<PAGE> 1
File Pursuant to
Rule 424(b)(1) Registration
Number 333-27185
PROSPECTUS
1,000,000 TRUST PREFERRED SECURITIES
STERLING BANCSHARES CAPITAL TRUST I
9.28% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
[STERLING BANCSHARES, INC. LOGO]
------------------------
The 9.28% Cumulative Trust Preferred Securities (the "Trust Preferred
Securities") offered hereby (the "Offering") will represent undivided beneficial
interests in Sterling Bancshares Capital Trust I, a trust formed under the laws
of the State of Delaware (the "Trust"). Sterling Bancshares, Inc., a Texas
corporation (the "Company" or "Sterling"), will be the owner of all of the
beneficial interests represented by common securities of the Trust (the "Common
Securities," and together with the Trust Preferred Securities, the "Trust
Securities"). Bankers Trust Company is the Property Trustee of the Trust. The
Trust exists for the exclusive purposes of issuing the Trust Securities and
investing the proceeds thereof in the 9.28% Junior Subordinated Deferrable
Interest Debentures (the "Junior Subordinated Debentures"), to be issued by the
Company, and certain other limited activities as described herein. The Junior
Subordinated Debentures are scheduled to mature on June 6, 2027, which date may
be shortened (such date, as it may be shortened, the "Stated Maturity Date") to
a date not earlier than June 6, 2002 if certain conditions are met (including
the Company having received prior regulatory approval to do so if then required
under applicable capital guidelines or policies). The Trust Preferred Securities
will have a preference over the Common Securities under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise. See "Description of Trust Preferred
Securities -- Subordination of Common Securities."
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION
OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN
EVALUATING AN INVESTMENT
IN THE TRUST PREFERRED SECURITIES.
------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE COMPANY
OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION(1) TRUST(2)(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Trust Preferred Security........ $25.00 (2) $25.00
- ---------------------------------------------------------------------------------------------------------------------------
Total(4)............................ $25,000,000 (2) $25,000,000
===========================================================================================================================
</TABLE>
(1) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act.
See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will be invested in the Junior Subordinated Debentures, the
Company, as issuer of the Junior Subordinated Debentures, has agreed to pay
the Underwriters, as compensation, $0.94 per Trust Preferred Security or
$940,000 in the aggregate ($1,081,000 in the aggregate if the over-allotment
option is exercised in full). No commissions are payable by the Trust. See
"Underwriting."
(3) Expenses of the Offering are payable by the Company and are estimated to be
$550,000.
(4) The Trust has granted the Underwriters a 30-day option to purchase up to
150,000 additional Trust Preferred Securities on the same terms and
conditions set forth above solely to cover over-allotments, if any. If this
option is exercised in full, the total Price to Public will be $28,750,000
and Proceeds to Trust will be $28,750,000. See "Underwriting."
------------------------
The Trust Preferred Securities are offered by the Underwriters, subject to
prior sale, when, as and if issued to and accepted by the Underwriters and
subject to approval of certain legal matters by counsel for the Underwriters and
to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Trust Preferred Securities will be made through
the facilities of the Depository Trust Company ("DTC") in New York, New York on
or about June 6, 1997 against payment therefor in immediately available funds.
LEGG MASON WOOD WALKER STIFEL, NICOLAUS & COMPANY
INCORPORATED INCORPORATED
THE DATE OF THIS PROSPECTUS IS JUNE 4, 1997
<PAGE> 2
(continued from the previous page)
The Trust Preferred Securities will be represented by one or more global
certificates in fully registered form, deposited with a custodian for and
registered in the name of a nominee of DTC. Beneficial interests in such Trust
Preferred Securities will be shown on, and transfers thereof will be effected
through, records maintained by DTC and its participants. Except as described
herein, Trust Preferred Securities in certificate form will not be issued in
exchange for global certificates. See "Description of Trust Preferred
Securities -- Depositary Procedures."
Application has been made to approve the Trust Preferred Securities for
quotation on the Nasdaq National Market. Although the Underwriters have
indicated an intention to make a market in the Trust Preferred Securities, the
Underwriters are not obligated to make a market in the Trust Preferred
Securities, and any market making may be discontinued at any time at the sole
discretion of the Underwriters. There can be no assurance that a market will
develop for the Trust Preferred Securities. See "Risk Factors -- Absence of
Existing Public Market" and "Underwriting."
