PROSPECTUS Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-30315-01 and
333-30315
[Logo]
$20,000,000
(Aggregate Liquidation Amount)
Mason-Dixon Capital Trust
$2.5175 Preferred Securities
(Liquidation Amount $25 per Preferred Security)
fully and unconditionally guaranteed, to the extent described herein, by
Mason-Dixon Bancshares, Inc.
---------------
The Preferred Securities offered hereby on behalf of BT Securities
Corporation (the "Selling Security Holder"), as the selling security holder,
represent preferred undivided beneficial interests in the assets of Mason-Dixon
Capital Trust, a statutory business trust created under the laws of the State of
Delaware (the "Issuer Trust"). Mason-Dixon Bancshares, Inc. (the "Company") is
the holder of all of the beneficial interests represented by common securities
of the Issuer Trust (the "Common Securities" and together with the Preferred
Securities, the "Trust Securities"), and the Selling Security Holder is
currently the holder of all of the Preferred Securities.
(Continued on next page)
---------------
See "Risk Factors" beginning on page 10 hereof for
certain information relevant to an investment in the
Preferred Securities.
---------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER INSURER OR GOVERNMENT AGENCY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
<TABLE>
<CAPTION>
==========================================================================================
Price Underwriting Proceeds to the
to Discounts or Selling Security
Public(1) Commissions(2) Holder(3)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security.............. $26.25 $1.00 $25.25
- ------------------------------------------------------------------------------------------
Total............................... $21,000,000 $800,000 $20,200,000
==========================================================================================
<FN>
(1) Plus accrued Distributions, if any, from July 16, 1997.
(2) The Company, the Issuer Trust, and the Selling Security Holder have each
agreed to indemnify the Underwriter against certain liabilities under the
Securities Act of 1933. See "Underwriting."
(3) Before deduction of expenses.
</FN>
</TABLE>
The Preferred Securities are offered by the Underwriter subject to receipt
and acceptance by it, prior sale and the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about July 16, 1997 against payment therefor in immediately
available funds.
ALEX. BROWN & SONS
INCORPORATED
The date of this Prospectus is July 11, 1997.
<PAGE>
(cover page continued)
The Issuer Trust was established for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in 10.07% Junior
Subordinated Debentures (the "Junior Subordinated Debentures") issued by the
Company. The Junior Subordinated Debentures mature on June 15, 2027 (the "Stated
Maturity"). See "Description of Junior Subordinated Debentures - General." The
Preferred Securities have a preference under certain circumstances over the
Common Securities with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of Preferred
Securities--Subordination of Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depositary ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of Preferred
Securities," Preferred Securities in definitive form will not be issued and
owners of beneficial interests in the global securities will not be considered
holders of the Preferred Securities. Application has been made to include the
Preferred Securities in NASDAQ's National Market. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred Securities
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of the Preferred Securities are entitled to receive
preferential cumulative cash distributions accumulating from July 16, 1997 and
payable semi-annually in arrears on June 15 and December 15 of each year,
commencing December 15, 1997, at the annual rate of $2.5175 per Preferred
Security ("Distributions"), which is equal to 10.07% of the Liquidation Amount
of $25 per Preferred Security. The first Distribution subsequent to the offering
made hereby will be on December 15, 1997. The distribution rate and the
distribution payment dates and other payment dates for the Preferred Securities
will correspond to the interest rate and interest payment dates and other
payment dates on the Junior Subordinated Debentures, which are the sole assets
of the Issuer Trust. The Company has the right to defer payment of interest on
the Junior Subordinated Debentures at any time from time to time for a period
not exceeding 10 consecutive semi-annual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. No
interest shall be due and payable during any Extension Period, except at the end
thereof. Upon the termination of any such Extension Period and the payment of
all amounts then due, the Company may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the Junior
Subordinated are so deferred, Distributions on the Preferred Securities will
also be deferred and the Company will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to the Company's capital stock or with respect to debt securities of the
Company that rank pari passu in all respects with or junior to the Junior
Subordinated Debentures. During an Extension Period, interest on the Junior
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of the Preferred Securities are entitled will accumulate) at
the rate of 10.07% per annum, compounded semi-annually, and holders of Preferred
Securities will be required to accrue interest 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-US Holders-Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
the Issuer Trust's obligations under the Preferred Securities as described
below. See "Relationship Among the Preferred Securities, the Junior Subordinated
2
<PAGE>
Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of Guarantee." If the Company does not make
payments on the Junior Subordinated Debentures held by the Issuer Trust, the
Issuer Trust may have insufficient funds to pay Distributions on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer Trust does not have sufficient funds to pay such Distributions. In such
event, a holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce payment of such Distributions to such
holder. See "Description of Junior Subordinated Debentures --Enforcement of
Certain Rights by Holders of Preferred Securities." The obligations of the
Company under the Guarantee and the Preferred Securities are subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Junior Subordinated Debentures -- Subordination") of the
Company.
The Preferred Securities are subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Junior Subordinated Debentures at
Stated Maturity or their earlier redemption in whole upon the occurrence of a
Tax Event, an Investment Company Event or a Capital Treatment Event (each as
defined herein) and (ii) in whole or in part at any time on or after June 15,
2007 contemporaneously with the optional redemption by the Company of the Junior
Subordinated Debentures in whole or in part. The Junior Subordinated Debentures
are redeemable prior to maturity at the option of the Company (i) on or after
June 15, 2007, in whole at any time or in part from time to time, or (ii) in
whole, but not in part, at any time within 90 days following the occurrence and
continuation of a Tax Event, Investment Company Event or Capital Treatment Event
(each as defined herein), in each case at a redemption price set forth herein,
which includes the accrued and unpaid interest on the Junior Subordinated
Debentures so redeemed to the date fixed for redemption. The ability of the
Company to exercise its rights to redeem the Junior Subordinated Debentures or
to cause the redemption of the Preferred Securities prior to the Stated Maturity
may be subject to prior regulatory approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), if then required under
applicable Federal Reserve capital guidelines or policies. See "Description of
Junior Subordinated Debentures--Redemption" and "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution."
The holders of the outstanding Common Securities have the right at any
time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust. The ability
of the Company to dissolve the Issuer Trust may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution."
In the event of the dissolution of the Issuer Trust, after satisfaction
of liabilities to creditors of the Issuer Trust as provided by applicable law,
the holders of the Preferred Securities will be entitled to receive a
Liquidation Amount of $25 per Preferred Security plus accumulated and unpaid
Distributions thereon to the date of payment, subject to certain exceptions,
which may be in the form of a distribution of such amount in Junior Subordinated
Debentures. See "Description of Preferred Securities--Liquidation Distribution
Upon Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to
all Senior Indebtedness of the Company. See "Description of Junior Subordinated
Debentures--Subordination."
3
<PAGE>
Prospective purchasers must carefully consider the restrictions on
purchase set forth in "Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS
OF THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENT AGENCY.
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
This Prospectus does not contain all the information set forth in the
Registration Statement and Exhibits thereto, which the Company has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act") and to which reference is hereby made.
No separate financial statements of the Issuer Trust have been included
or incorporated by reference herein. The Company and the Issuer Trust do not
consider that such financial statements would be material to holders of the
Preferred Securities because the Issuer Trust is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"Mason-Dixon Capital Trust," "Description of Preferred Securities," "Description
of Junior Subordinated Debentures" and "Description of Guarantee." In addition,
the Company does not expect that the Issuer Trust will be filing reports under
the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, Quarterly Report on Form 10-Q for the three months ended March 31, 1997,
and Current Report on Form 8-K filed on June 13, 1997, all of which were
previously filed by the Company with the Commission pursuant to Section 13 of
the Exchange Act.
In addition, all reports and definitive proxy statements or information
statements filed by the Company with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of any offering of securities made by this
Prospectus shall be deemed to be incorporated herein by reference and to be a
part hereof from the date of filing of such documents. Any statement contained
herein or in any document all or a portion of which is incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement or this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than certain exhibits to such
documents). Requests should be made to Vivian A. Davis, Corporate Secretary,
Mason-Dixon Bancshares, Inc., 45 W. Main Street, Westminster, Maryland 21157,
(410) 857-3401.
5
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
PREFERRED SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING THE PREFERRED
SECURITIES AND BIDDING FOR AND PURCHASING SUCH SECURITIES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
6
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
As used herein, (i) the "Junior Subordinated Indenture" means the
Junior Subordinated Indenture, as amended and supplemented from time to time,
between the Company and Bankers Trust Company, as trustee (the "Debenture
Trustee"), pursuant to which the Junior Subordinated Debentures are issued, (ii)
the "Trust Agreement" means the Amended and Restated Trust Agreement relating to
the Issuer Trust, as amended and supplemented from time to time, among the
Company, as Depositor, Bankers Trust Company, as Property Trustee (the "Property
Trustee") and Bankers Trust (Delaware), as Delaware Trustee (the "Delaware
Trustee") (collectively, the "Issuer Trustees") and (iii) the "Guarantee" means
the Guarantee Agreement relating to the Preferred Securities, as amended and
supplemented from time to time, between the Company and Bankers Trust Company,
as Guarantee Trustee.
Mason-Dixon Bancshares, Inc.
The Company is a multi-bank holding company organized in 1991 under the
laws of the State of Maryland. The Company operates two bank subsidiaries,
Carroll County Bank and Trust Company ("Carroll County Bank") and Bank of
Maryland ("Bank of Maryland" and, together with Carroll County Bank, the "Bank
Subsidiaries"). Through the Bank Subsidiaries, the Company provides corporate,
consumer and mortgage banking services, trust services, and non-deposit
investment products for its customers. Carroll County Bank has been providing
banking services to residents of Carroll County, Maryland for over a century.
Banking services are provided through 22 retail banking offices which
are located primarily in central Maryland and on Maryland's Eastern Shore. Some
investment services are offered through Carrollco Insurance, Inc., a
wholly-owned subsidiary of Carroll County Bank, which provides non-deposit
investment products to customers.
Through the Bank Subsidiaries, the Company engages in commercial,
savings, and trust business, including the receiving of demand and time
deposits, and the making of loans to individuals, associations, partnerships and
corporations. Real estate financing comprises residential first and second
mortgages, construction and land development, home equity lines of credit, and
commercial mortgages. Consumer lending is direct to individuals on both a
secured and unsecured basis. Commercial loans include lines of credit, term and
demand loans for the purchase of equipment, inventory and accounts receivable
financing.
Mason-Dixon Capital Trust
The Issuer Trust is a statutory business trust created under Delaware
law on June 6, 1997. The Issuer Trust is governed by a Second Amended and
Restated Trust Agreement among the Company, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company, as Property Trustee.
The Issuer Trust exists for the exclusive purposes of (i) issuing and selling
the Trust Securities, (ii) using the proceeds from the sale of the Trust
Securities to acquire the Junior Subordinated Debentures and (iii) engaging in
only those other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Trust Securities). Accordingly, the Junior
Subordinated Debentures are the sole assets of the Issuer Trust, and payments
under the Junior Subordinated Debentures will be the sole source of revenue of
the Issuer Trust.
7
<PAGE>
Selling Security Holder
This Prospectus relates to the sale of Preferred Securities held by the
Selling Security Holder. The Selling Security Holder purchased the Preferred
Securities from the Issuer Trust on June 6, 1997. Under the terms of a
Registration Rights Agreement among the Trust, the Company and the Selling
Security Holder, the Trust and the Company agreed to register for resale all of
the Preferred Securities held by the Selling Security Holder upon request.
Accordingly, the Company will not receive any of the proceeds from the sale of
the Preferred Securities hereunder. See "Selling Security Holder" and "Use of
Proceeds."
The Offering
<TABLE>
<S> <C> <C>
Securities Offered.................. $20,000,000 aggregate Liquidation Amount of $2.5175
Preferred Securities (Liquidation Amount $25 per Preferred
Security).
Offering Price...................... $26.25 per Preferred Security (Liquidation Amount $25), plus
accumulated Distributions, if any, from July 16, 1997.
Distribution Dates.................. June 15 and December 15 of each year, commencing
December 15, 1997.
Extension Periods................... Distributions on Preferred Securities may be deferred for the
duration of any Extension Period selected by the Company
with respect to the payment of interest on the Junior
Subordinated Debentures. No Extension Period will exceed 10
consecutive semi-annual periods or extend beyond the Stated
Maturity. See "Description of Junior Subordinated
Debentures--Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--US
Holders--Interest Income and Original Issue Discount."
Ranking............................. The Preferred Securities rank pari passu, and payments thereon
will be made pro rata, with the Common Securities except as
described under "Description of Preferred Securities--
Subordination of Common Securities." The Junior
Subordinated Debentures are unsecured and subordinate and
junior in right of payment to the extent and in the manner set
forth in the Junior Subordinated Indenture to all Senior
Indebtedness (as defined herein). See "Description of Junior
Subordinated Debentures." The Guarantee constitutes an
unsecured obligation of the Company and will rank
subordinate and junior in right of payment to the extent and
in the manner set forth in the Guarantee to all Senior
Indebtedness. See "Description of Guarantee." In addition,
because the Company is a holding company, the Junior
Subordinated Debentures and the Guarantee effectively are
subordinated to all existing and future liabilities of the
Company's subsidiaries, including the Bank Subsidiaries'
deposit liabilities. See "Description of Junior Subordinated
Debentures - Subordination."
8
<PAGE>
Redemption.......................... The Trust Securities are subject to mandatory redemption (i)
in whole, but not in part, at the Stated Maturity upon
repayment of the Junior Subordinated Debentures, (ii) in
whole, but not in part, contemporaneously with the optional
redemption at any time by the Company of the Junior
Subordinated Debentures upon the occurrence and
continuation of a Tax Event, Investment Company Event or
Capital Treatment Event and (iii) in whole or in part, at any
time on or after June 15, 2007, contemporaneously with the
optional redemption by the Company of the Junior
Subordinated Debentures in whole or in part, in each case at
the applicable Redemption Price. See "Description of Preferred
Securities-- Redemption."
No Rating........................... The Preferred Securities are not expected to be rated by any
rating service, nor is any other security issued by the
Company so rated.
ERISA Considerations................ Prospective purchasers should carefully consider the
restrictions on purchase set forth under "Certain ERISA
Considerations."
Use of Proceeds..................... All proceeds to the Issuer Trust from the sale of the Preferred
Securities to the Selling Security Holder have been invested by
the Issuer Trust in the Junior Subordinated Debentures. All
the net proceeds received by the Company from the sale of the
Junior Subordinated Debentures will be used for general
corporate purposes, including repayment of the outstanding
balance of the Term Loan (as defined herein) and repurchase
of outstanding shares of the Common Stock, par value $1.00
per share (the "Common Stock"), of the Company in
connection with the settlement of certain litigation. See "Use
of Proceeds" and "Capitalization." The Trust Securities qualify
as Tier 1 or core capital of the Company, subject to the 25%
Capital Limitation (as defined herein), under the risk-based
capital guidelines of the Federal Reserve. The portion of the
Trust Securities that exceeds the 25% Capital Limitation will
qualify as Tier 2 or supplementary capital of the Company.
See "Use of Proceeds."
NASDAQ National Market
Symbol............................ Application has been made to have the Preferred Securities
approved for quotation on the NASDAQ National Market
under the symbol "MSDXP".
</TABLE>
For additional information regarding the Preferred Securities, see
"Description of Preferred Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee," "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures and the Guarantee" and "Certain
Federal Income Tax Consequences."
Risk Factors
Prospective investors should carefully consider the matters set forth
under "Risk Factors."
9
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Preferred Securities offered by this Prospectus. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases such as
"intended," "will be positioned," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
the Company's current expectations. To the extent any of the information
contained or incorporated by reference in this Prospectus constitutes a
"forward-looking statement" as defined in Section 27A(i)(1) of the Securities
Act and Section 21E(i)(1) of the Exchange Act, the risk factors set forth below
are cautionary statements identifying important factors that could cause actual
results to differ materially from those in the forward-looking statement.
