paying agent for such
Capital Securities funds sufficient to pay the aggregate Redemption Price and
will give such paying agent irrevocable instructions and authority to pay the
Redemption Price to the holders thereof upon surrender of their certificates
evidencing such Capital Securities. 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 will cease, except the right of the holders of
the 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 date fixed for redemption of such Capital
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the Redemption
Price in respect of Capital Securities called for redemption is improperly
withheld or refused and not paid either by CFB Capital or by the Company
pursuant to the Guarantee, Distributions on such Capital Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by CFB Capital for such Capital Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
will be the date fixed for redemption for purposes of calculating the Redemption
Price. See "Description of Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), the Company may at any time and from time to time
purchase outstanding Capital Securities by tender, in the open market or by
private agreement.
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Payment of the Redemption Price on the Capital Securities and any
distribution of Junior Subordinated Debentures to holders of Capital Securities
shall be made to the applicable recordholders thereof as they appear on the
register of such Capital Securities on the relevant record date, which date
shall be one Business Day prior to the relevant Redemption Date or Liquidation
Date, as applicable; provided, however, that in the event that any Capital
Securities are not in book-entry form, the relevant record date for such Capital
Securities shall be a date at least 15 days prior to the Redemption Date or
Liquidation Date, as applicable. In the case of a liquidation, the record date
shall be no more than 45 days before the Liquidation Date.
If less than all of the Trust Securities issued by CFB Capital are to be
redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed shall be allocated pro rata to the Capital
Securities and Common Securities based upon the relative Liquidation Amounts of
such classes. The particular Capital Securities to be redeemed shall be selected
by the Property Trustee from the outstanding Capital Securities not previously
called for redemption, by such method as the Property Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions (equal to $25 or an integral multiple thereof) of the Liquidation
Amount of Capital Securities. The Property Trustee shall promptly notify the
Trust Securities registrar in writing of the Capital Securities selected for
redemption and, in the case of any Capital Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
the Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Capital Securities shall relate to the portion of
the aggregate Liquidation Amount of Capital Securities which has been or is to
be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities at such
holder's registered address. Unless CFB Capital defaults in payment of the
applicable Redemption Price, on and after the Redemption Date, Distributions
will cease to accrue on such Capital Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES OF CFB CAPITAL HELD BY THE COMPANY
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amounts of the Capital Securities and Common 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 on all of the outstanding Capital Securities then called
for redemption, shall have been made or provided for, and all funds available to
the Property Trustee shall first be applied to the payment in full in cash of
all Distributions on, or Redemption Price of, the Capital Securities then due
and payable.
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, the Company as holder of the Common Securities
will be deemed to have waived any right to act with respect to any such Event of
Default until the effect of all such Events of Default have been cured, waived
or otherwise eliminated. Until any such Events of Default have 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 Company 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.
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LIQUIDATION DISTRIBUTION UPON TERMINATION
The Company will have the right at any time to terminate CFB Capital and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Capital Securities. Such right is subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. See "Distribution of Junior
Subordinated Debentures" above.
In addition, pursuant to the Trust Agreement, CFB Capital shall
automatically terminate upon expiration of its term and shall earlier terminate
on the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company; (ii) delivery by the Company of written direction to
the Property Trustee to terminate CFB Capital (which direction is optional and
wholly within the discretion of the Company); (iii) redemption of all of the
Capital Securities as described under "Description of the Capital Securities --
Redemption -- Mandatory Redemption;" and (iv) the entry of an order for the
dissolution of CFB Capital by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, CFB Capital shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of CFB Capital as provided by applicable law, to the
holders of such Trust Securities a Like Amount of the Junior Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practical, in which event such holders will be entitled to receive out of
the assets of CFB Capital available for distribution to holders, after
satisfaction of liabilities to creditors of CFB Capital as provided by
applicable law, an amount equal to, in the case of holders of Capital
Securities, the aggregate of the Liquidation Amount of $25 per Trust Security
plus accrued and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If such Liquidation Distribution
can be paid only in part because CFB Capital has insufficient assets available
to pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by CFB Capital on the Capital Securities shall be paid on a pro rata
basis. The holder(s) of the Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the Capital
Securities, except that if a Debenture Event of Default has occurred and is
continuing, the Capital Securities shall have a priority over the Common
Securities.
Under current United States federal income tax law and interpretations and
assuming, as expected, CFB Capital is treated as a grantor trust, a distribution
of the Junior Subordinated Debentures should not be a taxable event to holders
of the Capital Securities. Should there be a change in law, a change in legal
interpretation, a Tax Event or other circumstances, however, the distribution
could be a taxable event to holders of the Capital Securities. See "Certain
Federal Income Tax Consequences." If the Company elects neither to redeem the
Junior Subordinated Debentures prior to maturity nor to liquidate CFB Capital
and distribute the Junior Subordinated Debentures to holders of the Capital
Securities, the Capital Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures.
If the Company elects to liquidate CFB Capital and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Capital Securities
in liquidation of CFB Capital, the Company shall continue to have the right to
shorten the maturity of such Junior Subordinated Debentures, subject to certain
conditions. See "Description of Junior Subordinated Debentures -- General."
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EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Capital Securities (whatever the reason for such
Event of Default and whether it 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) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Junior Subordinated Debentures -- Debenture Events of
Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a default or breach in the performance of a covenant or warranty which is
addressed in clause (ii) or (iii) above), and continuation of such default
or breach, for a period of 60 days after there has been given, by registered
or certified mail, to the defaulting Trustee or Trustees by the holders of
at least 25% in aggregate Liquidation Amount of the outstanding Capital
Securities, a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default"
under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Company, unless such Event of Default shall have
been cured or waived. The Company 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 upon termination
of CFB Capital as described above. See "-- Liquidation Distribution Upon
Termination." Upon a Debenture Event of Default, unless the principal of all the
Junior Subordinated Debentures has already become due and payable, either the
Property Trustee or the holders of not less than 25% in aggregate principal
amount of the Junior Subordinated Debentures then outstanding may declare all of
the Junior Subordinated Debentures to be due and payable immediately by giving
notice in writing to the Company (and to the Property Trustee, if notice is
given by holders of the Junior Subordinated Debentures). If the Property Trustee
or the holders of the Junior Subordinated Debentures fail to declare the
principal of all of the Junior Subordinated Debentures due and payable upon a
Debenture Event of Default, the holders of at least 25% in Liquidation Amount of
the Capital Securities then outstanding shall have the right to declare the
Junior Subordinated Debentures immediately due and payable. In either event,
payment of principal and interest on the Junior Subordinated Debentures shall
remain subordinated to the extent provided in the Indenture. In addition,
holders of the Capital Securities have the right in certain circumstances to
bring a Direct Action (as hereinafter defined). See "Description of Junior
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Capital
Securities."
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Trustee may be removed at any time by the holder of the Common Securities.