Holders of the Trust Securities will be entitled to receive cumulative cash
distributions arising from the payment of interest on the Junior Subordinated
Debentures, accruing from the date of original issuance and payable quarterly in
arrears on the first day of March, June, September and December of each year and
on the Stated Maturity Date, commencing September 2, 1997, at the annual rate of
9.28% of the Liquidation Amount of $25 per Trust Security ("Distributions"). So
long as no Debenture Event of Default (as defined herein) has occurred and is
continuing, the Company will have the right to defer payments of interest on the
Junior Subordinated Debentures at any time and from time to time for a period
not exceeding 20 consecutive quarterly periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period shall
end on a date other than an Interest Payment Date (as defined herein) or extend
beyond the Stated Maturity Date. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin a
new Extension Period, subject to the requirements set forth herein. If and for
so long as interest payments on the Junior Subordinated Debentures are so
deferred, Distributions on the Trust Securities also will be deferred and the
Company will not be permitted, subject to certain exceptions, to declare or pay
any cash distributions with respect to the Company's capital stock or to make
any payment with respect to debt securities of the Company that rank pari passu
with or junior to the Junior Subordinated Debentures. During an Extension
Period, interest on the Junior Subordinated Debentures will continue to accrue
(and the amount of Distributions to which holders of the Trust Securities are
entitled will continue to accumulate) at the rate of 9.28% per annum, compounded
quarterly, and holders of Trust Securities will be required to include such
deferred interest income in their gross income for United States Federal income
tax purposes prior to the receipt of the cash attributable to such income. See
"Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Date" and "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount."
The Company will, through the Guarantee, the Common Guarantee, the Trust
Agreement, the Junior Subordinated Debentures and the Indenture (each as defined
herein) guarantee all of the Trust's obligations under the Trust Preferred
Securities. See "Relationship Among the Trust Preferred Securities, the Junior
Subordinated Debentures and the Guarantee -- Full and Unconditional Guarantee."
The Guarantee and the Common Securities Guarantee will guarantee payments of
Distributions and payments upon liquidation of the Trust or redemption of the
Trust Securities, but in each case only to the extent that the Trust holds funds
on hand legally available therefor and has failed to make such payments, as
described herein. See "Description of Guarantee." If the Company fails to make a
required payment on the Junior Subordinated Debentures, the Trust will not have
sufficient funds to make the related payments, including Distributions, on the
Trust Securities. The Guarantee and the Common Securities Guarantee will not
cover any such payment when the Trust does not have sufficient funds on hand
legally available therefor. In such event, a holder of Trust Preferred
Securities may institute a legal proceeding directly against the Company to
enforce its rights in respect of such payment. See "Description of Junior
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Trust
Preferred Securities." The obligations of the Company under the Guarantee, the
Common Securities Guarantee and the Junior Subordinated Debentures will be
unsecured and will rank subordinate and junior in right of payment to all Senior
Indebtedness. See "Description of Junior Subordinated
Debentures -- Subordination." At March 31, 1997 the Company had Senior
Indebtedness of approximately $3.6 million, which the Company intends to repay
from a portion of the proceeds of the Offering. See "Risk Factors -- Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures; Limitations on Source of Funds" and "Use of Proceeds." In addition,
because the Company is a
2
<PAGE> 3
holding company, the Junior Subordinated Debentures, the Common Securities
Guarantee and the Guarantee effectively will be subordinated to all existing and
future liabilities, including deposits, of the Company's subsidiaries.
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein): (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures; (ii) in whole but not
in part, at any time prior to June 6, 2002, contemporaneously with the optional
prepayment of the Junior Subordinated Debentures by the Company, upon the
occurrence and continuation of a Special Event (as defined herein); and (iii) in
whole or in part, on or after June 6, 2002, contemporaneously with the optional
prepayment by the Company of all or part of the Junior Subordinated Debentures,
in each case, at a redemption price equal to the aggregate Liquidation Amount of
such Trust Securities, plus accumulated and unpaid Distributions thereon to the
date of redemption (the "Redemption Date"). See "Description of Trust Preferred
Securities -- Redemption."