Risk Factors Relating To The Offering
Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures. The obligations of the Company under the Guarantee
issued by the Company for the benefit of the holders of Preferred Securities and
under the Junior Subordinated Debentures are subordinate and junior in right of
payment to all Senior Indebtedness. At June 30, 1997, the Senior Indebtedness of
the Company aggregated approximately $2 million. None of the Junior Subordinated
Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Indebtedness, that may be
incurred by the Company. See "Description of Guarantee--Status of the Guarantee"
and "Description of Junior Subordinated Debentures--Subordination."
The ability of the Issuer Trust to pay amounts due on the Preferred
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
Option to Extend Interest Payment Period; Tax Consequences. So long as no
Event of Default (as defined in the Junior Subordinated Indenture) has occurred
and is continuing with respect to the Junior Subordinated Debentures (a
"Debenture Event of Default"), the Company has the right under the Junior
Subordinated Indenture to defer the payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated Maturity
of the Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Debenture Events of Default." As a consequence of any such deferral,
semi-annual Distributions on the Preferred Securities by the Issuer Trust will
be deferred during any such Extension Period. Distributions to which holders of
the Preferred Securities are entitled will accumulate additional Distributions
thereon during any Extension Period at an annual rate equal to $2.5175 per
Preferred Security, compounded semi-annually from the relevant payment date for
such Distributions, computed on the basis of a 360-day year of twelve 30-day
months and the actual days elapsed in a partial month in such period. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by two. The term "Distribution" as used herein shall
include any such additional Distributions. During any such Extension Period, the
Company may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Junior Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment
10
<PAGE>
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, in connection
with a dividend reinvestment or stockholder stock purchase plan or in connection
with the issuance of capital stock of the Company (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholder's rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. Upon the termination of any Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at an annual rate equal to $2.5175 per Preferred Security,
compounded semiannually, to the extent permitted by applicable law), the Company
may elect to begin a new Extension Period subject to the above conditions. No
interest shall be due and payable during an Extension Period, except at the end
thereof. The Company must give the Issuer Trustees notice of its election of
such Extension Period at least one Business Day prior to the earlier of (i) the
date the Distributions on the Preferred Securities would have been payable but
for the election to begin such Extension Period and (ii) the date the Property
Trustee is required to give notice to holders of the Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Property Trustee will
give notice of the Company's election to begin a new Extension Period to the
holders of the Preferred Securities. Subject to the foregoing, there is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Preferred Securities--Distributions" and
"Description of Junior Subordinated Debentures--Option to Extend Interest
Payment Period."
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount) for United
States federal income tax purposes in respect of its pro rata share of the
Junior Subordinated Debentures held by the Issuer Trust (which will include a
holder's pro rata share of both the stated interest and de minimis original
issue discount, if any, on the Junior Subordinated Debentures). As a result, a
holder of Preferred Securities will include such interest income in gross income
for United States federal income tax purposes in advance of the receipt of cash
attributable to such original issue discount interest income, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Preferred Securities prior to the record date for the payment of
Distributions with respect to such Extension Period. See "Certain Federal Income
Tax Consequences--US Holders--Interest Income and Original Issue Discount" and
"--Sales of Preferred Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Preferred Securities is likely to
be affected. A holder that disposes of its Preferred Securities during an
Extension Period, therefore, might not receive the same return on its investment
as a holder that continues to hold its Preferred
11
<PAGE>
Securities. In addition, as a result of the existence of the Company's right to
defer interest payments, the market price of the Preferred Securities (which
represent preferred undivided beneficial interests in the assets of the Issuer
Trust) may be more volatile than the market prices of other securities on which
original issue discount accrues that are not subject to such deferrals.
Tax Event, Investment Company Event or Capital Treatment Event Redemption.
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time within
90 days following the occurrence of such Tax Event, Investment Company Event or
Capital Treatment Event and thereby cause a mandatory redemption of the
Preferred Securities and Common Securities. Any such redemption shall be at a
price equal to the liquidation amount of the Preferred Securities and Common
Securities, respectively, together with accumulated Distributions to but
excluding the date fixed for redemption. The ability of the Company to exercise
its rights to redeem the Junior Subordinated Debentures prior to the stated
maturity may be subject to prior regulatory approval by the Federal Reserve, if
then required, as it currently is, under applicable Federal Reserve capital
guidelines or policies. See "Description of Junior Subordinated
Debentures--Redemption" and "Description of Preferred Securities--Liquidation
Distribution Upon Dissolution."
A "Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) the Issuer
Trust is, or will be within 90 days of the delivery of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
See "Certain Federal Income Tax Consequences--Proposed Tax Law Changes"
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
Preferred Securities prior to June 15, 2007.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Preferred Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change)
12
<PAGE>
in, the laws (or any rules or regulations thereunder) of the United States or
any political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement, action or decision is announced on or after the date of
issuance of the Preferred Securities, there is more than an insubstantial risk
that the Company will not be entitled to treat an amount equal to the
Liquidation Amount of the Preferred Securities as "Tier 1 Capital" (or the then
equivalent thereof), except as otherwise restricted under the 25% Capital
Limitation (as defined herein), for purposes of the risk-based capital adequacy
guidelines of the Federal Reserve, as then in effect and applicable to the
Company.
Proposed Tax Law Changes. On February 6, 1997, President Clinton released
his budged proposals for fiscal year 1998. One proposal therein (the
"President's Proposal"), would generally deny corporate issuers a deduction for
interest on certain debt obligations that have a maximum term in excess of 15
years and are 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. As drafted, the President's Proposal would not apply
retroactively to the Junior Subordinated Debentures. However, if the President's
Proposal (or similar legislation) is enacted with retroactive effect with
respect to the Junior Subordinated Debentures, the Company would not be entitled
to an interest deduction with respect to the Junior Subordinated Debentures.
Fiscal year 1998 budget reconciliation legislation is currently pending
before the United States Congress. Neither the budget reconciliation bill passed
by the House of Representatives nor the budget reconciliation bill passed by the
Senate contains a provision substantially similar to the President's Proposal.
There can be no assurance that the President's Proposal will not be
enacted, and that, if enacted, it will not apply retroactively to the Junior
Subordinated Debentures or that other legislation enacted after the date hereof
will not otherwise adversely affect the ability of the Company to deduct the
interest payable on the Junior Subordinated Debentures. Accordingly, there can
be no assurance that a Tax Event will not occur. See "Description of Preferred
Securities--Redemption."
Exchange of Preferred Securities for Junior Subordinated Debentures. The
holders of all the outstanding Common Securities have the right at any time to
dissolve the Issuer Trust and, after satisfaction of liabilities to creditors of
the Issuer Trust as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Preferred Securities and
Common Securities in liquidation of the Issuer Trust. The ability of the Company
to dissolve the Issuer Trust may be subject to prior regulatory approval of the
Federal Reserve, if then required under applicable Federal Reserve capital
guidelines or policies. See "Description of Preferred Securities--Liquidation
Distribution Upon Dissolution." The Junior Subordinated Debentures, if
distributed, may be subject to restrictions on transfer as described under
"Notice to Investors."
Under current United States federal income tax law and interpretations and
assuming, as expected, that the Issuer Trust will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of the Issuer Trust will not be a taxable event to holders of the
Preferred Securities. However, if a Tax Event were to occur that would cause the
Issuer Trust to be subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, a distribution
of the Junior Subordinated Debentures by the Issuer Trust would be a taxable
event to the Issuer Trust and the holders of the Preferred Securities. See
"Certain
13
<PAGE>
Federal Income Tax Consequences--Receipt of Junior Subordinated Debentures or
Cash Upon Liquidation of the Trust."
Rights Under the Guarantee. Bankers Trust Company acts as the trustee
under the Guarantee (the "Guarantee Trustee") and holds the Guarantee for the
benefit of the holders of the Preferred Securities. Bankers Trust Company also
acts as Debenture Trustee for the Junior Subordinated Debentures and as Property
Trustee under the Trust Agreement. Bankers Trust (Delaware) will act as Delaware
Trustee under the Trust Agreement. The Guarantee guarantees to the holders of
the Preferred Securities the following payments, to the extent not paid by or on
behalf of the Issuer Trust: (i) any accumulated and unpaid Distributions
required to be paid on the Preferred Securities, to the extent that the Issuer
Trust has funds on hand available therefor at such time, (ii) the Redemption
Price with respect to any Preferred Securities called for redemption, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (iii) upon a voluntary or involuntary dissolution of the Issuer Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Preferred Securities), the lesser of (a) the aggregate of the Liquidation Amount
and all accumulated and unpaid Distributions to the date of payment, to the
extent that the Issuer Trust has funds on hand available therefor at such time,
and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Preferred Securities on liquidation of the Issuer
Trust. The Guarantee is subordinated as described under "--Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures" and "Description of Guarantee--Status of the Guarantee." The holders
of not less than a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred
Securities may institute a legal proceeding directly against the Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Issuer Trust, the Guarantee Trustee or any other person
or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Issuer Trust may lack funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Junior Subordinated Indenture to the extent of any payment
made by the Company to such holder of Preferred Securities in the Direct Action.
Except as described herein, holders of Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Junior
Subordinated Debentures or assert directly any other rights in respect of the
Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Preferred Securities,"
"--Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Junior Subordinated
Indenture.
14
<PAGE>
Limited Voting Rights. Holders of Preferred Securities have limited voting
rights relating generally to the modification of the Preferred Securities and
the Guarantee and the exercise of the Issuer Trust's rights as holder of Junior
Subordinated Debentures. Holders of Preferred Securities are not entitled to
appoint, remove or replace the Property Trustee or the Delaware Trustee except
upon the occurrence of certain events specified in the Trust Agreement and
described herein. The Property Trustee and the holders of all the Common
Securities may, subject to certain conditions, amend the Trust Agreement without
the consent of holders of Preferred Securities to cure any ambiguity or make
other provisions not inconsistent with the Trust Agreement or to ensure that the
Issuer Trust (i) will not be taxable as a corporation for United States federal
income tax purposes, or (ii) will not be required to register as an "investment
company" under the Investment Company Act. See "Description of Preferred
Securities--Voting Rights; Amendment of Trust Agreement" and "--Removal of
Issuer Trustees; Appointment of Successors."
Absence of Market. The Preferred Securities have no established trading
market. Application has been made to list the Preferred Securities in the Nasdaq
National Market, but one of the requirements for listing and continued listing
is the presence of two market makers for the Preferred Securities. The Company
and the Issuer Trust have been advised by the Underwriter that it intends to
make a market in the Preferred Securities. However, the Underwriter is not
obligated to do so and such market making may be interrupted or discontinued at
any time without notice at the sole discretion of the Underwriter. Moreover,
there can be no assurance of a second market maker for the Preferred Securities.
Accordingly, no assurance can be given as to the development or liquidity of any
market for the Preferred Securities.
Market Prices. There can be no assurance as to the market prices for
Preferred Securities, or the market prices for Junior Subordinated Debentures
that may be distributed in exchange for Preferred Securities if a liquidation of
the Issuer Trust occurs. Accordingly, the Preferred Securities or the Junior
Subordinated Debentures that a holder of Preferred Securities may receive on
liquidation of the Issuer Trust may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby. Because
holders of Preferred Securities may receive Junior Subordinated Debentures on
termination of the Issuer Trust, prospective purchasers of Preferred Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of Junior
Subordinated Debentures."
Risk Factors Relating To The Company
Status of the Company as a Bank Holding Company. The Company is a legal
entity separate and distinct from the Bank Subsidiaries, although the principal
source of the Company's cash revenues is dividends from the Bank Subsidiaries.
The ability of the Company to pay the interest on, and principal of, the Junior
Subordinated Debentures will be significantly dependent on the ability of the
Bank Subsidiaries to pay dividends to the Company and the ability of the Company
to realize a return on its investments in amounts sufficient to service the
Company's debt obligations. Payment of dividends by the Bank Subsidiaries is
restricted by various legal and regulatory limitations. Under federal law, no
dividend may be paid, unless, following the payment of such dividend, the
capital stock of the bank will be unimpaired. In addition, under state law, a
Bank Subsidiary may pay dividends only out of undivided profits or, with the
prior approval of the Maryland Commissioner of Financial Regulation (the
"Maryland Commissioner"), from surplus in excess of 100% of required capital
stock.
The right of the Company to participate in the assets of any subsidiary
upon the latter's liquidation, reorganization or otherwise (and thus the ability
of the holders of Preferred Securities to
15
<PAGE>
benefit indirectly from any such distribution) will be subject to the claims of
the subsidiaries' creditors, which will take priority except to the extent that
the Company may itself be a creditor with a recognized claim. As of March 31,
1997, the Company's subsidiaries had indebtedness and other liabilities of
approximately $768 million.
The Bank Subsidiaries are also subject to restrictions under federal law
which limit the transfer of funds by them to the Company, whether in the form of
loans, extensions of credit investments, asset purchases or otherwise. Such
transfers by either Bank Subsidiary to the Company or any nonbank subsidiary of
the Company are limited in amount of 10% of the bank's capital and surplus and,
with respect to the Company and all its nonbank subsidiaries, to an aggregate of
20% of the bank's capital and surplus. Furthermore, such loans and extensions of
credit are required to be secured in specified amounts. Federal law also
prohibits banks from purchasing "low-quality" assets from affiliates.
Competition. The banking business is highly competitive. In their primary
market areas, the Bank Subsidiaries compete with other commercial banks, savings
and loan associations credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking firms operating locally and
elsewhere. Some of the Bank Subsidiaries' primary competitors have substantially
greater resources and lending limits than the Bank Subsidiaries and may offer
certain services that the Bank Subsidiaries do not provide at this time. The
profitability of the Company depends upon the Bank Subsidiaries' ability to
compete in their primary market area.
Developments in Technology. The market for financial services, including
banking services, is increasingly affected by advances in technology, including
developments in telecommunications, data processing, computers, automation,
Internet-based banking, telebanking, debit cards and so-called "smart" cards.
The ability of the Company, including its Bank Subsidiaries, to compete
successfully in its markets may depend on the extent to which it is able to
exploit such technological changes. However, there can be no assurance that the
development of these or any other new technologies, or the Company's success or
failure in anticipating or responding to such developments, will materially
affect the Company's business, financial condition and operating results.
Loan Portfolio Considerations. During the past three years, the Company
has experienced significant growth in its loan portfolio. Loans increased to
$410 million at March 31, 1997, from $196 million at December 31, 1994.
Commercial real estate loans increased by 102% or $57 million at March 31, 1997,
as compared to December 31, 1994, and comprised 28% of total loans as of March
31, 1997. The nature of commercial real estate loans is such that they may
present more credit risk to the Company than other types of loans such as home
equity or residential real estate loans. Further, these loans are concentrated
in Central Maryland. As a result, a decline in the general economic conditions
of Central Maryland could have a material adverse effect on the Company's
financial condition and results of operations taken as a whole.
Growth and Acquisition Strategies. The Company has pursued and intends to
continue to pursue an internal growth strategy, the success of which will depend
primarily on generating an increasing level of loans and deposits at acceptable
risk levels and terms without significant increases in noninterest expenses.
There can be no assurance that the Company will be successful in implementing
its internal growth strategy. In addition, the Company has grown and may seek to
grow by acquiring other financial institutions and non-financial institutions.
Any acquisitions will be subject to regulatory approvals, and there can be no
assurance that the Company will obtain such approvals. Although the Company does
not have any signed contracts, letters of intent or agreements in principle, the
Company routinely reviews acquisition opportunities. The Company may not be
successful in identifying further
16
<PAGE>
acquisition candidates, integrating acquired institutions or preventing deposit
erosion at acquired institutions. Competition for acquisitions in the Company's
market area is highly competitive, and the Company may not be able to acquire
other institutions on attractive terms. Furthermore, the success of the growth
strategy of the Company will depend on maintaining sufficient regulatory capital
levels and on economic conditions.