If a Debenture Event of Default has occurred and is continuing, the Property
Trustee and the Delaware Trustee may be removed at such time by the
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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 Company as the holder of the Common
Securities. No resignation or removal of a 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.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of Trust Property may at
the time be located, the Company, as the holder of the Common Securities, and
the Administrative Trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to act as separate trustee of any such property,
in either case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to make
such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property
Trustee, the Delaware Trustee or any Administrative Trustee that is not a
natural person may be merged or converted or with which it may be consolidated,
or any Person resulting from any merger, conversion or consolidation to which
such Trustee shall be a party, or any person succeeding to all or substantially
all the corporate trust business of such Trustee, shall be the successor of such
Trustee under the Trust Agreement, provided such corporation shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF CFB CAPITAL
CFB Capital may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. CFB Capital may, at the request of the Company, with the
consent of the Administrative Trustees and 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 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 CFB Capital with respect to the Capital Securities or (b)
substitutes for the Capital Securities other securities having substantially the
same terms as the Capital Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Capital Securities rank in priority
with respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Junior Subordinated Debentures, (iii) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause
adversely affect the rights, preferences and privileges of the holders of the
Capital Securities (including any Successor Securities) in any material respect,
(iv) such successor entity has a purpose identical to that of CFB Capital, (v)
the Successor Securities will be listed or traded on any national securities
exchange or other organization on which the Capital Securities may then be
listed, (vi) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Company has received an opinion from
independent counsel to CFB Capital experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
CFB Capital nor such successor entity will be required to register as an
investment company under the Investment Company Act and (vii) the Company or any
permitted successor or designee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the
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Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, CFB Capital shall not, except with the consent of
holders of 100% in Liquidation Amount of the Capital Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause CFB Capital or the successor entity to be
classified as other than a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee -- Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, 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, or (ii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that CFB Capital will be classified for United States
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that CFB Capital will not be required to
register as an "investment company" under the Investment Company Act; provided,
however, that in the case of clause (i), such action shall not adversely affect
in any material respect the interests of any holder of Trust Securities, and any
amendments of the Trust Agreement shall become effective when notice thereof is
given to the holders of the Trust Securities. The Trust Agreement may be amended
by the Trustees and the Company with (i) the consent of holders representing not
less than a majority of the aggregate Liquidation Amount of the outstanding
Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment will not affect CFB Capital's status
as a grantor trust for United States federal income tax purposes or CFB
Capital'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 Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures shall be due and
payable 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 aggregate Liquidation Amount of all outstanding the 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 consent of each holder of the Capital Securities. The 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 the holders of the Capital
Securities. The Property Trustee shall notify each holder of the 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
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foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that CFB Capital 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 the Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of the 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 the Capital Securities in the manner set forth in
the Trust Agreement.
No vote or consent of the holders of the Capital Securities will be required
for CFB Capital 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 Company, the Trustees or any affiliate of the
Company or any Trustees, shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
GLOBAL CAPITAL SECURITIES
The Capital Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee ("Global
Capital Security"). Beneficial interests in the Capital Securities will be shown
on, and transfers thereof will be effected only through, records maintained by
participants in the Depositary. Except as described below, Capital Securities in
certificated form will not be issued in exchange for the global certificates.
See "Book-Entry Issuance."
A global security shall be exchangeable for Capital Securities registered in
the names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as a
depositary for such global security and no successor depositary shall have been
appointed, or if at any time the Depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, as amended, at a time when
the Depositary is required to be so registered to act as such depositary, (ii)
the Company in its sole discretion determines that such global security shall be
so exchangeable, or (iii) there shall have occurred and be continuing an Event
of Default under the Indenture. Any global security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for definitive
certificates registered in such names as the Depositary shall direct. It is
expected that such instructions will be based upon directions received by the
Depositary with respect to ownership of beneficial interests in such global
security. In the event that Capital Securities are issued in definitive form,
such Capital Securities will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
Capital Securities represented thereby, a Global Capital Securities may not be
transferred except as a whole by the Depositary to a nominee of such the
Depositary or by a nominee of such the Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor
Depositary or any nominee of such successor.
Payments on Capital Securities represented by a global security will be made
to the Depositary, as the depositary for the Capital Securities. In the event
the Capital Securities are issued in definitive form, Distributions will be
payable, the transfer of the Capital Securities will be registrable, and Capital
Securities will be exchangeable for Capital Securities of other denominations of
a like aggregate Liquidation Amount, at the corporate office of the Property
Trustee, or at the offices of any paying agent or transfer agent appointed by
the Administrative Trustees, provided that payment of any Distribution may be
made at the option of the Administrative Trustees by check mailed to the address
of the persons entitled thereto or by wire transfer. In addition, if the Capital
Securities are issued in certificated form, the record dates for
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payment of Distributions will be the 1st day of the month in which the relevant
Distribution Date occurs. For a description of the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Capital Security, and the deposit of such
Global Capital Security with or on behalf of the Depositary, the Depositary for
such Global Capital Security or its nominee will credit, on its book-entry
registration and transfer system, the respective aggregate Liquidation Amounts
of the individual Capital Securities represented by such Global Capital
Securities to the accounts of Participants. Such accounts shall be designated by
the dealers, underwriters or agents with respect to such Capital Securities.
Ownership of beneficial interests in a Global Capital Security will be limited
to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Capital Security will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by the applicable Depositary or its nominee (with respect to
interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the ability
to transfer beneficial interests in a Global Capital Security.
So long as the Depositary for a Global Capital Security, or its nominee, is
the registered owners of such Global Capital Security, such Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Capital Securities represented by such Global Capital Security for all purposes
under the Trust Agreement governing such Capital Securities. Except as provided
below, owners of beneficial interests in a Global Capital Security will not be
entitled to have any of the individual Capital Securities represented by such
Global Capital Security registered in their names, will not receive or be
entitled to receive physical delivery of any such Capital Securities in
definitive form and will not be considered the owners or holders thereof under
the Trust Agreement.
None of the Company, the Property Trustee, any Paying Agent, or the
Securities Registrar (defined below) for such Capital Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global Capital
Security representing such Capital Securities or for maintaining supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary for Capital Securities or its
nominee, upon receipt of any payment of the Liquidation Amount or Distributions
in respect of a permanent Global Capital Security immediately will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the aggregate Liquidation Amount of such
Global Capital Security as shown on the records of such Depositary or its
nominee. The Company also expects that payments by Participants to owners of
beneficial interests in such Global Capital Security held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
If the Depositary for the Capital Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, CFB Capital will issue individual
Capital Securities in exchange for the Global Capital Security. In addition, CFB
Capital may at any time and in its sole discretion, subject to any limitations
described herein relating to such Capital Securities, determine not to have any
Capital Securities represented by one or more Global Capital Securities and, in
such event, will issue individual Capital Securities in exchange for the Global
Capital Security or Securities representing the Capital Securities. Further, if
CFB Capital so specifies with respect to the Capital Securities, an owner of a
beneficial interest in a Global Capital Security representing Capital Securities
may, on terms acceptable to the Company, the Property Trustee and the Depositary
for such Global Capital Security, receive individual Capital Securities in
exchange for such beneficial interests, subject to any limitations described
herein. In any such instance, an owner of a beneficial interest in a Global
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Capital Security will be entitled to physical delivery of individual Capital
Securities represented by such Global Capital Security equal in Liquidation
Amount to such beneficial interest and to have such Capital Securities
registered in its name. Individual Capital Securities so issued will be issued
in denominations, unless otherwise specified by CFB Capital, of $25 and integral
multiples thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any of the Capital Securities are not held
by the Depositary, such payments shall be made by check mailed to the address of
the holder entitled thereto as such address shall appear on the Register. The
paying agent (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 Company. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee and
the Company. 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
Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities. Registration of transfers of the Capital Securities will be
effected without charge by or on behalf of CFB Capital, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. CFB Capital will not be required to register or cause to
be registered the transfer of the Capital Securities after such Capital
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Properly Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Capital Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. If no Event of Default
has occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the Trust
Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of the Capital Securities
are entitled under the Trust Agreement to vote, then the Property Trustee shall
take such action as is directed by the Company and if not so directed, shall
take such action as it deems advisable and in the best interests of the holders
of the 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 CFB Capital in such a way that CFB Capital will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Company and
the Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of CFB Capital or the Trust
Agreement, that the Company 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
related Capital Securities. Holders of the Capital Securities have no preemptive
or similar rights.
CFB Capital may not borrow money or issue debt or mortgage or pledge any of
its assets.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will be issued under the Subordinated
Indenture, dated as of February , 1997 (the "Indenture"), between the Company
and Wilmington Trust Company, as trustee (the "Indenture Trustee"). The
following summary of the terms and provisions of the Junior Subordinated
Debentures and the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Indenture, which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, and to the Trust Indenture Act. The Indenture is qualified under the
Trust Indenture Act. Whenever particular defined terms of the Indenture are
referred to herein, such defined terms are incorporated herein or therein by
reference.
Concurrently with the issuance of the Capital Securities, CFB Capital will
invest the proceeds thereof, together with the consideration paid by the Company
for the Common Securities, in Junior Subordinated Debentures issued by the
Company. The Junior Subordinated Debentures will be issued as unsecured debt
under the Indenture.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual rate of
% of the principal amount thereof, payable quarterly in arrears on the 15th
day of April, July, October and January of each year (each, an "Interest Payment
Date"), commencing April 15, 1997, to the person in whose name each Subordinated
Debenture is registered, subject to certain exceptions, at the close of business
on the Business Day next preceding such Interest Payment Date. Notwithstanding
the above, in the event that either the (i) Junior Subordinated Debentures are
held by the Property Trustee and the Capital Securities are no longer in
book-entry only form or (ii) the Junior Subordinated Debentures are not
represented by a Global Subordinated Debenture (as defined herein), the record
date for such payment shall be the 1st day of the month in which such payment is
made. The amount of each interest payment due with respect to the Junior
Subordinated Debentures will include amounts accrued through the date the
interest payment is due. It is anticipated that, until the liquidation, if any,
of CFB Capital, each Junior Subordinated Debenture will be held in the name of
the Property Trustee in trust for the benefit of the holders of the Capital
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of % thereof,
compounded quarterly. The term "interest" as used herein shall include quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Junior Subordinated Debentures will mature on February 1, 2027 (such
date, as it may be shortened as hereinafter described, the "Stated Maturity").
Such date may be shortened once at any time by the Company to any date not
earlier than February 1, 2002, subject to the Company having received prior
approval of the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve. In the event that the Company
elects to shorten the Stated Maturity of the Junior Subordinated Debentures, it
shall give notice to the Indenture Trustee, and the Indenture Trustee shall give
notice of such shortening or extension to the holders of the Junior Subordinated
Debentures no less than 90 days prior to the effectiveness thereof.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior and Subordinated Debt of
the Company. Because the Company is a holding company, the right of the Company
to participate in any distribution of assets of any subsidiaries, including
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the Company's Banks, upon any such subsidiaries' 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 Company may itself
be recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior and Subordinated Debt, whether under the Indenture or any
existing or other indenture that the Company may enter into in the future or
otherwise. See "Subordination" below.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture at any time during the term of the
Junior Subordinated Debentures to defer the payment of interest at any time or
from time to time for a period not exceeding 20 consecutive quarters (each such
period an "Extension Period"), provided that no Extension Period may extend
beyond the Stated Maturity. At the end of such Extension Period, the Company
must pay all interest then accrued and unpaid (together with interest thereon at
the annual rate of %, compounded quarterly, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Junior Subordinated Debentures will be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences -- Potential Extension of Interest Payment
Period and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including other Junior
Subordinated Debentures) that rank PARI PASSU with or junior in interest to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks PARI PASSU with or junior in interest to the
Junior Subordinated Debentures (other than (a) dividends or distributions in
common stock of the Company, (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, and (d) purchases of
common stock related to rights under any of the Company's benefit plans for its
directors, officers or employees). Prior to the termination of any such
Extension Period, the Company may further extend such Extension Period, provided
that such extension does not cause such Extension Period to exceed 20
consecutive quarters or extend beyond the Stated Maturity. Upon the termination
of any such Extension Period and the payment of all amounts then due on any
Interest Payment Date, the Company may elect to begin a new Extension Period
subject to the above requirements. No interest shall be due and payable during
an Extension Period, except at the end thereof. The Company must give the
Property Trustee, the Administrative Trustees and the Indenture Trustee notice
of its election of any Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Capital Securities would have
been payable except for the election to begin or extend such Extension Period or
(ii) the date the Administrative Trustees are required to give notice to the
holders of the Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Indenture Trustee shall give notice of the Company's
election to begin or extend a new Extension Period the holders of the Capital
Securities. There is no limitation on the number of times that the Company may
elect to begin an Extension Period.
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ADDITIONAL SUMS
If CFB Capital is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures such amounts
("Additional Sums") as shall be required so that the Distributions payable by
CFB Capital shall not be reduced as a result of any such additional taxes,
duties or other governmental charges.
REDEMPTION
Subject to the Company having received prior approval of the Federal
Reserve, if then required under applicable capital guidelines or policies of the
Federal Reserve, the Junior Subordinated Debentures are redeemable prior to
maturity at the option of the Company (i) on or after February 1, 2002, in whole
at any time or in part from time to time, or (ii) at any time in whole (but not
in part), upon the occurrence and during the continuance of a Tax Event, an
Investment Company Event or a Capital Treatment Event, in each case at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at such holder's registered address. Unless the
Company defaults in payment of the redemption price, on and after the redemption
date interest ceases to accrue on such Junior Subordinated Debentures or
portions thereof called for redemption.