Market Value of Investments. Approximately 50% of the Company's securities
investment portfolio has been designated as available-for-sale pursuant to
Statement of Financial Accounting Standards No. 115 ("SFAS 115") relating to
accounting for investments. SFAS 115 requires that unrealized gains and losses
in the estimated value of the available-for-sale portfolio be "marked to market"
and reflected as a separate item in shareholders' equity (net of tax). At March
31, 1997, the Company maintained approximately 20% of its total assets in
securities available-for-sale. Shareholders' equity will continue to reflect the
unrealized gains and losses (net of tax) of these investments. There can be no
assurance that the market value of the Company's investment portfolio will not
decline, causing a corresponding decline in shareholders' equity.
Management believes that several factors will affect the market values of
the Company's investment portfolio. These include, but are not limited to,
changes in interest rates or expectations of changes, the degree of volatility
in the securities markets, inflation rates or expectations of inflation and the
slope of the interest rate yield curve. (The yield curve refers to the
differences between longer-term and shorter-term interest rates. A positively
sloped yield curve means shorter-term rates are lower than longer-term rates.)
Also, the passage of time will affect the market values of the securities, in
that the closer they are to maturing, the closer the market price should be to
par value. In addition to the foregoing, there are other factors that impact
specific categories of the portfolio differently.
Allowance for Loan Losses. The inability of borrowers to repay loans can
erode the earnings and capital of banks. Like all banks, the Company maintains
an allowance for loan losses to provide for loan defaults and nonperformance.
The allowance is based on prior experience with loan losses, as well as an
evaluation of the risks in the current portfolio, and is maintained at a level
considered adequate by management to absorb anticipated losses. The amount of
future losses is susceptible to changes in economic, operating and other
conditions, including changes in interest rates, that may be beyond management's
control, and such losses may exceed current estimates. At March 31, 1997, the
Company had nonperforming loans of $2.8 million and an allowance for loan losses
of $5.2 million or 1.28% of total loans and 184% of nonperforming loans. There
can be no assurance that the Company's allowance for loan losses will be
adequate to cover actual losses. Future provisions for loan losses could
materially and adversely affect results of operations of the Company.
Economic Conditions and Impact of Interest Rates. Results of operations
for financial institutions, including the Company, may be materially and
adversely affected by changes in prevailing economic conditions, including
declines in real estate values, rapid changes in interest rates and the monetary
and fiscal policies of the federal government. The profitability of the Company
is in part a function of the spread between the interest rates earned on assets
and the interest rates paid on deposits and other interest-bearing liabilities
(net interest income), including advances from the Federal Home Loan Bank of
Atlanta ("FHLB"). Interest rate risk arises from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time period is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time period is considered liability-sensitive and is
reflected as negative gap. An asset-sensitive position (i.e., a positive gap)
will generally enhance earnings in a rising
17
<PAGE>
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. However, there can be no assurance that the Company will be able
to manage interest rate risk so as to avoid significant adverse effects in net
interest income. At March 31, 1997, the Company had a one year cumulative
negative gap of $60 million or 7.0% of total assets. This negative one year gap
position may, as noted above, have a negative impact on earnings in a rising
interest rate environment.
Supervision and Regulation. Bank holding companies and banks operate in a
highly regulated environment and are subject to the supervision and examination
by several federal and state regulatory agencies. The Company is subject to the
Bank Holding Company Act of 1956, as amended (the "BHC Act") and to regulation
and supervision by the Federal Reserve and the Maryland Commissioner, and the
Bank Subsidiaries are subject to regulation and supervision by the Maryland
Commissioner and the Federal Deposit Insurance Corporation ("FDIC"). The Bank
Subsidiaries are also members of the FHLB and are subject to regulation thereby.
Federal and state banking laws and regulations govern matters ranging from
restrictions on permissible investments and activities, the regulation of
certain debt obligations, changes in the control of bank holding companies, and
the maintenance of adequate capital to the general business operations and
financial condition of the Bank Subsidiaries, including permissible types,
amounts and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of branch offices, and the
maximum rate of interest that may be charged by law. The Federal Reserve, the
FDIC, and the Maryland Commissioner also possess cease and desist powers over
bank holding companies and banks, to prevent or remedy unsafe or unsound
practices or violations of law. These and other restrictions limit the manner in
which the Company and the Bank Subsidiaries may conduct their business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions but also by the monetary policies of the
Federal Reserve. These monetary policies have had and are expected to continue
to have significant effects on the operating results of commercial banks.
Changes in monetary or legislative policies may affect the ability of the Bank
Subsidiaries to attract deposits and make loans. See "Supervision, Regulation
and Other Matters."
SELLING SECURITY HOLDER
The Company is registering the Preferred Securities for the benefit of the
Selling Security Holder. The Selling Security Holder purchased the Preferred
Securities from the Issuer Trust on June 6, 1997 at a price equal to 100% of
their aggregate Liquidation Amount and received a commission of 3% of such
amount in connection with the transaction. Under the terms of a Registration
Rights Agreement among the Issuer Trust, the Company and the Selling Security
Holder, the Company and the Trust agreed to register for resale all of the
Preferred Securities held by the Selling Security Holder upon request. This
Prospectus relates to all of the Preferred Securities held by the Selling
Security Holder, which represents all of the outstanding Preferred Securities.
Accordingly, the Company will not receive any of the proceeds from the sale of
the Preferred Securities hereunder. See "Use of Proceeds."
18
<PAGE>
MASON-DIXON BANCSHARES, INC.
The Company is a multi-bank holding company organized in 1991 under the
laws of the State of Maryland. The Company operates two bank subsidiaries,
Carroll County Bank and Bank of Maryland. Through the Bank Subsidiaries, the
Company provides corporate, consumer and mortgage banking services, trust
services, and non-deposit investment products for its customers. Carroll County
Bank has been providing banking services to residents of Carroll County,
Maryland for over a century.
Banking services are provided through 22 retail banking offices which are
located primarily in central Maryland and on Maryland's Eastern Shore. Some
investment services are offered through Carrollco Insurance, Inc., a
wholly-owned subsidiary of Carroll County Bank, which provides non-deposit
investment products to customers.
Through the Bank Subsidiaries, the Company engages in commercial, savings,
and trust business, including the receiving of demand and time deposits, and the
making of loans to individuals, associations, partnerships and corporations.
Real estate financing comprises residential first and second mortgages,
construction and land development, home equity lines of credit, and commercial
mortgages. Consumer lending is direct to individuals on both a secured and
unsecured basis. Commercial loans include lines of credit, term and demand loans
for the purchase of equipment, inventory and accounts receivable financing.
The Company offers traditional demand deposit accounts for individuals,
associations, partnerships, governments, and corporations. Also offered are NOW,
savings, and money market accounts, as well as certificates of deposit and
Individual Retirement Accounts. Deposits are insured by the FDIC.
Carroll County Bank provides 24-hour access to customer information
through its XpressLine automated voice response system, and both Bank
Subsidiaries currently operate 24-hour automated teller machines. Safe deposit
facilities are available at most locations, as are after hour depository
services. Customers may also obtain travelers checks, money orders, and
cashier's and treasurer's checks at all locations. In addition, Carroll County
Bank provides a full range of trust services to individuals, corporations, and
non-profit organizations under the name of Mason-Dixon Trust Company. Services
to individuals include investment management, living and testamentary trusts,
estate management, and custody of securities. Corporate financial services and
employee benefit plans are provided to businesses. Services provided to
non-profit organizations include management of endowment trusts. Carroll County
Bank also originates and services real estate mortgage and construction loans as
a principal and as an agent under the name of Mason-Dixon Investment Services.
The Bank Subsidiaries are not dependent upon a single customer or small
group of customers, the loss of which would have a material adverse effect on
the Company. Carroll County Bank and Bank of Maryland are not dependent on a
single product or small number of products, and do not experience any
significant fluctuations in loan or deposit activity which are seasonal in
nature.
NEITHER THE PREFERRED SECURITIES NOR THE JUNIOR SUBORDINATED DEBENTURES
ARE OBLIGATIONS OF OR GUARANTEED BY THE BANK SUBSIDIARIES OR ANY OTHER BANK.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA AND OTHER INFORMATION
Presented below is selected unaudited consolidated financial information
for the Company for the periods specified. The consolidated financial
information is not necessarily indicative of the results for any future period
and is qualified in its entirety by the detailed information available in the
Company's reports as described under "Available Information."
<TABLE>
<CAPTION>
As of and for the
Quarter ended As of or for the year ended
March 31, December 31,
(Dollars in thousands) 1997 1996 1996 1995 1994 1993 1992
-------- ------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income...................... $ 15,495 $14,047 $ 58,796 $46,737 $34,790 $35,008 $ 37,794
Interest expense..................... 7,760 6,878 29,244 23,071 15,392 15,217 18,468
-------- ------- -------- ------- ------- ------- --------
Net interest income.................. 7,735 7,169 29,552 23,666 19,398 19,791 19,326
Provision for credit losses.......... 57 0 836 0 -- 329 812
Net interest income after provision
for credit losses............... 7,678 7,169 28,716 23,666 19,398 19,462 18,514
Other operating income............... 1,826 1,629 7,481 4,159 3,245 4,031 4,410
Other operating expense.............. 6,405 5,897 24,758 17,944 13,806 13,793 13,998
Income before income taxes and
cumulative effect of accounting
changes.......................... 3,099 2,901 11,439 9,881 8,837 9,700 8,926
Applicable income taxes.............. 824 826 3,003 2,582 2,225 3,082 3,154
-------- ------- -------- ------- ------- ------- --------
Income before cumulative effect of
accounting changes................ 2,275 2,075 8,436 7,299 6,612 6,718 5,772
Cumulative effect of accounting change for:
Post-retirement benefits..... -- -- -- -- -- (482) --
Income taxes................. -- -- -- -- -- 471 --
-------- ------- -------- ------- ------- ------- --------
Net income........................... $ 2,275 $ 2,075 $ 8,436 $ 7,299 $ 6,612 $ 6,607 $ 5,772
======== ======= ======== ======= ======= ======= ========
Other Data
Total assets......................... $867,287 $795,633 $841,074 $765,781 $507,572 $489,058 $460,143
Total deposits....................... 629,527 614,141 620,735 593,835 383,058 373,022 370,601
Total loans-net of reserve........... 404,930 347,128 392,997 348,221 192,885 195,779 198,506
Total equity......................... 72,966 67,797 72,699 66,596 42,773 44,797 37,744
Key Ratios
Return on average stockholders' equity 12.67% 12.39% 12.27% 13.69% 15.28% 16.53% 16.30%
Return on average total assets....... 1.08% 1.09% 1.05% 1.18% 1.34% 1.40% 1.26%
Dividends declared to net income..... 35.03% 31.76% 32.60% 31.83% 29.71% 27.71% 26.16%
Average stockholders' equity to average
total assets.................... 8.55% 8.74% 8.54% 8.60% 8.75% 8.50% 7.75%
Credit Quality Ratios
Nonperforming assets to period-end loans
and foreclosed assets............ 0.77% 0.74% 0.84% 0.59% 0.14% 0.65% 0.33%
Net chargeoffs (recoveries) to average
loans............................ -0.02% 0.01% 0.11% 0.10% 0.03% 0.03% 0.34%
Allowance as a percent of period-end
loans............................ 1.28% 1.33% 1.30% 1.34% 1.34% 1.33% 1.20%
Allowance as a percent of period-end
nonperforming loans.............. 184.3% 195.5% 170.2% 257.4% 962.3% 209.0% 383.9%
Ratios of Earnings to Fixed Charges
Excluding interest on deposits....... 2.55x 3.32x 2.83x 2.82x 3.74x 5.52x 4.58x
Including interest on deposits....... 1.40 1.42 1.39 1.43 1.57 1.64 1.48
<FN>
(1) The consolidated ratio of earnings to fixed charges has been computed by
dividing income before income taxes, cumulative effect of changes in accounting
principles and fixed charges by fixed charges. Fixed charges represent all
interest expense (ratios are presented both excluding and including interest on
deposits). There were no amortization of notes and debentures expense nor any
portion of net rental expense which was deemed to be equivalent to interest on
debt. Interest expenses (other than on deposits) includes interest on notes,
federal funds purchased and securities sold under agreements to repurchase, and
other funds borrowed.
</FN>
</TABLE>
20
<PAGE>
RECENT DEVELOPMENTS
Financial Condition and Results of Operations
The Company reported net income of $2.275 million for the first quarter
of 1997, an increase of 10% from the $2.075 million reported for the same period
in 1996. Earnings per share for the first quarter of 1997 were $.43, versus $.39
for the first quarter of 1996. The increase in net income for the first quarter
of 1997 was driven by increases in net interest income of $566,000 and higher
non-interest income of $197,000. Offsetting these increases was a higher
provision for credit losses of $57,000 and higher non-interest expenses of
$508,000. The annualized return on average assets was 1.08% for the first
quarter of 1997 while the annualized return on average stockholders' equity was
12.67%. These ratios for the first quarter of 1996 were 1.09% and 12.39%
respectively.
Statement of Condition. Total assets at March 31, 1997 equalled $867
million for growth of 3% from December 31, 1996. Loans increased to $410 million
from $398 million while total investment securities increased to $372 million
from $359 million for the same period. The growth in assets was funded through
higher deposits which increased by $9 million to total $630 million, higher
short-term borrowings (up $10 million to $65 million), and long-term borrowings
(up $7 million to $93 million). Growth in loans was fueled by continued business
development efforts, and the expansion of the Company's mortgage banking
operations. Loans increased at both Bank Subsidiaries. Deposits also grew at
both Bank Subsidiaries from December 31, 1996 with most growth being realized in
time and savings deposits.
Stockholders' equity at March 31, 1997 increased to $73.0 million from
$72.7 million at December 31, 1996. Earnings after taxes added $2.3 million to
total stockholders' equity and cash dividends paid reduced equity by $797,000.
The first quarter of 1997 ended with unrealized depreciation on securities
classified as available for sale of $791,000 compared to unrealized appreciation
of $505,000 at year end for an overall reduction to equity of $1.3 million. Note
that the change reflects current market value and not actual realized losses.
The losses would only be realized if the securities were actually sold. Total
shares outstanding at March 31, 1997 were 5,307,078 an increase from 5,303,166
at December 31, 1996 primarily due to shares issued through compensation and
benefit plans.
Income Statement. Net income for the first quarter of 1997 increased
10% to $2.275 million compared to the first quarter of 1996 of $2.075 million.
Net interest income increased $566,000 due primarily to growth in earning
assets. The net interest margin decreased to 4.19% from 4.33%. Other operating
income increased $197,000. Service charges increased $53,000 due to increased
volume of accounts as well as fee income increases on certain services. Trust
division income decreased by $70,000 as first quarter income for 1996 was
augmented by an accounting system change which raised income levels in last
year's first quarter. Gains on sales of securities totaled $221,000 compared to
$120,000 for the first quarter of 1996. Gains on sales of mortgage loans
increased by more than 200% and totaled $291,000. The increase was due to higher
loan origination volume for 1997. Other sources of other operating income
decreased $86,000. Included in 1996's first quarter was a non-recurring gain of
$151,000 realized from the sale of a former branch site of Carroll County Bank.
Other operating expenses increased $508,000 or 9% compared to the first
quarter of 1996. Increased expenses relating to the expanded mortgage banking
operations added approximately $230,000 to operating expenses. Otherwise,
expenses increased $278,000 or 5%. Most of the increased expenses were in
salaries and benefits which included the increased expenses from expanding the
mortgage banking operations.
21
<PAGE>
Capital Adequacy. Capital adequacy remained strong at the end of the
first quarter of 1997 and well in excess of regulatory standards which assess
capital levels. The capital leverage ratio at March 31, 1997 improved to 7.68%
from 7.58% at December 31, 1996. The total capital ratio decreased to 13.88%
from 13.93%; while Tier 1 capital ratio slightly decreased to 12.84% from
12.88%. Regulatory minimum to qualify as "well capitalized" are 5% for capital
leverage, 6% for the tier 1 capital ratio, and 10% for the total capital ratio.