The Junior Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Capital Securities -- Liquidation
Distribution Upon Termination," under certain circumstances involving the
termination of CFB Capital, the Junior Subordinated Debentures may be
distributed to the holders of the Capital Securities in liquidation of CFB
Capital after satisfaction of liabilities to creditors of CFB Capital as
provided by applicable law. If distributed to holders of the Capital Securities
in liquidation, the Junior Subordinated Debentures will initially be issued in
the form of one or more global securities and the Depositary, or any successor
depositary for the Capital Securities, will act as depositary for the Junior
Subordinated Debentures. It is anticipated that the depositary arrangements for
the Junior Subordinated Debentures would be substantially identical to those in
effect for the Capital Securities. If the Junior Subordinated Debentures are
distributed to the holders of Capital Securities upon the liquidation of CFB
Capital, there can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of Capital
Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred any event of which the Company
has actual knowledge that (a) with the giving of notice or the lapse of time, or
both, would constitute a Debenture Event of Default and (b) in respect of which
the Company shall not have taken reasonable steps to cure, or (ii) the Company
shall have given notice of its election of an Extension Period as provided in
the Indenture with respect to the Junior Subordinated Debentures and shall not
have rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing, or (iii) while the Junior Subordinated Debentures are held
by CFB Capital, the Company shall be in default with respect to its payment of
any obligation under the Guarantee, then the Company will not (1) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (2)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including other Junior
Subordinated Debt) that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu or junior in interest to the Junior
Subordinated Debentures (other than (a) dividends or distributions in Common
Stock, (b) any declaration of a dividend in connection with the implementation
of a stockholders' rights plan,
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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
and (d) purchases of Common Stock related to rights under any of the Company's
benefit plans for its directors, officers or employees).
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior and Subordinated Debt 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 Company, the holders of Senior and Subordinated
Debt will first be entitled to receive payment in full of principal of (and
premium, if any) and interest, if any, on such Senior and Subordinated Debt
before the holders of Junior Subordinated Debentures will be entitled to receive
or retain any payment in respect of the principal of or interest, if any, on the
Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior and Subordinated Debt outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the principal of or interest, if any, on the Junior
Subordinated Debentures; provided, however, that holders of Subordinated Debt
shall not be entitled to receive payment of any such amounts to the extent that
such Subordinated Debt is by its terms subordinated to trade creditors.
No payments on account of principal 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 and Subordinated Debt
or an event of default with respect to any Senior and Subordinated Debt
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (iv) every obligation of such person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another person
and all dividends of another person the payment of which, in either case, such
person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior and Subordinated Debt" means the principal of (and premium, if any)
and interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior Debt shall not be deemed to include
(i) any Debt of the Company which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (ii) any Debt of the Company to
any of its subsidiaries, (iii) any Debt to any employee of the Company, (iv) any
Debt which by its terms is subordinated to trade accounts payable or accrued
liabilities arising in the ordinary course of business to the extent that
payments made to the
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holders of such Debt by the holders of the Junior Subordinated Debentures as a
result of the subordination provisions of the Indenture would be greater than
they otherwise would have been as a result of any obligation of such holders to
pay amounts over to the obligees on such trade accounts payable or accrued
liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject, (v) the Guarantee, and
(vi) any other debt securities issued pursuant to the Indenture.
The Indenture places no limitation on the amount of additional Senior and
Subordinated Debt that may be incurred by the Company. The Company expects from
time to time to incur additional indebtedness constituting Senior and
Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be represented by global
certificates registered in the name of the Depositary or its nominee ("Global
Subordinated Debenture"). Beneficial interests in the Junior Subordinated
Debentures will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary. Except as described below, Junior
Subordinated Debentures in certificated form will not be issued in exchange for
the global certificates. See "Book-Entry Issuance."
Unless and until a Global Subordinated Debenture is exchanged in whole or in
part for the individual Junior Subordinated Debentures represented thereby, it
may not be transferred except as a whole by the Depositary for such Global
Subordinated Debenture to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
A global security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a
clearing agency registered under the Securities Exchange Act of 1934, as
amended, at a time when the Depositary is required to be so registered to act as
such depositary, (ii) the Company in its sole discretion determines that such
global security shall be so exchangeable or (iii) there shall have occurred and
be continuing an Event of Default under the Indenture with respect to such
global security. Any global security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates registered
in such names as the Depositary shall direct. It is expected that such
instructions will be based upon directions received by the Depositary from its
Participants with respect to ownership of beneficial interests in such global
security. In the event that Junior Subordinated Debentures are issued in
definitive form, such Junior Subordinated Debentures will be in denominations of
$25 and integral multiples thereof and may be transferred or exchanged at the
offices described below.
Payments on Junior Subordinated Debentures represented by a global security
will be made to the Depositary, as the depositary for the Junior Subordinated
Debentures. In the event Junior Subordinated Debentures are issued in definitive
form, principal and interest will be payable, the transfer of the Junior
Subordinated Debentures will be registrable, and Junior Subordinated Debentures
will be exchangeable for Junior Subordinated Debentures of other denominations
of a like aggregate principal amount, at the corporate office of the Indenture
Trustee, or at the offices of any paying agent or transfer agent appointed by
the Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto or by
wire transfer. In addition, if the Junior Subordinated Debentures are issued in
certificated form, the record dates for payment of interest will be the 1st day
of the month in which such payment is to be made. For a description of the
Depositary and the terms of the depositary arrangements relating to payments,
transfers, voting rights, redemptions and other notices and other matters, see
"Book-Entry Issuance."
The Company will appoint the Indenture Trustee as securities registrar under
the Indenture (the "Securities Registrar"). Junior Subordinated Debentures may
be presented for exchange as provided above, and may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
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satisfactory written instrument of transfer, duly executed), at the office of
the Securities Registrar. The Company may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, provided that the Company maintains a transfer agent
in the place of payment. The Company may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Indenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Junior
Subordinated Debentures and ending at the close of business on the day of
mailing of the relevant notice of redemption or (ii) transfer or exchange any
Junior Subordinated Debentures so selected for redemption, except, in the case
of any Junior Subordinated Debentures being redeemed in part, any portion
thereof not to be redeemed.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
Upon the issuance of the Global Subordinated Debenture, and the deposit of
such Global Subordinated Debenture with or on behalf of the Depositary, the
Depositary for such Global Subordinated Debenture or its nominee will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by such
Global Subordinated Debenture to the accounts of persons that have accounts with
such Depositary ("Participants"). Ownership of beneficial interests in a Global
Subordinated Debenture will be limited to Participants or persons that may hold
interests through Participants. Ownership of beneficial interests in such Global
Subordinated Debenture will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Subordinated Debenture.
So long as the Depositary for a Global Subordinated Debenture, or its
nominee, is the registered owner of such Global Subordinated Debenture, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Junior Subordinated Debentures represented by such Global
Subordinated Debenture for all purposes under the Indenture governing such
Junior Subordinated Debentures. Except as provided below, owners of beneficial
interests in a Global Subordinated Debenture will not be entitled to have any of
the individual Junior Subordinated Debentures represented by such Global
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated Debentures
in definitive form and will not be considered the owners or holders thereof
under the Indenture.
Payments of principal of and interest on individual Junior Subordinated
Debentures represented by a Global Subordinated Debenture registered in the name
of the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner of the Global Subordinated Debenture
representing such Junior Subordinated Debentures. None of the Company, the
Indenture Trustee, any Paying Agent, or the Securities Registrar for such Junior
Subordinated Debentures will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Global Subordinated Debenture representing such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a permanent Global Subordinated
Debenture representing the Junior Subordinated Debentures, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the Global
Subordinated Debenture as shown on the records of such Depositary or its
nominee. The Company also expects that payments by Participants to owners of
beneficial interests in such Global Subordinated Debenture held through such
Participants will be
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governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name." Such payments will be the responsibility of such Participants.
If the Depositary is at any time unwilling, unable or ineligible to continue
as depositary and a successor depositary is not appointed by the Company within
90 days, the Company will issue individual Junior Subordinated Debentures in
exchange for the Global Subordinated Debenture. In addition, the Company may at
any time and in its sole discretion, determine not to have the Junior
Subordinated Debentures represented by one or more Global Junior Subordinated
Debentures and, in such event, will issue individual Junior Subordinated
Debentures in exchange for the Global Subordinated Debenture. Further, if the
Company so specifies with respect to the Junior Subordinated Debentures, an
owner of a beneficial interest in a Global Subordinated Debenture representing
Junior Subordinated Debentures may, on terms acceptable to the Company, the
Indenture Trustee and the Depositary for such Global Subordinated Debenture,
receive individual Junior Subordinated Debentures in exchange for such
beneficial interests. In any such instance, an owner of a beneficial interest in
a Global Subordinated Debenture will be entitled to physical delivery of
individual Junior Subordinated Debentures equal in principal amount to such
beneficial interest and to have such Junior Subordinated Debentures registered
in its name. Individual Junior Subordinated Debentures so issued will be issued
in denominations, unless otherwise specified by the Company, of $25 and integral
multiples thereof.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the Junior Subordinated
Debentures will be made at the office of the Indenture Trustee, except that at
the option of the Company payment of any interest may be made (i) except in the
case of Global Junior Subordinated Debentures, by check mailed to the address of
the person entitled thereto as such address shall appear in the securities
register or (ii) by transfer to an account maintained by the person entitled
thereto as specified in the securities register, provided that proper transfer
instructions have been received by the regular record date. Payment of any
interest on Junior Subordinated Debentures will be made to the person in whose
name such Junior Subordinated Debenture is registered at the close of business
on the regular record date for such interest. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent; however the Company 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 Indenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of or interest on
the Junior Subordinated Debentures and remaining unclaimed for two years after
such principal or interest has become due and payable shall, at the request of
the Company, be repaid to the Company and the holder of such Junior Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Company for payment thereof.
MODIFICATION OF INDENTURE
From time to time the Company and the Indenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interests of the holders of the Junior
Subordinated Debentures or the Capital Securities so long as they remain
outstanding) and qualifying, or maintaining the qualification of, the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting the
Company and the Indenture Trustee, with the consent of the holders of not less
than a majority in principal amount of the outstanding Junior Subordinated
Debentures, to modify the Indenture in a manner affecting the rights of the
holders of the Junior Subordinated Debentures; provided, that no such
modification may, without the consent of the holder of each outstanding
Subordinated Debenture, (i) change the Stated Maturity of the Junior
Subordinated Debentures, or reduce the principal amount thereof, or reduce the
rate or extend the
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time of payment of interest thereon 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, provided that so long as any
of the Capital Securities remain outstanding, no such modification may be made
that adversely affects the holders of such Capital Securities in any material
respect, and no termination of the Indenture may occur, and no waiver of any
Debenture Event of Default or compliance with any covenant under the Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the Capital Securities unless
and until the principal of the Junior Subordinated Debentures and all accrued
and unpaid interest thereon have been paid in full and certain other conditions
are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default" with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated Debentures
when due whether at maturity, upon redemption by declaration or otherwise;
or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Company from the Indenture Trustee or to the Company and the Indenture
Trustee by the holders of at least 25% in aggregate outstanding principal
amount of the Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon 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 waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee.
Should the holders of the Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Capital Securities shall have such right.
In case a Debenture Event of Default shall occur and be continuing as to the
Junior Subordinated Debentures, the Property Trustee will have the right to
declare the principal of and the interest on such Junior Subordinated
Debentures, and any other amounts payable under the Indenture, to be forthwith
due and payable and to enforce its other rights as a creditor with respect to
such Junior Subordinated Debentures.
The Company is required to file annually with the Indenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the Junior Subordinated Debentures on the date such interest or principal is
otherwise payable, a holder of Capital Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on
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such Junior Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Capital Securities of such holder ("Direct
Action"). If the right to bring a Direct Action is removed, CFB Capital may
become subject to the reporting obligations under the Exchange Act. The Company
shall have the right under the Indenture to set-off any payment made to such
holder of Capital Securities by the Company in connection with a Direct Action.
The holders of the Capital Securities would 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 Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless (i) in case the Company
consolidates with or merges into another Person or conveys or transfers its
properties and assets substantially as an entirety to any Person, the successor
Person is organized under the laws of the United States or any state or the
District of Columbia, and such successor Person expressly assumes the Company's
obligations on the Junior Subordinated Debentures issued under the Indenture;
(ii) immediately after giving effect thereto, no Debenture Event of Default, and
no event which, after notice or lapse of time or both, would become a Debenture
Event of Default, 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 Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at their Stated Maturity within one year, and the Company deposits or causes to
be deposited with the Indenture Trustee trust funds, in trust, for the purpose
and in an amount in the currency or currencies in which the Junior Subordinated
Debentures are payable sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Indenture
Trustee for cancellation, for the principal and interest to the date of the
deposit or to the Stated Maturity, as the case may be, then the Indenture will
cease to be of further effect (except as to the Company'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 Company will be
deemed to have satisfied and discharged the Indenture.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Minnesota.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
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COVENANTS OF THE COMPANY
The Company will covenant in the Indenture, as to the Junior Subordinated
Debentures, that if and so long as (i) CFB Capital is the holder of all such
Junior Subordinated Debentures, (ii) a Tax Event in respect of CFB Capital has
occurred and is continuing and (iii) the Company has elected, and has not
revoked such election, to pay Additional Sums (as defined under "Description of
the Capital Securities -- Redemption") in respect of the Capital Securities, the
Company will pay to CFB Capital such Additional Sums. The Company will also
covenant, as to the Junior Subordinated Debentures, (i) to maintain directly or
indirectly 100% ownership of the Common Securities of CFB Capital to which
Junior Subordinated Debentures have been issued, provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities, (ii) not to voluntarily terminate,
wind up or liquidate CFB Capital, except upon prior approval of the Federal
Reserve if then so required under applicable capital guidelines or policies of
the Federal Reserve, and except (a) in connection with a distribution of Junior
Subordinated Debentures to the holders of the Capital Securities in liquidation
of CFB Capital or (b) in connection with certain mergers, consolidations, or
amalgamations permitted by the Trust Agreement and (iii) to use its reasonable
efforts, consistent with the terms and provisions of the Trust Agreement, to
cause CFB Capital to remain classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Capital
Securities and the Junior Subordinated Debentures. The Capital Securities and
the Junior Subordinated Debentures will be issued only as fully-registered
securities registered in the name of Cede & Co. (the Depositary's nominee). One
or more fully-registered global certificates will be issued for the Capital
Securities and the Junior Subordinated Debentures and will be deposited with the
Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
"Direct Participants" include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The Depositary
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the Depositary system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain custodial relationships with Direct Participants,
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Commission.