Levels of qualifying capital increased as stockholders' equity increased while
intangible assets and certain deferred tax assets which are disallowed for
capital purposes, decreased.
During the first quarter of 1997, the Company discontinued issuing
additional shares through its dividend reinvestment and stock purchase plan.
Shares needed to satisfy the plan are now being purchased in the open market.
The Company has this flexibility within operating procedures of the plan and
may, at any time, issue shares to satisfy plan needs. The decision to
discontinue issuing shares and further increase stockholders' equity reflects
the current strength of the Company's capital position and management's ongoing
goals of enhancing earnings per share and returns on average stockholders'
equity.
Interest Rate Sensitivity. At the end of the first quarter of 1997, the
Company had an estimated one year negative gap of $60 million compared to a
negative $79 million at December 31, 1996. The negative gap as a percentage of
period end assets was 7% and 9% respectively. As a general rule, a negative gap
will have the effect of decreasing net interest income during periods of rising
interest rates as higher volumes of interest sensitive liabilities will reprice
at higher levels than rate sensitive assets. Management believes the overall
rate sensitivity position is appropriate for current rate conditions.
Settlement of Litigation
On December 9, 1996, the Company filed suit against a group of
stockholders called the "Concerned Shareholders Group" and its members ("CSG")
seeking preliminary and permanent injunctive relief for alleged violations of
the federal proxy solicitation laws, federal securities disclosure laws, and
state bank acquisition laws. CSG filed a Counterclaim and Third-Party Complaint
in the suit asserting derivative claims against the Company and its directors
alleging breach of fiduciary duty and corporate waste, and subsequently filed a
separate suit against the Company alleging violations of the federal proxy
solicitation laws. On June 11, 1997, the Company, its directors and CSG entered
into a Settlement Agreement and Mutual Release (the "Settlement Agreement")
pursuant to which the parties agreed to dismiss the cases with prejudice, and
the Company agreed to purchase all of the approximately 232,500 shares of Common
Stock owned by members of CSG at a price of $21.625 per share. A portion of the
net proceeds of the Junior Subordinated Debentures in the approximate amount of
$5,027,813.00 were used by the Company to purchase such shares.
MASON-DIXON CAPITAL TRUST
The Issuer Trust is a statutory business trust created under Delaware
law pursuant to the filing of a certificate of trust with the Delaware Secretary
of State on June 6, 1997. The Issuer Trust is governed by an Amended and
Restated Trust Agreement among the Company, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company, as Property Trustee.
Under the Trust Agreement, two individuals selected by the holders of the Common
Securities act as administrators with respect to the Issuer Trust (the
"Administrators"). The Company, as holder of the Common Securities, has selected
two individuals who are employees of and affiliated with the Company to serve as
the Administrators. See "Description of Preferred Securities--Miscellaneous."
The Issuer Trust exists for the exclusive purposes of (i) issuing and selling
the Trust Securities, (ii) using the proceeds from the
22
<PAGE>
sale of the Trust Securities to acquire the Junior Subordinated Debentures and
(iii) engaging in only those other activities necessary, convenient or
incidental thereto (such as registering the transfer of Trust Securities).
Accordingly, the Junior Subordinated Debentures are the sole assets of the
Issuer Trust, and payments under the Junior Subordinated Debentures will be the
sole source of revenue of the Issuer Trust.
All the Common Securities are owned by the Company. The Common
Securities rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities, except that upon the occurrence and during the
continuation of a Debenture Event of Default arising as a result of any failure
by the Company to pay any amounts in respect of the Junior Subordinated
Debentures when due, the rights of the holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. See "Description of Preferred Securities--Subordination of Common
Securities." The Company has acquired Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer Trust. The
Issuer Trust has a term of 31 years, but may terminate earlier as provided in
the Trust Agreement. The address of the Delaware Trustee is Bankers Trust
(Delaware), 1001 Jefferson Street, Wilmington, Delaware 19801, telephone number
(302) 576-3301. The address of the Property Trustee, the Guarantee Trustee and
the Debenture Trustee is Bankers Trust Company, Four Albany Street, 4th Floor,
New York, New York 10006, telephone number (212) 250-2500.
USE OF PROCEEDS
All the proceeds to the Issuer Trust from the sale of the Preferred
Securities to the Selling Security Holder on June 6, 1997 have been invested by
the Issuer Trust in the Junior Subordinated Debentures. The proceeds from the
Preferred Securities qualify as Tier 1 or core capital with respect to the
Company under the risk-based capital guidelines established by the Federal
Reserve; however, capital received from the proceeds of the sale of Preferred
Securities, together with any other cumulative preferred stock of the Company,
cannot constitute more than 25% of the total Tier 1 capital of the Company (the
"25% Capital Limitation"). Amounts in excess of the 25% Capital Limitation will
constitute Tier 2 or supplementary capital of the Company. Neither the Company
nor the Trust will receive any proceeds from the sale of the Preferred
Securities by the Selling Security Holder hereunder.
A portion of the net proceeds from the sale of the Junior Subordinated
Debentures in the amount of approximately $5,027,813 were used by the Company to
repurchase approximately 232,500 shares of Common Stock from members of CSG in
connection with the settlement of litigation with that group (see "Recent
Developments"). In addition, $954,200 of the net proceeds were applied to repay
the outstanding balance of a term loan facility with NationsBank, N.A. (the
"Term Loan"). All the remaining net proceeds received by the Company from the
sale of the Junior Subordinated Debentures will be used for general corporate
purposes, which may include the repayment of indebtedness, repurchases of
outstanding Common Stock of the Company, investments in or extensions of credit
to its subsidiaries and/or the financing of possible acquisitions. Pending such
use, the net proceeds may be temporarily invested. The precise amounts and
timing of the application of proceeds will depend upon the funding requirements
of the Company and its subsidiaries and the availability of other funds. In view
of anticipated funding requirements, the Company may from time to time engage in
additional financings of a character and in amounts to be determined.
23
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company as of March 31, 1997 and as adjusted to give
effect to the issuance of the Preferred Securities, repayment of the Term Loan
and the repurchase of approximately 232,500 shares of Common Stock pursuant to
the Settlement Agreement. The following data should be read in conjunction with
the Company's reports filed with the Commission under the Exchange Act. See
"Available Information."
<TABLE>
<CAPTION>
March 31, 1997
Actual As Adjusted
(Dollars in thousands-unaudited)
<S> <C> <C> <C>
Long-term borrowings: (1).......................................................... $ 92,644 $ 91,519
--------- ---------
Guaranteed preferred beneficial interests in the Company's
Junior Subordinated Debentures (1).............................................. - 20,000
--------- ---------
Stockholders' Equity:
Preferred Stock.................................................................. - -
Common Stock, $1.00 par value; 10,000,000 authorized,(3)
5,307,078 issued and outstanding, as adjusted 5,074, 578 issued and outstanding 5,307 5,075
Additional paid-in-capital (3)................................................... 40,641 35,845
Retained Earnings................................................................ 27,809 27,809
Net unrealized depreciation in certain debt and equity securities................ (791) (791)
--------- ---------
Total stockholders' equity................................................. 72,966 67,938
--------- ---------
Total capitalization....................................................... $165,610 $179,457
-------- --------
Risk-based capital ratios:
Tier 1 capital to risk-weighted assets (2)....................................... 12.84% 15.23%
Regulatory minimum............................................................... 4.00% 4.00%
Total capital to risk-weighted assets (2)........................................ 13.88% 16.23%
Regulatory minimum............................................................... 8.00% 8.00%
Leverage ratio................................................................... 7.70% 9.27%
Regulatory minimum............................................................... 3.00% 3.00%
<FN>
(1) As described herein, the sole assets of the Issuer Trust are
$20,619,000 principal amount of Junior Subordinated Debentures issued
by the Company to the Issuer Trust. The Junior Subordinated Debentures
bear interest at a fixed rate of 10.07% and mature on June 15, 2027.
The Company owns all of the Common Securities of the Issuer Trust.
(2) Assumes net proceeds of the offering of the Preferred Securities are
invested in assets with a 100% risk weighting under the risk-based
capital rules of the Federal Reserve.
(3) Assumes the repurchase and retirement of approximately 232,500 common
shares.
</FN>
</TABLE>
24
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust will be treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
will be included in the consolidated financial statements of the Company. The
Preferred Securities will be included in the consolidated balance sheets of the
Company and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to the consolidated financial statements of the Company. For financial reporting
purposes, Distributions on the Preferred Securities will be recorded in the
consolidated statements of income of the Company.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Preferred Securities represent preferred undivided beneficial interests in the
assets of the Issuer Trust. The holders of the Preferred Securities are entitled
to a preference in certain circumstances with respect to Distributions and
amounts payable on redemption or liquidation over the Common Securities, as well
as other benefits as described in the Trust Agreement. This summary of the
material provisions of the Preferred Securities and the Trust Agreement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Trust Agreement, including the
definitions therein of certain terms. Wherever particular defined terms of the
Trust Agreement are referred to herein, such defined terms are incorporated
herein by reference. A copy of the form of the Trust Agreement is available upon
request from the Issuer Trustees.
General
The Preferred Securities are limited to the $20,000,000 aggregate
Liquidation Amount outstanding. The Preferred Securities rank pari passu, and
payments will be made thereon pro rata, with the Common Securities except as
described under "--Subordination of Common Securities." The Junior Subordinated
Debentures are registered in the name of the Issuer Trust and held by the
Property Trustee in trust for the benefit of the holders of the Preferred
Securities and Common Securities. The Guarantee is a guarantee on a subordinated
basis with respect to the Preferred Securities but will not guarantee payment of
Distributions or amounts payable on redemption or liquidation of such Preferred
Securities when the Issuer Trust does not have funds on hand available to make
such payments. See "Description of Guarantee."
Distributions
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and Distributions on each Preferred
Security will be payable at an annual rate equal to $2.5175 per Preferred
Security, payable semi-annually in arrears on the 15th day of June and December
of each year (each a "Distribution Date"), to the holders of the Preferred
Securities at the close of business on the June 1 or the December 1 (whether or
not a Business Day (as defined below)) next preceding the relevant Distribution
Date. Distributions on the Preferred Securities will be cumulative.
Distributions will accumulate from July 16, 1997. The first Distribution Date
for the Preferred Securities subsequent to the offering made hereby will be
December 15, 1997. The amount of Distributions payable for any period less than
a full Distribution period will be computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by two. If
25
<PAGE>
any date on which Distributions are payable on the Preferred Securities is not a
Business Day, then payment of the Distributions payable on such date will be
made on the next succeeding day that is a Business Day (without any additional
Distributions or other payment in respect of any such delay), with the same
force and effect as if made on the date such payment was originally payable.
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right under the Junior Subordinated Indenture to
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures. As
a consequence of any such deferral, semi-annual Distributions on the Preferred
Securities by the Issuer Trust will be deferred during any such Extension
Period. Distributions to which holders of the Preferred Securities are entitled
will accumulate additional Distributions thereon at an annual rate equal to
$2.5175 per Preferred Security, compounded semi-annually from the relevant
payment date for such Distributions, computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. Additional Distributions payable for each full Distribution period will
be computed by dividing the rate per annum by two. The term "Distributions" as
used herein shall include any such additional Distributions. During any such
Extension Period, the Company may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu in all respects with or
junior in interest to the Junior Subordinated Debentures (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period, (b) as a result of an exchange or conversion
of any class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional interests
in shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any stockholder's
rights plan, or the redemption or repurchase of rights pursuant thereto, or (e)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 10 consecutive semi-annual periods
or extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the Issuer Trustees notice of its election of such Extension
Period at least one Business Day prior to the earlier of (i) the date the
Distributions on the Preferred Securities would have been payable but for the
election to begin such Extension Period and (ii) the date the Property Trustee
is required to give notice to holders of the Preferred Securities of the record
date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Property Trustee will give
notice of the Company's election to begin a new Extension Period to the holders
of the Preferred Securities. Subject
26
<PAGE>
to the foregoing, there is no limitation on the number of times that the Company
may elect to begin an Extension Period. See "Description of Junior Subordinated
Debentures--Option To Extend Interest Payment Period" and "Certain Federal
Income Tax Consequences--US Holders--Interest Income and Original Issue
Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders
of the Preferred Securities will be limited to payments under the Junior
Subordinated Debentures. See "Description of Junior Subordinated Debentures." If
the Company does not make payments on the Junior Subordinated Debentures, the
Issuer Trust may not have funds available to pay Distributions or other amounts
payable on the Preferred Securities. The payment of Distributions and other
amounts payable on the Preferred Securities (if and to the extent the Issuer
Trust has funds legally available for and cash sufficient to make such payments)
is guaranteed by the Company on a limited basis as set forth herein under
"Description of Guarantee."
Redemption
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at maturity or upon earlier redemption as
provided in the Junior Subordinated Indenture, the proceeds from such repayment
or redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Preferred Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Preferred Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date") and the related amount of the premium, if any, paid by the Company upon
the concurrent redemption of such Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures--Redemption." If less than all
the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption
Date, then the proceeds from such repayment or redemption shall be allocated to
the redemption pro rata of the Preferred Securities and the Common Securities.
The amount of premium, if any, paid by the Company upon the redemption of all or
any part of the Junior Subordinated Debentures to be repaid or redeemed on a
Redemption Date shall be allocated to the redemption pro rata of the Preferred
Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures
(i) on or after June 15, 2007, in whole at any time or in part from time to
time, or (ii) in whole, but not in part, at any time within 90 days following
the occurrence and during the continuation of a Tax Event, Investment Company
Event or Capital Treatment Event (each as defined below), in each case subject
to possible regulatory approval. See "--Liquidation Distribution Upon
Dissolution." A redemption of the Junior Subordinated Debentures would cause a
mandatory redemption of a Like Amount of the Preferred Securities and Common
Securities at the Redemption Price.
The Redemption Price, in the case of a redemption under (i) above,
shall equal the following prices, expressed in percentages of the Liquidation
Amount (as defined below) and in dollar amounts per Trust Security, together
with accumulated Distributions to but excluding the date fixed for redemption,
if redeemed during the 12-month period beginning June 15:
27
<PAGE>
Year Redemption Price
- ------ ----------------
2007..................................................... 105.035% ($26.25875)
2008..................................................... 104.532% ($26.13300)
2009..................................................... 104.028% ($26.00700)
2010..................................................... 103.525% ($25.88125)
2011..................................................... 103.021% ($25.75525)
2012..................................................... 102.518% ($25.62950)
2013..................................................... 102.014% ($25.50350)
2014..................................................... 101.511% ($25.37775)
2015..................................................... 101.007% ($25.25175)
2016..................................................... 100.504% ($25.12600)
and at 100% ($25.00) on or after June 15, 2017.
The Redemption Price, in the case of a redemption on or after June 15,
2007 following a Tax Event, Investment Company Event or Capital Treatment Event
shall equal the Redemption Price then applicable to a redemption under (i)
above. The Redemption Price, in the case of a redemption prior to June 15, 2007
following a Tax Event, Investment Company Event or Capital Treatment Event as
described under (ii) above, will equal for each Preferred Security the
Make-Whole Amount for a corresponding $25 principal amount of Junior
Subordinated Debentures together with accumulated Distributions to but excluding
the date fixed for redemption. The "Make-Whole Amount" will be equal to the
greater of (i) 100% of the principal amount of such Junior Subordinated
Debentures and (ii) as determined by a Quotation Agent (as defined below), the
sum of the present values of the principal amount and premium payable as part of
the Redemption Price with respect to an optional redemption of such Junior
Subordinated Debentures on June 15, 2007, together with the present values of
scheduled payments of interest (not including the portion of any such payments
of interest accrued as of the Redemption Date) from the Redemption Date to June
15, 2007 (the "Remaining Life"), in each case discounted to the Redemption Date
on a semi-annual basis (assuming a 360-day year consisting of 30-day months) at
the Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date,
the Treasury Rate plus (i) 2.00% if such Redemption Date occurs on or before
June 15, 1998 or (ii) 1.25% if such Redemption Date occurs after June 15, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents
the average for the week immediately prior to the calculation date, appearing in
the most recently published statistical release designated "H.15 (519)" or any
successor publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semiannual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
Business Day preceding the Redemption Date.