Purchases of Capital Securities or Junior Subordinated Debentures within the
Depositary system must be made by or through Direct Participants, which will
receive a credit for the Capital Securities or Junior Subordinated Debentures on
the Depositary's records. The ownership interest of each actual purchaser of
each Capital Securities and each Subordinated Debenture ("Beneficial Owner") is
in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Capital Securities or Junior Subordinated
Debentures. Transfers of ownership interests in the Capital Securities or Junior
Subordinated Debentures are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial
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Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Capital Securities or Junior Subordinated Debentures,
except in the event that use of the book-entry system for the or Junior
Subordinated Debentures is discontinued.
The Depositary has no knowledge of the actual Beneficial Owners of the
Capital Securities or Junior Subordinated Debentures; the Depositary's records
reflect only the identity of the Direct Participants to whose accounts such
Capital Securities or Junior Subordinated Debentures are credited, which may or
may not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Capital Securities or Junior Subordinated Debentures. If less than all of
the Capital Securities or the Junior Subordinated Debentures are being redeemed,
the Depositary will determine by lot or pro rata the amount of the Capital
Securities of each Direct Participant to be redeemed.
Although voting with respect to the Capital Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Capital
Securities Junior Subordinated Debentures, in those instances in which a vote is
required, neither the Depositary nor Cede & Co. will itself consent or vote with
respect to Capital Securities or Junior Subordinated Debentures. Under its usual
procedures, the Depositary would mail an omnibus proxy (the "Omnibus Proxy") to
the relevant Trustee as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts such Capital Securities or Junior Subordinated
Debentures are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Distribution payments on the Capital Securities or the Junior Subordinated
Debentures will be made by the relevant Trustee to the Depositary. The
Depositary's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of the
Depositary, the relevant Trustee, CFB Capital or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to the Depositary is the responsibility of the relevant
Trustee, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Capital Securities or the Junior
Subordinated Debentures at any time by giving reasonable notice to the relevant
Trustee and the Company. In the event that a successor securities depositary is
not obtained, definitive Capital Securities or Subordinated Debenture
certificates representing such Capital Securities or Junior Subordinated
Debentures are required to be printed and delivered. The Company, at its option,
may decide to discontinue use of the system of book-entry transfers through the
Depositary (or a successor depositary). After a Debenture Event of Default, the
holders of a majority in liquidation preference of Capital Securities or
aggregate principal amount of Junior Subordinated Debentures may determine to
discontinue the system of book-entry transfers through the Depositary. In any
such event, definitive certificates for such Capital Securities or Junior
Subordinated Debentures will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that CFB Capital
and the Company believe to be accurate, but CFB Capital and
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the Company assume no responsibility for the accuracy thereof. Neither CFB
Capital nor the Company has any responsibility for the performance by the
Depositary or its Participants of their respective obligations as described
herein or under the rules and procedures governing their respective operations.
DESCRIPTION OF GUARANTEE
The Capital Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Capital Securities for the benefit of the holders of the Capital Securities.
Wilmington Trust Company will act as indenture trustee ("Guarantee Trustee")
under the Guarantee for the purposes of compliance with the Trust Indenture Act,
and the Guarantee will be qualified as an Indenture under the Trust Indenture
Act. The following summary of certain provisions of the Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Guarantee Agreement, including the
definitions therein of certain terms, and the Trust Indenture Act. The form of
the Guarantee has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Capital Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis of
CFB Capital's obligations under the Capital Securities, but will apply only to
the extent that CFB Capital has funds sufficient to make such payments, and is
not a guarantee of collection.
The Company will irrevocably agree 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 CFB Capital 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 CFB Capital (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that CFB Capital has funds on hand available therefor at such time, (ii)
the Redemption Price with respect to any Capital Securities called for
redemption to the extent that CFB Capital has funds on hand available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding up
or liquidation of CFB Capital (unless the Junior Subordinated Debentures are
distributed to holders of the Capital Securities), the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of CFB Capital remaining
available for distribution to holders of Capital Securities. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the holders of the Capital Securities or by
causing CFB Capital to pay such amounts to such holders.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by CFB Capital, CFB Capital will not be able to pay
Distributions on the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior and Subordinated Debt of the Company. See "Status of the
Guarantee" below. Because the Company is a holding company, the right of the
Company 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 Company may
itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and claimants
should look only to the assets of the Company for payments thereunder. Except as
otherwise described herein, the Guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of the Company, including Senior and
Subordinated Debt whether under the Indenture, any other indenture that the
Company may enter into in the future, or otherwise.
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The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of CFB Capital'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 CFB
Capital's obligations under the Capital Securities. See "Relationship Among the
Capital Securities, the Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior and
Subordinated Debt in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The Guarantee
will 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 CFB Capital or upon distribution to the holders
of the Capital Securities of the Junior Subordinated Debentures to the holders
of the Capital Securities. The Guarantee does not place a limitation on the
amount of additional Senior and Subordinated Debt that may be incurred by the
Company. The Company expects from time to time to incur additional indebtedness
constituting Senior and Subordinated Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of such
outstanding Capital Securities. See "Description of the Capital Securities --
Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against CFB Capital, the Guarantee Trustee
or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
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,
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the Guarantee Trustee is under no obligation to exercise any of the powers
vested in it by the Guarantee at the request of any holder of the Capital
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Capital Securities, upon full payment of
the amounts payable upon liquidation of CFB Capital or upon distribution of
Junior Subordinated Debentures to the holders of the Capital Securities. The
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Capital Securities must restore payment of
any sums paid under the Capital Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Minnesota.
THE EXPENSE AGREEMENT
Pursuant to the Agreement as to Expenses and Liabilities entered into by the
Company under the Trust Agreement (the "Expense Agreement"), the Company will
irrevocably and unconditionally guarantee to each person or entity to whom CFB
Capital becomes indebted or liable, the full payment of any costs, expenses or
liabilities of CFB Capital, other than obligations of CFB Capital to pay to the
holders of the Capital Securities or other similar interests in CFB Capital of
the amounts due such holders pursuant to the terms of the Capital Securities or
such other similar interests, as the case may be.
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 CFB Capital has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of Guarantee." Taken together, the Company's
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement, the Expense 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 those documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of CFB Capital's obligations under the Capital Securities. If and to the extent
that the Company does not make payments on the Junior Subordinated Debentures,
CFB Capital will not pay Distributions or other amounts due on the Capital
Securities. The Guarantee does not cover payment of Distributions when CFB
Capital does not have sufficient funds to pay such Distributions. In such event,
the remedy of a holder of the Capital Securities is to institute a legal
proceeding directly against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior and Subordinated
Debt.
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 of the Junior Subordinated
Debentures will be equal to the sum of the aggregate Liquidation Amount of the
Capital Securities and Common Securities; (ii) the interest rate and interest
and other payment dates on the Junior Subordinated Debentures will match the
Distribution rate and Distribution and other payment dates for the Capital
Securities; (iii) the Company
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<PAGE>
shall pay for all and any costs, expenses and liabilities of CFB Capital except
CFB Capital's obligations to holders of Capital Securities; and (iv) the Trust
Agreement further provides that CFB Capital will not engage in any activity that
is not consistent with the limited purposes of CFB Capital.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE CAPITAL SECURITIES UNDER THE GUARANTEE
A holder of any the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, CFB Capital
or any other person or entity,
A default or event of default under any Senior and Subordinated Debt would
not constitute a default or Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior and Subordinated Debt, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior and
Subordinated Debt 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.
LIMITED PURPOSE OF CFB CAPITAL
The Capital Securities evidence a beneficial interest in CFB Capital, and
CFB Capital exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of the Capital Securities and a holder
of a Subordinated Debenture is that a holder of a Subordinated Debenture is
entitled to receive from the Company the principal amount of and interest
accrued on Junior Subordinated Debentures held, while a holder of the Capital
Securities is entitled to receive Distributions from CFB Capital (or from the
Company under the Guarantee) if and to the extent CFB Capital has funds
available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
CFB Capital involving the liquidation of the Junior Subordinated Debentures, the
holders of Capital Securities will be entitled to receive, out of assets held by
CFB Capital, the Liquidation Distribution in cash. See "Description of the
Capital Securities -- Liquidation Distribution Upon Termination." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the Property
Trustee, as holder of the Junior Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior and Subordinated Debt as set forth in the Indenture, but entitled to
receive payment in full of principal and interest, before any stockholders of
the Company receive payments or distributions. Since the Company is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of CFB Capital (other than CFB Capital's obligations to the holders
of its Capital Securities), the positions of a holder of the Capital Securities
and a holder of Junior Subordinated Debentures relative to other creditors and
to stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Lindquist & Vennum P.L.L.P., counsel to the Company
("Counsel"), the following summary accurately describes the material United
States federal income tax consequences that may be relevant to the purchase,
ownership and disposition of Capital Securities. Unless otherwise stated, this
summary deals only with Capital Securities held as capital assets by United
States Persons (defined below) who purchase the Capital Securities upon original
issuance at their original offering price. As used herein, a
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<PAGE>
"United States Person" means a person that is (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to United States federal
income taxation regardless of its source, or (iv) a trust the income of which is
subject to United States federal income taxation regardless of its source;
provided, however, that for taxable years beginning after December 31, 1996 (or,
if a trustee so elects, for taxable years ending after August 20, 1996), a
"United States Person" shall include any trust if a court is able to exercise
primary supervision over the administration of such trust and one or more United
States fiduciaries have the authority to control all substantial decisions of
such trust. The tax treatment of holders may vary depending on their particular
situation. This summary does not address all the tax consequences that may be
relevant to a particular holder or to holders who may be subject to special tax
treatment, such as banks, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors, or foreign investors. In addition, this summary does not include any
description of any alternative minimum tax consequences or the tax laws of any
state, local or foreign government that may be applicable to a holder of Capital
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
The following discussion does not discuss the tax consequences that might be
relevant to persons that are not United States Persons ("non-United States
Persons") . Non-United States Persons should consult their own tax advisors as
to the specific United States federal income tax consequences of the purchase,
ownership and disposition of Capital Securities.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Counsel are not binding on the Internal
Revenue Service ("Service") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the Service with
respect to the transactions described herein. Accordingly, there can be no
assurance that the Service will not challenge the opinions expressed herein or
that a court would not sustain such a challenge. Nevertheless, Counsel has
advised that it is of the view that, if challenged, the opinions expressed
herein would be sustained by a court with jurisdiction in a properly presented
case.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE CAPITAL
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE "DESCRIPTION OF
CAPITAL SECURITIES -- REDEMPTION."
CLASSIFICATION OF CFB CAPITAL
In connection with the issuance of the Capital Securities, Counsel is of the
opinion that, under current law and assuming compliance with the terms of the
Trust Agreement, and based on certain facts and assumptions contained in such
opinion, CFB Capital will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of the Capital Securities (a
"Securityholder") will be treated as owning an undivided beneficial interest in
the Junior Subordinated Debentures. Accordingly, each Securityholder will be
required to include in its gross income its pro rata share of the interest
income or original issue discount that is paid or accrued on the Junior
Subordinated Debentures. See "-- Interest Income and Original Issue Discount."
No amount included in income with respect to the Capital Securities will be
eligible for the dividends received deduction.
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<PAGE>
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company intends to take the position that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company under current law, and, by acceptance of a Capital
Security, each holder covenants to treat the Junior Subordinated Debentures as
indebtedness and the Capital Securities as evidence of an indirect beneficial
ownership interest in the Junior Subordinated Debentures. No assurance can be
given, however, that such position of the Company will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. The remainder of this discussion assumes that the Junior
Subordinated Debentures will be classified for United States federal income tax
purposes as indebtedness of the Company.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be included in income by a Securityholder at the time
such interest income is paid or accrued in accordance with such Securityholder's
regular method of tax accounting.
The Company believes that, under the applicable Treasury regulations, the
Junior Subordinated Debentures will not be considered to have been issued with
"original issue discount" ("OID") within the meaning of Section 1273(a) of the
Code. If, however, the Company exercises its right to defer Payments of interest
on the Junior Subordinated Debentures, the Junior Subordinated Debentures will
become OID instruments at such time and all Securityholders will be required to
accrue the stated interest on the Junior Subordinated Debentures on a daily
basis during the Extension Period, even though the Company will not pay such
interest until the end of the Extension Period, and even though some
Securityholders may use the cash method of tax accounting. Moreover, thereafter
the Junior subordinated Debentures will be taxed as OID instruments for as long
as they remain outstanding. Thus, even after the end of the Extension Period,
all Securityholders would be required to continue to include the stated interest
on the Junior Subordinated Debentures in income on a daily economic accrual
basis, regardless of their method of tax accounting and in advance of receipt of
the cash attributable to such interest income. Under the OID economic accrual
rules, a Securityholder would accrue an amount of interest income each year that
approximates the stated interest payments called for under the Junior
Subordinated Debentures, and actual cash payments of interest on the Junior
Subordinated Debentures would not be reported separately as taxable income.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the Service, and it is possible that the
Service could take a contrary position. If the Service were to assert
successfully that the stated interest on the Junior Subordinated Debentures was
OID regardless of whether the Corporation exercises its right to defer payments
of interest on such debentures, all Securityholders would be required to include
such stated interest in income on a daily economic accrual basis as described
above.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL SECURITIES
Under current law, a distribution by CFB Capital of the Junior Subordinated
Debentures as described under the caption "Description of Capital Securities --
Liquidation and Distribution Upon Termination" will be non-taxable and will
result in the Securityholder receiving directly its pro rata share of the Junior
Subordinated Debentures previously held indirectly through CFB Capital, with a
holding period and aggregate tax basis equal to the holding period and aggregate
tax basis such Securityholder had in its Capital Securities before such
distribution. If, however, the liquidation of CFB Capital were to occur because
CFB Capital is subject to United States federal income tax with respect to
income accrued or received on the Junior Subordinated Debentures as a result of
a Tax Event or otherwise, the distribution of Junior Subordinated Debentures to
Securityholders by CFB Capital could be a taxable event to CFB Capital and each
Securityholder, and a Securityholder would recognize gain or loss as if the
Securityholder had exchanged its Capital Securities for the Junior Subordinated
Debentures it received upon the liquidation of CFB Capital. A Securityholder
would recognize interest income in respect of Junior Subordinated Debentures
received from CFB Capital in the manner described above under "-- Interest
Income and Original Issue Discount."