28
<PAGE>
"Business Day" means a day other than (a) a Saturday or Sunday, (b) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed, or (c) a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount (as defined below)
equal to that portion of the principal amount of Junior Subordinated Debentures
to be contemporaneously redeemed in accordance with the Junior Subordinated
Indenture, allocated to the Common Securities and to the Preferred Securities
based upon the relative Liquidation Amounts of such classes and (ii) with
respect to a distribution of Junior Subordinated Debentures to holders of Trust
Securities in connection with a dissolution or liquidation of the Issuer Trust,
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the Issuer Trust of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an insubstantial
risk that (i) the Issuer Trust is, or will be within 90 days of the delivery of
such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii) the
Issuer Trust is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Investment Company Event" means the receipt by the Issuer Trust of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Issuer Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the
Preferred Securities, there is more than an insubstantial risk that the Company
will not be entitled to treat an amount equal to the Liquidation Amount of the
Preferred Securities as "Tier 1 Capital" (or the then equivalent thereof),
except as otherwise restricted under the 25% Capital Limitation, for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company.
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Payment of Additional Sums
If a Tax Event described in clause (i) or (iii) of the definition of
Tax Event above has occurred and is continuing and the Issuer Trust is the
holder of all the Junior Subordinated Debentures, the Company will pay
Additional Sums (as defined below), if any, on the Junior Subordinated
Debentures.
"Additional Sums" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Issuer Trust
on the outstanding Preferred Securities and Common Securities of the Issuer
Trust will not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result of
a Tax Event.
Redemption Procedures
Preferred 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 Preferred
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "--Subordination of
Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the
Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, in the case of Preferred Securities
held in book-entry form, the Property Trustee will deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Preferred Securities. With respect to Preferred Securities not
held in book-entry form, the Property Trustee, to the extent funds are
available, will irrevocably deposit with the paying agent for the Preferred
Securities funds sufficient to pay the applicable Redemption Price and will give
such paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing the
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
shall be payable to the holders of the Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price and any Distribution payable in
respect of the Preferred Securities on or prior to the Redemption Date, but
without interest on such Redemption Price, and such Preferred Securities will
cease to be outstanding. If any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Issuer Trust or by the
Company pursuant to the Guarantee as described under "Description of Guarantee,"
Distributions on such Preferred Securities will continue to accumulate at the
then applicable rate, from the Redemption Date originally established by the
Issuer Trust for such Preferred 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.
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Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Preferred Securities and Common Securities are to
be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed shall be allocated pro
rata to the Preferred Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from the outstanding
Preferred Securities not previously called for redemption, or if the Preferred
Securities are then held in the form of a Global Preferred Security (as defined
below), in accordance with DTC's customary procedures. The Property Trustee
shall promptly notify the securities registrar for the Trust Securities in
writing of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each registered holder of Preferred
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Preferred Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Preferred Securities or portions thereof) called for
redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Preferred Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Preferred Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or the Liquidation Distribution in
respect of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the Redemption
Price the full amount of such Redemption Price on all the outstanding Preferred
Securities then called for redemption, or in the case of payment of the
Liquidation Distribution the full amount of such Liquidation Distribution on all
outstanding Preferred Securities 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 Preferred
Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of
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Default with respect to such Preferred Securities have been cured, waived or
otherwise eliminated. See "--Events of Default; Notice" and "Description of
Junior Subordinated Debentures--Debenture Events of Default." Until all such
Events of Default under the Trust Agreement with respect to the Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee will act solely on behalf of the holders of the Preferred Securities and
not on behalf of the holders of the Common Securities, and only the holders of
the Preferred Securities will have the right to direct the Property Trustee to
act on their behalf.
Liquidation Distribution Upon Dissolution
The amount payable on the Preferred Securities in the event of any
liquidation of the Issuer Trust is $25 per Preferred Security plus accumulated
and unpaid Distributions, subject to certain exceptions, which may be in the
form of a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities have the right at
any time to dissolve the Issuer Trust and, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities and Common Securities in liquidation of the Issuer Trust.
The Federal Reserve's risk-based capital guidelines currently provide
that redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities,
dissolves the Issuer Trust prior to the stated maturity of the Preferred
Securities and the dissolution of the Issuer Trust is deemed to constitute the
redemption of capital instruments by the Federal Reserve under its risk-based
capital guidelines or policies, the dissolution of the Issuer Trust by the
Company may be subject to the prior approval of the Federal Reserve. Moreover,
any changes in applicable law or changes in the Federal Reserve's risk-based
capital guidelines or policies could impose a requirement on the Company that it
obtain the prior approval of the Federal Reserve to dissolve the Issuer Trust.
Pursuant to the Trust Agreement, the Issuer Trust will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve the Issuer Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Preferred
Securities in connection with the redemption of all the Trust Securities as
described under "--Redemption" and (iv) the entry of an order for the
dissolution of the Issuer Trust by a court of competent jurisdiction.
If dissolution of the Issuer Trust occurs as described in clause (i),
(ii) or (iv) above, the Issuer Trust will be liquidated by the Property Trustee
as expeditiously as the Property Trustee determines to
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be possible by distributing, after satisfaction of liabilities to creditors of
the Issuer Trust as provided by applicable law, to the holders of such Trust
Securities a Like Amount of the Junior Subordinated Debentures, unless such
distribution is not practical, in which event such holders will be entitled to
receive out of the assets of the Issuer Trust available for distribution to
holders, after satisfaction of liabilities to creditors of the Issuer Trust as
provided by applicable law, an amount equal to, in the case of holders of
Preferred Securities, the aggregate of the Liquidation Amount plus accumulated
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Issuer Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Issuer Trust on its Preferred Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of the
Preferred Securities, except that if a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, the Preferred
Securities shall have a priority over the Common Securities. See
"--Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior
to maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of the Issuer
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to the
price that the investor paid to purchase the Preferred Securities offered
hereby.
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether it is
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
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(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a period
of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement (other
than a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (ii) or (iii) above), and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Issuer Trustees and the Company by the
holders of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee or all or substantially all of its property if a
successor Property Trustee has not been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a
result of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Preferred Securities will have a
preference over the Common Securities with respect to payments of any amounts in
respect of the Preferred Securities as described above. See "--Subordination of
Common Securities," "--Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated
Debentures--Debenture Events of Default."
Removal of Issuer Trustees; Appointment of Successors
The holders of at least a majority in aggregate Liquidation Amount of
the outstanding Preferred Securities may remove an Issuer Trustee for cause or,
if a Debenture Event of Default has occurred and is continuing, with or without
cause. If an Issuer Trustee is removed by the holders of the outstanding
Preferred Securities, the successor may be appointed by the holders of at least
25% in Liquidation Amount of Preferred Securities. If an Issuer Trustee resigns,
such Trustee will appoint its successor. If an Issuer Trustee fails to appoint a
successor, the holders of at least 25% in Liquidation Amount of the outstanding
Preferred Securities may appoint a successor. If a successor has not been
appointed by the holders, any holder of Preferred Securities or Common
Securities or the other Issuer Trustee may petition a court in the State of
Delaware to appoint a successor. Any Delaware Trustee must meet the applicable
requirements of Delaware law. Any Property Trustee must be a national or
state-chartered bank, and at the time of appointment have securities rated in
one of the three highest rating categories
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by a nationally recognized statistical rating organization and have capital and
surplus of at least $50,000,000. No resignation or removal of an Issuer Trustee
and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
Merger or Consolidation of Issuer Trustees
Any entity into which the Property Trustee or the Delaware Trustee may
be merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Issuer
Trustee is a party, or any entity succeeding to all or substantially all the
corporate trust business of such Issuer Trustee, will be the successor of such
Issuer Trustee under the Trust Agreement, provided such entity is otherwise
qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Issuer Trust
The Issuer Trust may not merge with or into, consolidate, amalgamate,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State, so long as (i) such
successor entity either (a) expressly assumes all the obligations of the Issuer
Trust with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Preferred Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity, possessing the same powers and duties as the
Property Trustee, is appointed to hold the Junior Subordinated Debentures, (iii)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect, (v) such successor entity has a
purpose substantially identical to that of the Issuer Trust, (vi) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
the Issuer Trust has received an opinion from independent counsel experienced in
such matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Issuer Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act, and (vii) the Company or
any permitted successor or assignee owns all the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Issuer Trust may not, except with the consent
of holders of 100% in aggregate Liquidation Amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to, any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer Trust or the successor
entity to be taxable as a corporation for United States federal income tax
purposes.
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Voting Rights; Amendment of Trust Agreement
Except as provided below and under "--Removal of Issuer Trustees;
Appointment of Successors" and "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of
a majority of the Common Securities and the Property Trustee, without the
consent of the holders of the Preferred Securities, (i) to cure any ambiguity,
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, provided that
any such amendment does not adversely affect in any material respect the
interests of any holder of Trust Securities, or (ii) to modify, eliminate or add
to any provisions of the Trust Agreement to such extent as may be necessary to
ensure that the Issuer Trust will not be taxable as a corporation for United
States federal income tax purposes at any time that any Trust Securities are
outstanding or to ensure that the Issuer Trust will not be required to register
as an "investment company" under the Investment Company Act, and any amendments
of the Trust Agreement will become effective when notice of such amendment is
given to the holders of Trust Securities. The Trust Agreement may be amended by
the holders of a majority of the Common Securities and the Property Trustee with
(i) the consent of holders representing not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities and (ii) receipt by
the Issuer Trustees of an opinion of counsel to the effect that such amendment
or the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Issuer Trust's not being taxable as a
corporation for United States federal income tax purposes or the Issuer Trust's
exemption from status as an "investment company" under the Investment Company
Act, except that, without the consent of each holder of Trust Securities
affected thereby, the Trust Agreement may not be amended to (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 Issuer
Trust, the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 513 of the Junior Subordinated Indenture, (iii) exercise any right
to rescind or annul a declaration that the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Junior Subordinated Indenture or the Junior Subordinated Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the holders of at least a majority in aggregate Liquidation Amount
of the outstanding Preferred Securities, except that, if a consent under the
Junior Subordinated Indenture would require the consent of each holder of Junior
Subordinated Debentures affected thereby, no such consent will be given by the
Property Trustee without the prior consent of each holder of the Preferred
Securities. The Property Trustee may not revoke any action previously authorized
or approved by a vote of the holders of the Preferred Securities except by
subsequent vote of the holders of the Preferred Securities. The Property Trustee
will notify each holder of Preferred Securities of any notice of default with
respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Preferred Securities, before taking
any of the foregoing actions, the Property Trustee will obtain an opinion of
counsel experienced in such matters to the effect that the Issuer Trust will not
be taxable as a corporation for United States federal income tax purposes on
account of such action.
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Any required approval of holders of Preferred Securities may be given
at a meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be given to each registered holder of Preferred Securities in the manner set
forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be
required to redeem and cancel Preferred Securities in accordance with the Trust
Agreement.
Notwithstanding that holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Issuer Trustees or any
affiliate of the Company or any Issuer Trustees, will, for purposes of such vote
or consent, be treated as if they were not outstanding.
Expenses and Taxes
In the Indenture, the Company, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Preferred Securities) and
all costs and expenses of the Issuer Trust (including costs and expenses
relating to the organization of the Issuer Trust, the fees and expenses of the
Trustees and the costs and expenses relating to the operation of the Issuer
Trust) and to pay any and all taxes and all costs and expenses with respect
thereto (other than United States withholding taxes) to which the Issuer Trust
might become subject. The foregoing obligations of the Company under the
Indenture are for the benefit of, and shall be enforceable by, any person to
whom any such debts, obligations, costs, expenses and taxes are owed (a
"Creditor") whether or not such Creditor has received notice thereof. Any such
Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against the Issuer Trust or any other
person before proceeding against the Company. The Company has also agreed in the
Indenture to execute such additional agreements as may be necessary or desirable
to give full effect to the foregoing.
Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more
fully registered global securities which will be deposited with, or on behalf
of, DTC and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole or in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited
to persons that have accounts with DTC or its nominee ("Participants") or
persons that may hold interests through Participants. The Company expects that,
upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of Participants)
and on the records of Participants (with respect to interests of Persons held
through Participants). Beneficial owners will not receive written confirmation
from DTC of their purchase, but are expected to receive written confirmations
from the Participants through which the beneficial owner entered into the
transaction.
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Transfers of ownership interests will be accomplished by entries on the books of
Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Preferred
Securities under the Junior Subordinated Indenture. The Company understands
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of each
Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trustees, the Administrators, any Paying Agent or any
other agent of the Company or the Trustees will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global security for such Preferred
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Disbursements of Distributions to
Participants shall be the responsibility of DTC. DTC's practice is to credit
Participants' accounts on a payable date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payable date. Payments by Participants to beneficial
owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participant
and not of DTC, the Company, the Trustees, the Paying Agent or any other agent
of the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time.
DTC may discontinue providing its services as securities depository
with respect to the Preferred Securities at any time by giving reasonable notice
to the Company or the Trustees. If DTC notifies the Company that it is unwilling
to continue as such, or if it is unable to continue or ceases to be a clearing
agency registered under the Exchange Act and a successor depository is not
appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
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DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (such as the Underwriter), banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
Same-Day Settlement and Payment
Settlement for the Preferred Securities will be made by the Underwriter
in immediately available funds.
Secondary trading in Preferred Securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The paying
agent (the "Paying Agent") initially will be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrators. The Paying Agent will be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Administrators. If
the Property Trustee is no longer the Paying Agent, the Property Trustee will
appoint a successor (which must be a bank or trust company reasonably acceptable
to the Administrators) to act as Paying Agent.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
Preferred Securities.
Registration of transfers of Preferred Securities will be effected
without charge by or on behalf of the Issuer Trust, but upon payment of any tax
or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer Trust will not be required to register or cause
to be registered the transfer of the Preferred Securities after the Preferred
Securities have been called for redemption.
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Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, after such Event of Default,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
Bankers Trust Company, the Property Trustee, is an affiliate of the
Selling Security Holder. As a result, the occurrence of a default under the
Trust Agreement might create a conflicting interest for the Property Trustee
under the Trust Indenture Act of 1939, as amended ("1939 Act"), if then
applicable to the Preferred Securities. If the default has not been cured or
waived within 90 days after the Property Trustee has or acquires a conflicting
interest, the Property Trustee generally is required by the 1939 Act to
eliminate such conflicting interest or resign as Property Trustee. In the event
of the Property Trustee's resignation, a successor trustee will be appointed in
accordance with the terms of the Trust Agreement.
For information concerning the relationships between Bankers Trust
Company, the Property Trustee, and the Company, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
Miscellaneous
The Administrators and the Property Trustee are authorized and directed
to conduct the affairs of and to operate the Issuer Trust in such a way that the
Issuer Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable 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 Property Trustee and the
holders of Common Securities are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Issuer Trust or the Trust
Agreement, that the Property Trustee and the holders of Common Securities
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Issuer Trust may not borrow money or issue debt or mortgage or
pledge any of its assets.
Governing Law
The Trust Agreement will be governed by and construed in accordance
with the laws of the State of Delaware.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures have been issued under the Junior
Subordinated Indenture, under which Bankers Trust Company is acting as Debenture
Trustee. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Junior Subordinated Indenture, including the definitions
therein of certain terms. Whenever particular defined terms of the Junior
Subordinated Indenture (as amended or supplemented from time to time) are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of Junior Subordinated Indenture is available from the
Debenture Trustee upon request.