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<PAGE>
SALES OR REDEMPTION OF CAPITAL SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Capital
Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which for this purpose, will exclude
amounts attributable to accrued interest or OID not previously included in
income) and the Securityholder's adjusted tax basis in the Capital Securities
sold or so redeemed. Gain or loss recognized by a Securityholder on Capital
Securities held for more than one year will generally be taxable as long-term
capital gain or loss. Amounts attributable to accrued interest with respect to a
Securityholder's pro rata share of the Junior Subordinated Debentures not
previously included in income will be taxable as ordinary income.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on the Capital Securities held of record by United
States Persons (other than corporations and other exempt Securityholders), if
any, will be reported to the Service. "Backup" withholding at a rate of 31% will
apply to payments of interest to non-exempt United States Persons unless the
Securityholder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and meets
certain other conditions. Any amounts withheld from a Securityholder under the
backup withholding rules will be allowed as a refund or a credit against such
Securityholder's United States federal income tax liability, provided the
required information is furnished to the Service.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's budget proposal, was released. The Bill
would, among other things, deny interest deductions for interest on an
instrument issued by a corporation that has a maximum term of more than 20 years
and that is not shown as indebtedness on the separate balance sheet of the
issuer or, where the instrument is issued to a related party (other than a
corporation), where the holder or some other related party issues a related
instrument that is not shown as indebtedness on the issuer's consolidated
balance sheet. It is possible that this provision could be adopted with
retroactive effect, in which event the Company might be unable to deduct
interest on the Junior Subordinated Debentures. However, on March 29, 1996, the
Chairmen of the Senate Finance and House Ways and Means Committees issued a
joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, will be no earlier
than the date of appropriate Congressional action. However, there can be no
assurance that current or future legislative proposals or final legislation will
not affect the ability of the Company to deduct interest on the Junior
Subordinated Debentures. Such a change could give rise to a Tax Event, which may
permit the Company, upon approval of the Federal Reserve if then required under
applicable capital guidelines or policies of the Federal Reserve, to cause a
redemption of the Capital Securities. See "Description of the Capital Securities
- -- Redemption" and "Description of Junior Subordinated Debentures --
Redemption."
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<PAGE>
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of a Purchase Agreement to purchase from CFB Capital the respective
principal amount of the Capital Securities set forth opposite their names in the
table below.
<TABLE>
<CAPTION>
UNDERWRITER AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
Piper Jaffray Inc............................................................... $
Dain Bosworth Incorporated......................................................
------------
$
------------
------------
</TABLE>
The Underwriters have advised the Company and CFB Capital that they propose
to offer the Capital Securities directly to the public initially at the public
offering price set forth on the cover page of this Prospectus and to selected
dealers at such price less a concession not in excess of $ per Capital
Security. The Underwriters may allow and such dealers may reallow a concession
not in excess of $ per Capital Security to certain other brokers and
dealers. After the public offering, the public offering price, concession and
reallowance, and other selling terms may be changed by the Underwriters.
In view of the fact that the proceeds from the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Purchase Agreement provides that the Company will pay as
compensation for the Underwriters' arranging the investment therein of such
proceeds an amount of $ per Capital Security.
Each of the Company and CFB Capital has agreed to indemnify the Underwriters
and their controlling persons against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The Underwriters have advised CFB that it does not intend to confirm sales
to any account over which it exercises discretionary authority in excess of 5%
of the number of Capital Securities offered hereby.
Piper Jaffray Inc. and Dain Bosworth Incorporated have periodically provided
investment banking services to the Company.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the formation of CFB
Capital will be passed upon by Richards, Layton & Finger, P.A., Wilmington,
Delaware, special Delaware counsel to the Company and CFB Capital. The validity
of the Guarantee and the Junior Subordinated Debentures will be passed upon for
the Company by Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota, counsel to
the Company. Patrick Delaney, a holder of common stock and of options to
purchase common stock and a director of the Company, is a partner in Lindquist &
Vennum. Certain legal matters in connection with this Offering will be passed
upon for the Underwriters by Faegre & Benson LLP, Minneapolis, Minnesota.
Lindquist & Vennum and Faegre & Benson LLP will rely on the opinions of
Richards, Layton & Finger as to matters of Delaware law. Certain matters
relating to United States federal income tax considerations will be passed upon
for the Company by Lindquist & Vennum.
EXPERTS
The supplemental consolidated financial statements of the Company at
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 incorporated by reference in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon incorporated by reference in this Prospectus and
Registration Statement, which report (i) is based in part on the reports of
Arthur Andersen LLP, formerly independent auditors for
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<PAGE>
Mountain Parks, on the consolidated financial statements of Mountain Parks and
Subsidiaries at December 31, 1995 and 1994 and for each of the three years in
the period ended December 31, 1995, and (ii) as to the years 1994 and 1993, is
based in part on the reports of Hacker, Nelson & Co., P.C. and Fortner, Bayens,
Levkulich and Co., P.C., formerly independent auditors for Minowa Bancshares,
Inc. and First Community Bankshares, Inc., respectively. As of the date of their
reports and during the periods covered by the financial statements on which they
reported, each of the foregoing accounting firms were independent certified
public accountants with respect to the Company, Mountain Parks, Minowa
Bancshares, Inc. and First Community Bankshares, Inc., as the case may be,
within the meaning of the Securities Act and the applicable published rules and
regulations thereunder. The Company has agreed to indemnify Hacker, Nelson &
Co., P.C., its officers, directors and employees from any and all damages,
fines, legal costs and expenses that may be incurred by the parties being
indemnified in successfully defending their audit to any person, corporation or
governmental entity relying upon the audit, provided that such indemnification
will not apply to any claim, legal expense, or costs incurred if Hacker, Nelson
& Co., P.C. has been found guilty of professional malpractice with respect to
such audit. The supplemental consolidated financial statements referred to above
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firms as experts in accounting and auditing.
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<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR EITHER UNDERWRITER. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE
AN IMPLICATION THAT THE INFORMATION HEREIN OR INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR 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 TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 4
Incorporation of Certain Documents by Reference........................... 4
Prospectus Summary........................................................ 5
Summary Supplemental Historical Consolidated Financial Data............... 10
Risk Factors.............................................................. 13
Recent Developments....................................................... 19
Use of Proceeds........................................................... 19
Accounting Treatment...................................................... 20
Capitalization............................................................ 21
Management................................................................ 22
Description of the Capital Securities..................................... 25
Description of Junior Subordinated Debentures............................. 37
Book-Entry Issuance....................................................... 46
Description of Guarantee.................................................. 48
Relationship among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee............................................ 50
Certain Federal Income Tax Consequences................................... 51
Underwriting.............................................................. 55
Legal Matters............................................................. 55
Experts................................................................... 55
</TABLE>
2,400,000 CAPITAL SECURITIES
CFB CAPITAL I
% Cumulative Capital Securities
(Liquidation Amount $25 per Capital Security)
Fully and Unconditionally Guaranteed,
as Described Herein, by
[LOGO]
-----------------
P R O S P E C T U S
------------------
PIPER JAFFRAY INC.
DAIN BOSWORTH
INCORPORATED
, 1997