General
Concurrently with the issuance of the Preferred Securities, the Issuer
Trust invested the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures. The
Junior Subordinated Debentures bear interest, accruing from the date of original
issuance, at a rate equal to 10.07% per annum on the principal amount thereof,
payable semi-annually in arrears on the 15th day of June and December of each
year (each, an "Interest Payment Date"), commencing December 15, 1997, to the
person in whose name each Junior Subordinated Debenture is registered at the
close of business on the June 1 or December 1 (whether or not a Business Day)
next preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Issuer Trust, each Junior Subordinated Debenture
will be registered in the name of the Issuer Trust and held by the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
amount of interest payable for any period less than a full interest period will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. The amount of interest
payable for any full interest period will be computed by dividing the rate per
annum by two. If any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (without any interest or other payment in respect of any such delay), with
the same force and effect as if made on the date such payment was originally
payable. Accrued interest that is not paid on the applicable Interest Payment
Date will bear additional interest on the amount thereof (to the extent
permitted by law) at a rate equal to 10.07% per annum, compounded semi-annually
and computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by two. The term "interest" as used herein includes semi-annually
interest payments, interest on semi-annually interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The Junior Subordinated Debentures mature on June 15, 2027 (such date
is referred to herein as the Stated Maturity).
The Junior Subordinated Debentures are unsecured and rank junior and
subordinate in right of payment to all Senior Indebtedness of the Company. The
Junior Subordinated Debentures are not subject to a sinking fund and are not
eligible as collateral for any loan made by the Bank Subsidiaries. The Junior
Subordinated Indenture does not limit the incurrence or issuance of other
secured or unsecured debt by the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture or any existing or other indenture or
agreement that the Company may enter into in the future or otherwise. See
"--Subordination."
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Option To Extend Interest Payment Period
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right at any time during the term of the Junior
Subordinated Debentures to defer the payment of interest at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. At the end of
such Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon at a rate equal to 10.07% per annum, compounded
semi-annually and computed on the basis of a 360-day year of twelve 30-day
months and the actual days elapsed in a partial month in such period, to the
extent permitted by applicable law). The amount of additional interest payable
for any full interest period will be computed by dividing the rate per annum by
two. During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (or holders of Preferred Securities while
outstanding) will be required to accrue interest income for United States
federal income tax purposes. See "Certain Federal Income Tax Consequences--US
Holders--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholders rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due, the Company may elect
to begin a new Extension Period subject to the above conditions. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company must give the Issuer Trustees notice of its election of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the Distributions on the Preferred Securities would have been payable but for
the election to begin such Extension Period and (ii) the date the Property
Trustee is required to give notice to holders of the Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Property Trustee will
give notice of the Company's election to begin a new Extension Period to the
holders of the
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Preferred Securities. There is no limitation on the number of times that the
Company may elect to begin an Extension Period.
Redemption
The Junior Subordinated Debentures are redeemable prior to maturity at
the option of the Company (i) on or after June 15, 2007, in whole at any time or
in part from time to time, or (ii) in whole, but not in part, at any time within
90 days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Preferred Securities--Redemption"), in each case at the
redemption price described below. The proceeds of any such redemption will be
used by the Issuer Trust to redeem the Preferred Securities.
The Federal Reserve's risk-based capital guidelines, which are subject
to change, currently provide that redemptions of permanent equity or other
capital instruments before stated maturity and that any organization considering
such a redemption, depending on the circumstances, either: (i) must obtain
Federal Reserve approval prior to redemption, or (ii) should consult with the
Federal Reserve before redeeming any equity or capital instrument prior to
maturity if such redemption could have a material effect on the level or
composition of the organization's capital base (unless the equity or capital
instrument were redeemed with the proceeds of, or replaced by, a like amount of
a similar or higher quality capital instrument and the Federal Reserve considers
the organization's capital position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company
prior to their Stated Maturity would constitute the redemption of capital
instruments under the Federal Reserve's current risk-based capital guidelines
and may be subject, as it currently is, to the prior approval of the Federal
Reserve.
The Redemption Price for Junior Subordinated Debentures in the case of
a redemption under (i) above shall equal the following prices, expressed in
percentages of the principal amount, together with accrued interest to but
excluding the date fixed for redemption. If redeemed during the 12-month period
beginning June 15:
Year Redemption Price
- ---- ----------------
2007........................................................ 105.035%
2008........................................................ 104.532%
2009........................................................ 104.028%
2010........................................................ 103.525%
2011........................................................ 103.021%
2012........................................................ 102.518%
2013........................................................ 102.014%
2014........................................................ 101.511%
2015........................................................ 101.007%
2016........................................................ 100.504%
and at 100% on or after June 15, 2017.
The Redemption Price in the case of a redemption on or after June 15,
2007 following a Tax Event, Investment Company Event or Capital Treatment Event
shall equal the Redemption Price then applicable to a redemption under (i)
above. The Redemption Price for Junior Subordinated Debentures, in the case of a
redemption prior to June 15, 2007 following a Tax Event, Investment Company
Event
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or Capital Treatment Event as described under (ii) above, will equal the
Make-Whole Amount (as defined under "Description of Preferred
Securities--Redemption"), together with accrued interest to but excluding the
date fixed for redemption.
Additional Sums
The Company has covenanted in the Junior Subordinated Indenture that,
if and for so long as (i) the Issuer Trust is the holder of all Junior
Subordinated Debentures and (ii) the Issuer Trust is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay as additional sums on the Junior Subordinated
Debentures such amounts as may be required so that the Distributions payable by
the Issuer Trust will not be reduced as a result of any such additional taxes,
duties or other governmental charges. See "Description of Preferred
Securities--Redemption."
Registration, Denomination and Transfer
The Junior Subordinated Debentures are registered in the name of the
Issuer Trust. If the Junior Subordinated Debentures are distributed to holders
of Preferred Securities, it is anticipated that the depositary arrangements for
the Junior Subordinated Debentures will be substantially identical to those in
effect for the Preferred Securities. See "Description of Preferred
Securities--Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
the Preferred Securities--Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in New York, New
York or at the offices of any Paying Agent or transfer agent appointed by the
Company, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto. However,
a holder of $1 million or more in aggregate principal amount of Junior
Subordinated Debentures may receive payments of interest (other than interest
payable at the Stated Maturity) by wire transfer of immediately available funds
upon written request to the Debenture Trustee not later than 15 calendar days
prior to the date on which the interest is payable.
The Junior Subordinated Debentures are issuable only in registered form
without coupons in integral multiples of $25. Junior Subordinated Debentures are
exchangeable for other Junior Subordinated Debentures of like tenor, of any
authorized denominations, and of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as
provided above, and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for
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such purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Junior Subordinated Indenture. The
Company has appointed the Debenture Trustee as securities registrar under the
Junior Subordinated Indenture. The Company may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) 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.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
Restrictions on Certain Payments; Certain Covenants of the Company
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period or other event
referred to below, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event (a) of which the Company has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute a Debenture
Event of Default and (b) that the Company has not taken reasonable steps to
cure, (ii) if the Junior Subordinated Debentures are held by the Issuer Trust,
the Company is in default with respect to its payment of any obligations under
the Guarantee or (iii) the Company has given notice of its election of an
Extension Period as provided in the Junior Subordinated Indenture and has not
rescinded such notice, or such Extension Period, or any extension thereof, is
continuing.
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The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate the Issuer Trust, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Preferred Securities in liquidation of the Issuer Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause the Issuer Trust to continue not to
be taxable as a corporation for United States federal income tax purposes.
Modification of Junior Subordinated Indenture
From time to time, the Company and the Debenture Trustee may, without
the consent of any of the holders of the outstanding Junior Subordinated
Debentures, amend, waive or supplement the provisions of the Junior Subordinated
Indenture to: (1) evidence succession of another corporation or association to
the Company and the assumption by such person of the obligations of the Company
under the Junior Subordinated Debentures, (2) add further covenants,
restrictions or conditions for the protection of holders of the Junior
Subordinated Debentures, (3) cure ambiguities or correct the Junior Subordinated
Debentures in the case of defects or inconsistencies in the provisions thereof,
so long as any such cure or correction does not adversely affect the interest of
the holders of the Junior Subordinated Debentures in any material respect, (4)
change the terms of the Junior Subordinated Debentures to facilitate the
issuance of the Junior Subordinated Debentures in certificated or other
definitive form, (5) evidence or provide for the appointment of a successor
Debenture Trustee, or (6) qualify, or maintain the qualification of, the Junior
Subordinated Indentures under the Trust Indenture Act. The Junior Subordinated
Indenture contains provisions permitting the Company and the Debenture Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Junior Subordinated Debentures, to modify the Junior Subordinated
Indenture in a manner affecting the rights of the holders of the Junior
Subordinated Debentures, except that no such modification may, without the
consent of the holder of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated Maturity of the Junior Subordinated Debentures,
or reduce the principal amount thereof, the rate of interest thereon or any
premium payable upon the redemption thereof, or change the place of payment
where, or the currency in which, any such amount is payable or impair the right
to institute suit for the enforcement of any Junior Subordinated Debenture 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 Junior Subordinated Indenture. Furthermore, so long as any
of the Preferred Securities remain outstanding, no such modification may be made
that adversely affects the holders of such Preferred Securities in any material
respect, and no termination of the Junior Subordinated Indenture may occur, and
no waiver of any Debenture Event of Default or compliance with any covenant
under the Junior Subordinated Indenture may be effective, without the prior
consent of the holders of at least a majority of the aggregate Liquidation
Amount of the outstanding Preferred Securities unless and until the principal of
(and premium, if any, on) the Junior Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other conditions are
satisfied.
Debenture Events of Default
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
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(i) failure to pay any interest on the Junior Subordinated Debentures
when due and payable, and continuance of such default for a period of 30 days
(subject to the deferral of any due date in the case of an Extension Period); or
(ii) failure to pay any principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Junior Subordinated Indenture for 90 days after
written notice to the Company from the Debenture Trustee or the holders of at
least 25% in aggregate outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such
Event of Default under the Junior Subordinated Debenture is referred to as a
"Debenture Event of Default." As described in "Description of Preferred
Securities--Events of Default; Notice," the occurrence of a Debenture Event of
Default will also constitute an Event of Default in respect of the Trust
Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Preferred Securities
shall have such right. The holders of a majority in aggregate principal amount
of outstanding Junior Subordinated Debentures may annul such declaration and
waive the default if all defaults (other than the non-payment of the principal
of Junior Subordinated Debentures which has become due solely by such
acceleration) have been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee. Should the holders of Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debenture affected thereby. See "--Modification of Junior
Subordinated Indenture." The Company is required to file annually with the
Debenture Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Junior Subordinated Indenture.
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If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts payable under the Junior
Subordinated Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
Enforcement of Certain Rights by Holders of Preferred Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Preferred Securities may institute a
legal proceeding directly against the Company for enforcement of payment to such
holder of an amount equal to the amount payable in respect of Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities held by such holder (a "Direct
Action"). The Company may not amend the Junior Subordinated Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent
of the holders of all the Preferred Securities. The Company has the right under
the Junior Subordinated Indenture to set-off any payment made to such holder of
Preferred Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities would not be able to exercise
directly any remedies available to the holders of the Junior Subordinated
Debentures except under the circumstances described in the preceding paragraph.
See "Description of Preferred Securities--Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Junior Subordinated Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another Person or conveys 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 in respect of the Junior Subordinated Debentures,
provided, however, that nothing in the Junior Subordinated Indenture shall be
deemed to restrict or prohibit, and no supplemental indenture shall be required
in the case of, the merger of a Principal Subsidiary Bank with and into a
Principal Subsidiary Bank or the Company, the consolidation of Principal
Subsidiary Banks into a Principal Subsidiary Bank or the Company, or the sale or
other disposition of all or substantially all of the assets of any Principal
Subsidiary Bank to another Principal Subsidiary Bank or the Company, if, in any
such case in which the surviving, resulting or acquiring entity is not the
Company, the Company would own directly or indirectly at least 80% of the voting
securities of the Principal Subsidiary Bank (and of any other Principal
Subsidiary Bank any voting securities of which are owned, directly or
indirectly, by such Principal Subsidiary Bank) surviving such merger, resulting
from such consolidation or acquiring such assets; (ii) immediately after giving
effect thereto, no Debenture Event of Default, and no event which, after notice
or lapse of time or both, would constitute a Debenture Event of Default, has
occurred and is continuing; and (iii) certain other conditions as prescribed in
the Junior Subordinated Indenture are satisfied.
For purposes of clause (i) above, the term "Principal Subsidiary Bank"
means each of (i) the Bank Subsidiaries, (ii) any other banking subsidiary of
the Company, the consolidated assets of which constitute 20% or more of the
consolidated assets of the Company and its consolidated subsidiaries, (iii)
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any other banking subsidiary designated as a Principal Subsidiary Bank pursuant
to a resolution of the Board of Directors of the Company and set forth in an
officers' certificate delivered to the Debenture Trustee, and (iv) any banking
subsidiary of the Company that owns, directly or indirectly, any voting
securities, or options, warrants or rights to subscribe for or purchase voting
securities, of any Principal Subsidiary Bank under clause (i), (ii) or (iii),
and in the case of clause (i), (ii), (iii) or (iv) their respective successors
(whether by consolidation, merger, conversion, transfer of substantially all
their assets and business or otherwise) so long as any such successor is a
banking subsidiary (in the case of clause (i), (ii) or (iii) or a subsidiary (in
the case of clause (iv)) of the Company.
The provisions of the Junior Subordinated Indenture do not afford
holders of the Junior Subordinated Debentures protection in the event of a
highly leveraged or other transaction involving the Company that may adversely
affect holders of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Junior Subordinated Indenture provides that when, among other
things, all Junior Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation (i) have become due and payable or (ii) will
become due and payable at the Stated Maturity within one year, and the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if any)
and interest to the date of the deposit or to the Stated Maturity, as the case
may be, then the Junior Subordinated Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Junior Subordinated Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Company will be
deemed to have satisfied and discharged the Junior Subordinated Indenture.
Subordination
The Junior Subordinated Debentures are subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If the Company defaults
in the payment of any principal, premium, if any, or interest, if any, or any
other amount payable on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by declaration
of acceleration or otherwise, then, unless and until such default has been cured
or waived or has ceased to exist or all Senior Indebtedness has been paid, no
direct or indirect payment (in cash, property, securities, by setoff or
otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, whether recourse is to all
or a portion of the assets of the Company and whether or not contingent, (i)
every obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Company; (iv) every obligation of the Company issued or
assumed as the deferred purchase price of property services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the Company; (vi) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as
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interest and foreign exchange rate contracts, commodity contracts and similar
arrangements; and (vii) every obligation of the type referred to in clauses (i)
through (vi) of another person and all dividends of another person the payment
of which, in either case, the Company has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise. "Senior Indebtedness"
shall not include (i) any obligations which, by their terms, are expressly
stated to rank pari passu in right of payment with, or to not be superior in
right of payment to, the Junior Subordinated Debentures, (ii) any Senior
Indebtedness of the Company which when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of 1978, as
amended, was without recourse to the Company, (iii) any Senior Indebtedness of
the Company to any of its subsidiaries, (iv) Senior Indebtedness to any
executive officer or director of the Company, or (v) any indebtedness in respect
of debt securities issued to any trust, or a trustee of such trust, partnership
or other entity affiliated with the Company that is a financing entity of the
Company in connection with the issuance of such financing entity of securities
that are similar to the Preferred Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property is
received by any holder of any Junior Subordinated Debentures in contravention of
any of the terms hereof and before all the Senior Indebtedness has been paid in
full, such payment or distribution or security will be received in trust for the
benefit of, and must be paid over or delivered and transferred to, the holders
of the Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full. By reason of such subordination, in the event of
the insolvency of the Company, holders of Senior Indebtedness may receive more,
ratably, and holders of the Junior Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
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The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Information Concerning the Debenture Trustee
The Debenture Trustee, other than during the occurrence and continuance
of a default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, is an affiliate of the
Selling Security Holder. As a result, the occurrence of a default under the
Junior Subordinated Debenture might create a conflicting interest for the
Debenture Trustee under the 1939 Act if then applicable to the Junior
Subordinated Debenture. If the default has not been cured or waived within 90
days after the Debenture Trustee has or acquires a conflicting interest, the
Debenture Trustee generally is required by the 1939 Act to eliminate such
conflicting interest or resign as Debenture Trustee. In the event of the
Debenture Trustee's resignation, a successor trustee will be appointed in
accordance with the terms of the Junior Subordinated Debenture.
Bankers Trust Company, the Debenture Trustee, may serve from time to
time as trustee under other indentures or trust agreements with the Company or
its subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
Governing Law
The Junior Subordinated Indenture and the Junior Subordinated
Debentures will be governed by and construed in accordance with the laws of the
State of New York.
DESCRIPTION OF GUARANTEE
The Guarantee was executed and delivered by the Company concurrently
with the issuance of Preferred Securities by the Issuer Trust for the benefit of
the holders from time to time of the Preferred Securities. Bankers Trust Company
acts as Guarantee Trustee under the Guarantee. This 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 the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee holds the Guarantee for the benefit of the holders of the
Preferred Securities.
General
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 Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer Trust may have or
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assert other than the defense of payment. The following payments with respect to
the Preferred Securities, to the extent not paid by or on behalf of the Issuer
Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on such Preferred
Securities, to the extent that the Issuer Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption, to the extent that the Issuer Trust has funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution of the Issuer Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Preferred Securities), the lesser
of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Issuer Trust has
funds on hand available therefor at such time, and (b) the amount of assets of
the Issuer Trust remaining available for distribution to holders of the
Preferred Securities on liquidation of the Issuer Trust. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the holders of the Preferred Securities or by
causing the Issuer Trust to pay such amounts to such holders.
The Guarantee is an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Preferred Securities, but applies only
to the extent that the Issuer Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
any amounts payable in respect of the Preferred Securities and will not have
funds legally available therefor. The Guarantee ranks subordinate and junior in
right of payment to all Senior Indebtedness of the Company. See "--Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all the Issuer Trust's
obligations under the Preferred Securities. No single document standing alone or
operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Issuer Trust's obligations in respect of the Preferred Securities. See
"Relationship Among the Preferred Securities, the Junior Subordinated Debentures
and the Guarantee."
Status of the Guarantee
The Guarantee constitutes an unsecured obligation of the Company and
ranks subordinate and junior in right of payment to all Senior Indebtedness of
the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee constitutes a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee is held by the Guarantee Trustee for the benefit of the holders of the
Preferred Securities. The Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by the Issuer Trust or
distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
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Amendments and Assignment
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of the Preferred
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 Preferred Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation Amount of the outstanding Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantee.
Any registered holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Issuer Trust,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after the occurrence of an event of default with respect to the Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested in
it by the Guarantee at the request of any holder of the Preferred Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
For information concerning the relationship between Bankers Trust
Company, the Guarantee Trustee, and the Company, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
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 Preferred Securities, upon full
payment of the amounts payable with respect to the Preferred Securities upon
liquidation of the Issuer Trust or upon distribution of Junior Subordinated
Debentures to the holders of the Preferred Securities. The Guarantee will
continue to be
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effective or will be reinstated, as the case may be, if at any time any holder
of the Preferred Securities must restore payment of any sums paid under the
Preferred Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Issuer Trust has funds available for such payment)
are irrevocably guaranteed by the Company as and to the extent set forth under
"Description of Guarantee." Taken together, the Company's obligations under the
Junior Subordinated Debentures, the Junior Subordinated Indenture, the Trust
Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all the other documents constitutes such guarantee.
It is only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the Issuer Trust's
obligations in respect of the Preferred Securities. If and to the extent that
the Company does not make payments on the Junior Subordinated Debentures, the
Issuer Trust will not have sufficient funds to pay Distributions or other
amounts due on the Preferred Securities. The Guarantee does not cover payment of
amounts payable with respect to the Preferred Securities when the Issuer Trust
does not have sufficient funds to pay such amounts. In such event, the remedy of
a holder of the Preferred Securities is to institute a legal proceeding directly
against the Company for enforcement of payment of the Company's obligations
under Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Preferred Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures
and the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
Sufficiency of Payments
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Preferred Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Preferred
Securities and Common Securities; (ii) the interest rate and interest and other
payment dates on the Junior Subordinated Debentures will match the Distribution
rate, Distribution Dates and other payment dates for the Preferred Securities;
(iii) the Company will pay for all and any costs, expenses and liabilities of
the Issuer Trust except the Issuer Trust's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that the Issuer Trust
will not engage in any activity that is not consistent with the limited purposes
of the Issuer Trust.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent
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the Company has theretofore made, or is concurrently on the date of such payment
making, a payment under the Guarantee.
Enforcement Rights of Holders of Preferred Securities
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
Trust or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the
Company would not constitute a default or Event of Default in respect of the
Preferred Securities. However, in the event of payment defaults under, or
acceleration of, Senior Indebtedness of the Company, the subordination
provisions of the Junior Subordinated Indenture provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. See "Description of Junior Subordinated
Debentures--Subordination."
Limited Purpose of Issuer Trust
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust, and the Issuer Trust exists for the
sole purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of a Preferred Security and a holder
of a Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company payments on Junior
Subordinated Debentures held, while a holder of Preferred Securities is entitled
to receive Distributions or other amounts distributable with respect to the
Preferred Securities from the Issuer Trust (or from the Company under the
Guarantee) only if and to the extent the Issuer Trust has funds available for
the payment of such Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the Issuer Trust,
other than any such dissolution involving the distribution of the Junior
Subordinated Debentures, after satisfaction of liabilities to creditors of the
Issuer Trust as required by applicable law, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Issuer Trust,
the Liquidation Distribution in cash. See "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Issuer Trust, as
registered holder of the Junior Subordinated Debentures, would be a subordinated
creditor of the Company, subordinated and junior in right of payment to all
Senior Indebtedness as set forth in the Junior Subordinated Indenture, but
entitled to receive payment in full of all amounts payable with respect to the
Junior Subordinated Debentures before any stockholders of the Company receive
payments or distributions. Since the Company is the guarantor under the
Guarantee and has agreed under the Junior Subordinated Indenture to pay for all
costs, expenses and liabilities of the Issuer Trust (other than the Issuer
Trust's obligations to the holders of the Trust Securities), the positions of a
holder of the Preferred Securities and a holder of such 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.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
In the opinion of Gordon, Feinblatt, Rothman, Hoffberger & Hollander,
LLC, in its capacity as special tax counsel to the Company ("Tax Counsel"), the
discussion of United States federal income taxation which follows summarizes the
material United States federal income tax consequences of the purchase,
ownership and disposition of the Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations, and the opinions of Tax Counsel
are not binding on the Internal Revenue Service (the "IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought from the IRS with respect to the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with the Preferred
Securities held as a capital asset by a holder who or which is a US Holder (as
defined below). This summary does not address all the tax consequences that may
be relevant to a US Holder, nor does it address the tax consequences, except as
stated below, to holders that are not US Holders ("Non-US Holders") or to
holders that may be subject to special tax treatment (such as banks, thrift
institutions, real estate investment trusts, regulated investment companies,
insurance companies, brokers and dealers in securities or currencies, other
financial institutions, tax-exempt organizations, persons holding the Preferred
Securities as a position in a "straddle," as part of a "synthetic security,"
"hedging," "conversion" or other integrated investment, persons having a
functional currency other than the U.S. Dollar and certain United States
expatriates). Further, this summary does not address (a) the income tax
consequences to shareholders in, or partners or beneficiaries of, a holder of
the Preferred Securities, (b) the United States federal alternative minimum tax
consequences of the purchase, ownership or disposition of the Preferred
Securities, or (c) any state, local or foreign tax consequences of the purchase,
ownership and disposition of Preferred Securities.
A "US Holder" is a holder of the Preferred Securities who or which is
(i) a citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States trustees have the authority to control all substantial
decisions of the trust.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, 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 PREFERRED
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF
PREFERRED SECURITIES--REDEMPTION."
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US Holders
Characterization of the Issuer Trust. In connection with the
registration of the Preferred Securities, Tax Counsel will render its opinion
generally to effect that, under then current law and based on the
representations, facts and assumptions set forth in this Prospectus, and
assuming full compliance with the terms of the Trust Agreement (and other
relevant documents), and based on certain assumptions and qualifications
referenced in the opinion, the Issuer Trust will be characterized for United
States federal income tax purposes as a grantor trust and will not be
characterized as an association taxable as a corporation. Accordingly, for
United States federal income tax purposes, each holder of the Preferred
Securities generally will be considered the owner of an undivided interest in
the Junior Subordinated Debentures owned by the Issuer Trust, and each US Holder
will be required to include all income or gain recognized for United States
federal income tax purposes with respect to its allocable share of the Junior
Subordinated Debentures on its own income tax return.
Characterization of the Junior Subordinated Debentures. The Company and
the Issuer Trust have agreed to treat the Junior Subordinated Debentures as
indebtedness for all United States federal income tax purposes. In connection
with the registration of the Junior Subordinated Debentures, Tax Counsel will
render its opinion generally to the effect that, under then current law and
based on the representations, facts and assumptions set forth in this
Prospectus, and assuming full compliance with the terms of the Indenture (and
other relevant documents), and based on certain assumptions and qualifications
referenced in the opinion, the Junior Subordinated Debentures will be
characterized for United States federal income tax purposes as debt of the
Company.
Interest Income and Original Issue Discount. Under the terms of the
Junior Subordinated Debentures, the Company has the ability to defer payments of
interest from time to time by extending the interest payment period for a period
not exceeding 10 consecutive semiannual periods, but not beyond the maturity of
the Junior Subordinated Debentures. Treasury regulations under Section 1273 of
the Code provide that debt instruments like the Junior Subordinated Debentures
will not be considered issued with original issue discount ("OID") by reason of
the Company's ability to defer payments of interest if the likelihood of such
deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the
date of the original issuance of the Junior Subordinated Debentures the
likelihood of deferring payments of interest under the terms of the Junior
Subordinated Debentures was "remote" within the meaning of the applicable
Treasury regulations, in part because exercising that option would prevent the
Company from declaring dividends on its stock and would prevent the Company from
making any payments with respect to debt securities that rank pari passu with or
junior to the Junior Subordinated Debentures. Therefore, the Junior Subordinated
Debentures should not be treated as issued with OID by reason of the Company's
deferral option. Moreover, the Company has determined that the Junior
Subordinated Debentures were not otherwise issued with OID. Consequently, stated
interest on the Junior Subordinated Debentures will generally be taxable to a US
Holder as ordinary income when paid or accrued in accordance with that holder's
method of accounting for income tax purposes. It should be noted, however, that
these regulations may in the future be analyzed and interpreted by the IRS in
rulings or other published documents. Accordingly, it is possible that the IRS
could take a position contrary to the interpretation described herein.
In the event the Company exercises its option to defer payments of
interest, the Junior Subordinated Debentures would be treated as reissued for
OID purposes and the sum of the remaining interest payments (and any de minimis
OID) on the Junior Subordinated Debentures would thereafter be treated as OID,
which would accrue, and be includible in a US Holder's taxable income, on an
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economic accrual basis (regardless of the US Holder's method of accounting for
income tax purposes) over the remaining term of the Junior Subordinated
Debentures (including any period of interest deferral), without regard to the
timing of payments under the Junior Subordinated Debentures. (Subsequent
distributions of interest on the Junior Subordinated Debentures generally would
not be taxable.) The amount of OID that would accrue in any period would
generally equal the amount of interest that accrued on the Junior Subordinated
Debentures in that period at the stated interest rate. Consequently, during any
period of interest deferral, US Holders will include OID in gross income in
advance of the receipt of cash, and a US Holder which disposes of a Preferred
Security prior to the record date for payment of distributions on the Junior
Subordinated Debentures following that period will be subject to income tax on
OID accrued through the date of disposition (and not previously included in
income), but will not receive cash from the Issuer Trust with respect to such
OID.
If the possibility of the Company's exercise of its option to defer
payments of interest was not remote, the Junior Subordinated Debentures would be
treated as initially issued with OID in an amount equal to the aggregate stated
interest (plus any de minimis OID) over the term of the Junior Subordinated
Debentures. That OID would generally be includible in a US Holder's taxable
income, over the term of the Junior Subordinated Debentures, on an economic
accrual basis.
Characterization of Income. Because the income underlying the Preferred
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction for any income recognized with respect to the
Preferred Securities.
Bond Premium. If a U.S. Holder purchases a Preferred Security at a cost
greater than the principal amount, that excess generally is treated as
amortizable bond premium. A U.S. Holder may elect to deduct such amortizable
bond premium (with a corresponding reduction in the U.S. Holder's tax basis)
over the remaining term of the Preferred Security (or a shorter period to the
first call date, if a smaller deduction would result) on an economic accrual
basis. The election would apply to all taxable debt instruments held by the U.S.
Holder at any time during the first taxable year to which the election applies
and to any such debt instruments which are later acquired by the U.S. Holder.
The election may not be revoked without the consent of the IRS.
Market Discount. If a U.S. Holder purchases a Preferred Security for an
amount that is less than the principal amount of such Preferred Security, the
amount of the difference will be treated as market discount for U.S. federal
income tax purposes, unless such difference is less than a specified de minimis
amount. Under the market discount rules, a U.S. Holder must accrue market
discount on a straight-line basis, or may elect to accrue it on an economic
accrual basis. A U.S. Holder will be required to treat any principal payment on,
or any amount received on the sale, exchange, retirement or other disposition
of, a Preferred Security as ordinary income to the extent of accrued market
discount which has not previously been included in income. In addition, the U.S.
Holder may be required to defer, until the maturity of the Preferred Security or
its earlier disposition in a taxable transaction, the deduction of a portion of
the interest expense on any indebtedness incurred or continued to purchase or
carry such Preferred Security.
A U.S. Holder of a Preferred Security acquired at a market discount may
elect to include market discount in income as interest as it accrues, in which
case the interest deferral rule would not apply. This election would apply to
all bonds with market discount acquired by the electing U.S. Holder on or after
the first day of the first taxable year to which the election applies and is
separate from the election concerning the rate of accrual described above. The
election may be revoked only with the consent of the IRS.
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Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
the Issuer Trust. Under certain circumstances described herein (See "Description
of the Preferred Securities--Liquidation Distribution Upon Dissolution"), the
Issuer Trust may distribute the Junior Subordinated Debentures to holders in
exchange for the Preferred Securities and in liquidation of the Issuer Trust.
Except as discussed below, such a distribution would not be a taxable event for
United States federal income tax purposes, and each US Holder would have an
aggregate adjusted basis in its Junior Subordinated Debentures for United States
federal income tax purposes equal to such holder's aggregate adjusted basis in
its Preferred Securities. For United States federal income tax purposes, a US
Holder's holding period in the Junior Subordinated Debentures received in such a
liquidation of the Issuer Trust would include the period during which the
Preferred Securities were held by the holder. If, however, the relevant event is
a Tax Event which results in the Issuer Trust being treated as an association
taxable as a corporation, the distribution would likely constitute a taxable
event to US Holders of the Preferred Securities for United States federal income
tax purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Preferred Securities. Such a redemption would be taxable for United States
federal income tax purposes, and a US Holder generally would recognize gain or
loss as if it had sold the Preferred Securities for cash. See "--Sales of
Preferred Securities" below.
Sales of Preferred Securities. A US Holder that sells Preferred
Securities will recognize gain or loss equal to the difference between its
adjusted basis in the Preferred Securities and the amount realized on the sale
of such Preferred Securities. A US Holder's adjusted basis in the Preferred
Securities generally will be its initial purchase price, increased by OID or
market discount previously included (or currently includible) in such holder's
gross income to the date of disposition, and decreased by payments received on
the Preferred Securities (other than any interest received with respect to the
period prior to the effective date of the Company's first exercise of its option
to defer payments of interest). Any such gain or loss generally will be capital
gain or loss, and generally will be a long-term capital gain or loss if the
Preferred Securities have been held for more than one year prior to the date of
disposition.
A holder who disposes of his Preferred Securities between record dates
for payments of distributions thereon will be required to include accrued but
unpaid interest (or OID) on the Junior Subordinated Debentures through the date
of disposition in its taxable income for United States federal income tax
purposes (notwithstanding that the holder may receive a separate payment from
the purchaser with respect to accrued interest), and to deduct that amount from
the sales proceeds received (including the separate payment, if any, with
respect to accrued interest) for the Preferred Securities (or as to OID only, to
add such amount to such holder's adjusted tax basis in its Preferred
Securities). To the extent the selling price is less than the holder's adjusted
tax basis (which will include accrued but unpaid OID, if any), a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
Proposed Tax Law Changes
On February 6, 1997, President Clinton released his budget proposals
for fiscal year 1998. The President's Proposal would generally deny corporate
issuers a deduction for interest on certain debt obligations that have a maximum
term in excess of 15 years and are 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. As drafted, the President's Proposal would not apply
retroactively to the Subordinated Debt Securities. However, if the President's
Proposal (or
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similar legislation) is enacted with retroactive effect with respect to the
Subordinated Debt Securities, the Company would not be entitled to an interest
deduction with respect to the Subordinated Debt Securities.
Fiscal year 1998 budget reconciliation legislation is currently pending
before the United States Congress. Neither the budget reconciliation bill passed
by the House of Representatives nor the budget reconciliation bill passed by the
Senate contains a provision substantially similar to the President's Proposal.
There can be no assurance that the President's Proposal will not be
enacted, and that, if enacted, it will not apply retroactively to the
Subordinated Debt Securities or that other legislation enacted after the date
hereof will not otherwise adversely affect the ability of the Company to deduct
the interest payable on the Subordinated Debt Securities. Accordingly, there can
be no assurance that a Tax Event will not occur. See "Description of the New
Preferred Securities--Redemption."
Non-US Holders
The following discussion applies to a Non-US Holder.
Payments to a holder of a Preferred Security which is a Non-US Holder
will generally not be subject to withholding of income tax, provided that (a)
the beneficial owner of the Preferred Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Preferred Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Preferred Securities certifies to the Issuer Trust or
its agent, under penalties of perjury, that it is a Non-US Holder and provides
its name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Preferred
Security in such capacity, certifies to the Issuer Trust or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or by another Financial Institution between it and the
beneficial owner in the chain of ownership, and furnishes the Issuer Trust or
its agent with a copy thereof.
As discussed above (see "--Proposed Tax Law Changes"), changes in
legislation affecting the income tax consequences of the Junior Subordinated
Debentures are possible, and could adversely affect the ability of the Company
to deduct the interest payable on the Junior Subordinated Debentures. Moreover,
any such legislation could adversely affect Non-US Holders by characterizing
income derived from the Junior Subordinated Debentures as dividends, generally
subject to a 30% income tax (on a withholding basis) when paid to a Non-US
Holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a Non-US Holder.
A Non-US Holder of a Preferred Security will generally not be subject
to withholding of income tax on any gain realized upon the sale or other
disposition of a Preferred Security.
A Non-US Holder which holds the Preferred Securities in connection with
the active conduct of a United States trade or business will be subject to
income tax on all income and gains recognized with respect to its proportionate
share of the Junior Subordinated Debentures.
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Information Reporting
In general, information reporting requirements will apply to payments
made on, and proceeds from the sale of, the Preferred Securities held by a
noncorporate US Holder within the United States. In addition, payments made on,
and payments of the proceeds from the sale of, the Preferred Securities to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-United States status
or otherwise establishes an exemption from information reporting and backup
withholding. See "--Backup Withholding." Taxable income on the Preferred
Securities for a calendar year should be reported to US Holders on the
appropriate form by the following January 31st.
Backup Withholding
Payments made on, and proceeds from the sale of, the Preferred
Securities may be subject to a "backup" withholding tax of 31% unless the holder
complies with certain identification or exemption requirements. Any amounts so
withheld will be allowed as a credit against the holder's income tax liability,
or refunded, provided the required information is provided to the IRS.
The preceding discussion is only a summary and does not address the
consequences to a particular holder of the purchase, ownership and disposition
of the Preferred Securities. Potential holders of the Preferred Securities are
urged to contact their own tax advisors to determine their particular tax
consequences.
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be
considered a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a "disqualified person"
within the meaning of Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") with respect to many employee benefit plans ("Plans") that
are subject to ERISA. The purchase of the Preferred Securities by a Plan that is
subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975(e)(1) of the Code and with respect to
which the Company, or any affiliate of the Company is a service provider (or
otherwise is a party in interest or a disqualified person) may constitute or
result in a prohibited transaction under ERISA or Section 4975 of the Code,
unless the Preferred Securities are acquired pursuant to and in accordance with
an applicable exemption. Any pension or other employee benefit plan proposing to
acquire any Preferred Securities should consult with its counsel.
SUPERVISION, REGULATION AND OTHER MATTERS
The following information is not intended to be an exhaustive
description of the statutes and regulations applicable to the Company. The
discussion is qualified in its entirety by reference to all particular statutory
or regulatory provisions. Additional information regarding supervision and
regulation is included in the documents incorporated herein by reference. See
"Available Information."
The business of the Company is influenced by prevailing economic
conditions and governmental policies, both foreign and domestic. The actions and
policy directives of the Federal Reserve determine to a significant degree the
cost and the availability of funds obtained from money market sources for
lending and investing. The Federal Reserve's policies and regulations also
influence, directly and
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indirectly, the rates of interest paid by commercial banks on their time and
savings deposits. The nature and impact on the Company of future changes in
economic conditions and monetary and fiscal policies, both foreign and domestic,
are not predictable.
The Company is subject to supervision and examination by federal bank
regulatory authorities. As a bank holding company registered under the BHC Act,
the Company's primary bank regulatory authority is the Federal Reserve. Bank
holding companies are expected to serve as a source of strength to their
subsidiary banks under the Federal Reserve's regulations and policies.
The federal bank regulatory authorities have each adopted risk-based
capital guidelines to which the Company and the Bank Subsidiaries are subject.
These guidelines are based on an international agreement developed by the Basle
Committee on Banking Regulations and Supervisory Practices, which consists of
representatives of central banks and supervisory authorities in 12 countries
including the United States of America. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations, takes off-balance
sheet exposures into explicit account in assessing capital adequacy and
minimizes disincentives to holding liquid, low-risk assets. Risk-based assets
are determined by allocating assets and specified off-balance sheet commitments
and exposures into four weighted categories, with higher levels of capital being
required for the categories perceived as representing greater risk.
The Bank Subsidiaries are required to maintain a minimum total
risk-based ratio of 8%, of which half (4%) must be "Tier 1" capital. In
addition, the federal bank regulators established leverage ratio (Tier 1 capital
to total adjusted average assets) guidelines providing for a minimum leverage
ratio of 3% for banks meeting certain specified criteria, including excellent
asset quality, high liquidity, low interest rate exposure and the highest
regulatory rating. Institutions not meeting these criteria are expected to
maintain a ratio which exceeds the 3% minimum by at least 100 to 200 basis
points. The federal bank regulatory authorities may, however, set higher capital
requirements when a bank's particular circumstances warrant.
From time to time, the federal bank regulatory authorities, including
the Federal Reserve and the FDIC, propose amendments to and issue
interpretations of their risk-based capital guidelines and reporting
instructions, which can affect reported capital ratios and net risk-adjusted
assets. For example, effective June 26, 1996, the Federal Reserve, the Office of
the Comptroller of the Currency and the FDIC issued a joint policy statement
that provides guidance on sound practices for interest rate risk management and
describes critical factors affecting the agencies' evaluation of a bank's
interest rate risk when making a determination of capital adequacy.
The federal banking agencies possess broad powers to take corrective
action as deemed appropriate for an insured depository institution and its
holding companies. The extent of these powers depends upon whether the
institution in question is considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Generally, as an institution is deemed to be less
well capitalized, the scope and severity of the agencies' powers increase. The
agencies' corrective powers can include, among other things, requiring an
insured financial institution to adopt a capital restoration plan which cannot
be approved unless guaranteed by the institution's parent holding company;
placing limits on asset growth and restrictions on activities; placing
restrictions on transactions with affiliates; restricting the interest rates the
institution may pay on deposits; prohibiting the institution from accepting
deposits from correspondent banks; prohibiting the payment of principal or
interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval; and, ultimately,
appointing a receiver for the institution. Business activities may also be
influenced by an institution's capital classification. For
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instance, only a "well capitalized" depository institution may accept brokered
deposits without prior regulatory approval and only an "adequately capitalized"
depository institution may accept brokered deposits with prior regulatory
approval. At March 31, 1997, the Company, on a consolidated basis, and the Bank
Subsidiaries exceeded the required capital ratios for classification as a "well
capitalized" bank holding company and commercial bank, respectively.
The deposits of the Bank Subsidiaries are insured by the FDIC and are
subject to FDIC insurance assessments. The amount of FDIC assessments paid by
individual insured depository institutions is based on their relative risk as
measured by regulatory capital ratios and certain other factors. Currently, the
Bank Subsidiaries are not assessed any premiums for deposits insured by either
the Bank Insurance Fund or the Savings Association Insurance Fund.
Under federal law, a financial institution insured by the FDIC under
common ownership with a failed institution can be required to indemnify the FDIC
for its losses resulting from the insolvency of the failed institution, even if
such indemnification causes the affiliated institution also to become insolvent.
As a result, each Bank Subsidiary could, under certain circumstances, be
obligated for the liabilities of its affiliates that are FDIC-insured
institutions. In addition, if any insured depository institution becomes
insolvent and the FDIC is appointed its conservator or receiver, the FDIC may
disaffirm or repudiate any contract or lease to which such institution is a
party, the performance of which is determined to be burdensome and the
disaffirmance or repudiation of which is determined to promote the orderly
administration of the institution's affairs. If Federal law were construed to
permit the FDIC to apply these provisions to debt obligations of an insured
depository institution, the result could be that such obligations would be
prepaid without premium. Federal law also accords the claims of a receiver of an
insured depository institution for administrative expenses and the claims of
holders of deposit liabilities of such an institution priority over the claims
of general unsecured creditors of such an institution in the event of a
liquidation or other resolution of such institution.
The BHC Act currently permits adequately capitalized and adequately
managed bank holding companies from any state to acquire banks and bank holding
companies located in any other state, subject to certain conditions. Competition
may increase as banks branch across state lines and enter new markets.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), Alex. Brown & Sons Incorporated (the "Underwriter")
has agreed to purchase from the Selling Security Holder $20,000,000 aggregate
Liquidation Amount of Preferred Securities at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all of the Preferred Securities offered hereby if any of such
Preferred Securities are purchased.
The Company and the Selling Security Holder have been advised by the
Underwriter that the Underwriter proposes to offer the Preferred Securities to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.50 per Preferred Security. The Underwriter may allow, and such dealers may
reallow, a concession not in excess of $0.25 per Preferred Security to certain
other dealers. After the public offering, the offering price and other selling
terms may be changed by the Underwriter.
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In connection with the offering of the Preferred Securities, the
Underwriter and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize, maintain
or otherwise affect the market price of the Preferred Securities. Such
transactions may include over-allotment transactions in which the Underwriter
creates a short position for its own account by selling more Preferred
Securities than it is committed to purchase from the Selling Security Holder. In
such a case, to cover all or part of the short position, the Underwriter may
purchase Preferred Securities in the open market following completion of the
initial offering of the Preferred Securities. The Underwriter also may engage in
stabilizing transactions in which it bids for, and purchase, Preferred
Securities at a level above that which might otherwise prevail in the open
market for the purpose of preventing or retarding a decline in the market price
of the Preferred Securities. The Underwriter also may reclaim any selling
concessions allowed to a dealer if the Underwriter repurchases Preferred
Securities distributed by that dealer. Any of the foregoing transactions may
result in the maintenance of a price for the Preferred Securities at a level
above that which might otherwise prevail in the open market. Neither the
Company, the Issuer Trust, the Selling Security Holder nor the Underwriter makes
any representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Preferred
Securities. The Underwriter is not required to engage in any of the foregoing
transactions and, if commenced, such transactions may be discontinued at any
time without notice.
Because the National Association of Securities Dealers, Inc. ("NASD")
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
The Preferred Securities have no established trading market. The
Company and the Issuer Trust have been advised by the Underwriter that it
intends to make a market in the Preferred Securities. However, the Underwriter
is not obligated to do so and such market making may be interrupted or
discontinued at any time without notice at the sole discretion of the
Underwriter. Application has been made by the Company and the Issuer Trust to
list the Preferred Securities in the Nasdaq National Market, but one of the
requirements for listing and continuing listing is the presence of two market
makers for the Preferred Securities, and the presence of a second market maker
cannot be assured. Accordingly, no assurance can be given as to the development
or liquidity of any market for the Preferred Securities.
The Company, the Issuer Trust and the Selling Security Holder have
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act.
The Underwriter or its affiliates have in the past performed and may in
the future perform various services to the Company, including investment banking
services, for which it has or may receive customary fees for such services.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the
Preferred Securities, the enforce-ability of the Trust Agreement and the
creation of the Issuer Trust will be passed upon by Richards, Layton & Finger,
special Delaware counsel to the Company and the Issuer Trust. The validity of
the Guarantee and the Junior Subordinated Debentures will be passed upon for the
Company by Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, counsel to
the Company, and for the Underwriter
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by Arnold & Porter. Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC and
Arnold & Porter will rely as to certain matters of Delaware law on the opinion
of Richards, Layton & Finger.
EXPERTS
The consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31 1996 (included in the
Company's Annual Report to Stockholders) are incorporated by reference in this
Prospectus (and elsewhere in the Registration Statement) in reliance upon the
report of Stegman & Company, independent public accountants, given on the
authority of said firm as experts in accounting and auditing.
Documents incorporated herein by reference in the future will include
financial statements, related schedules (if required) and auditors' reports,
which financial statements and schedules will have been audited to the extent
and for the periods set forth in such reports by the firm or firms rendering
such reports, and, to the extent so audited and consent to incorporation by
reference is given, will be incorporated herein by reference in reliance upon
such reports given upon the authority to such firms as experts in accounting and
auditing.
65
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No person has been authorized in con-
nection with the offering made hereby to
give any information or to make any rep-
resentation not contained in this Prospec- [Logo]
tus and, if given or made, such information
or representation must not be relied upon
as having been authorized by the Company, $20,000,000
the Issuer Trust, the Selling Security Holder Aggregate Liquidation Amount
or the Underwriter. This Prospectus does
not constitute an offer to sell or a solicita-
tion of any offer to buy any of the securi-
ties offered hereby to any person or by
anyone in any jurisdiction in which it is Mason-Dixon Capital Trust
unlawful to make such offer or solicita-
tion. Neither the delivery of this Prospec-
tus nor any sale made hereunder shall, $2.5175 Preferred Securities
under any circumstances, create any impli- (Liquidation Amount $25
cation that the information contained herein per Preferred Security)
is correct as of any date subsequent to the Fully and Unconditionally Guaranteed,
date hereof. to the Extent Described Herein, by
---------------
MASON-DIXON
BANCSHARES, INC.
TABLE OF CONTENTS
Page
Prospectus Summary.......................... 7
Risk Factors................................ 10
Selling Security Holder..................... 18
Mason-Dixon Bancshares, Inc................. 19
Selected Consolidated Financial Data and
Other Information......................... 20
Recent Developments......................... 21
Mason-Dixon Capital Trust................... 22 ---------------
Use of Proceeds............................. 23 Prospectus
Capitalization.............................. 24 ---------------
Accounting Treatment........................ 25
Description of Preferred Securities......... 25
Description of Junior Subordinated
Debentures................................ 41
Description of Guarantee.................... 51
Relationship Among the Preferred ALEX. BROWN & SONS
Securities, the Junior Subordinated INCORPORATED
Debentures and the Guarantee.............. 54
Certain Federal Income
Tax Consequences.......................... 56 July 11, 1997
Certain ERISA Considerations................ 61
Supervision, Regulation and Other
Matters................................... 61
Underwriting................................ 63
Validity of Securities...................... 64
Experts..................................... 65
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