The Company will have the right at any time to terminate the Trust and,
after satisfaction of liabilities of creditors of the Trust as required by
applicable law, to cause a Like Amount of the Junior Subordinated Debentures to
be distributed to the holders of the Trust Securities in liquidation of the
Trust, subject to the Company having received: (i) an opinion of counsel to the
effect that such distribution will not be a taxable event to holders of the
Trust Preferred Securities; and (ii) the approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve"), if then required under
applicable capital guidelines or policies of the Federal Reserve, and any other
required regulatory approvals. Unless the Junior Subordinated Debentures are
distributed to the holders of the Trust Securities, in the event of a
liquidation of the Trust as described herein, after satisfaction of liabilities
to creditors of the Trust as required by applicable law, the holders of the
Trust Securities generally will be entitled to receive a Liquidation Amount of
$25 per Trust Security plus accumulated and unpaid Distributions thereon to the
date of payment. See "Description of Trust Preferred Securities -- Liquidation
of the Trust and Distribution of Junior Subordinated Debentures."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE TRUST PREFERRED
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE OVER ALLOTMENT, STABILIZING
TRANSACTIONS, THE PURCHASE OF TRUST PREFERRED SECURITIES TO COVER SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE> 4
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
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material may also be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. If available, such information
also may be accessed through the Commission's electronic data gathering,
analysis and retrieval system ("EDGAR") via electronic means, including the
Commission's home page on the Internet (http://www.sec.gov). The Company's
common stock is quoted on the Nasdaq National Market under the symbol "SBIB".
Such reports, proxy statements and other information concerning the Company also
may be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006.
No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would
be material to holders of the Trust Preferred Securities because the Trust is a
newly-formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures, issuing
the Trust Securities and engaging in incidental activities. See "Sterling
Bancshares Capital Trust I," "Description of Trust Preferred Securities,"
"Description of Junior Subordinated Debentures" and "Description of Guarantee."
In addition, the Company does not expect that the Trust will file reports, proxy
statements and other information under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The Company's Current Report on Form 8-K filed on April 3, 1997 and
the amendment thereto on Form 8-K/A filed on April 7, 1997; and
3. The Company's Quarterly Report on Form 10-Q (as amended by Form
10-Q/A) for the quarterly period ended March 31, 1997.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering of the Trust Preferred Securities offered hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
part of this Prospectus from the date of filing of such document. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein (other
than exhibits, unless such exhibits are specifically incorporated by reference
in such documents). Requests for such documents should be directed to: Sterling
Bancshares, Inc., 15000 Northwest Freeway, Suite 200, Houston, Texas 77040,
Attention: Corporate Secretary (telephone: (713) 466-8300).
4
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. As used herein, (i) the
"Indenture" means the Indenture, to be dated as of June 6, 1997, as amended and
supplemented from time to time, between the Company and Bankers Trust Company,
as trustee (the "Debenture Trustee"), relating to the Junior Subordinated
Debentures; (ii) the "Trust Agreement" means the Second Amended and Restated
Declaration of Trust relating to the Trust among the Company, as Sponsor,
Bankers Trust Company, as Property Trustee (the "Property Trustee"), Bankers
Trust (Delaware), as Delaware Trustee (the "Delaware Trustee"), and the
Administrative Trustees named therein (collectively, with the Property Trustee
and Delaware Trustee, the "Issuer Trustees"); (iii) the "Guarantee" means the
Guarantee Agreement relating to the Trust Preferred Securities between the
Company and Bankers Trust Company, as Guarantee Trustee (the "Guarantee
Trustee"); and (iv) the "Common Securities Guarantee" means the Guarantee
Agreement relating to the Common Securities.
STERLING BANCSHARES, INC.
Sterling Bancshares, Inc. is a bank holding company that provides
commercial and retail banking services through the community banking offices of
Sterling Bank, a banking association chartered under the laws of the State of
Texas (the "Bank") and headquartered in Houston, Texas. The Bank has fourteen
community banking offices, all of which are located in the greater Houston
metropolitan area. At March 31, 1997, the Company had total assets of $828.2
million, deposits of $750.4 million and shareholders' equity of $61.5 million.
The Bank provides a wide range of retail and commercial banking services,
including demand, savings and time deposits; commercial, real estate and
consumer loans; merchant credit card services; letters of credit; cash
management services; and drive-in banking services. In addition, the Bank
facilitates sales of brokerage products, mutual funds, and insurance products
through third-party vendors. The primary lending focus of the Bank is on
commercial loans and owner-occupied real estate loans to local businesses with
annual sales ranging from $300,000 to $30 million.
The Bank employs a business strategy that is generally known in the
industry as supercommunity banking. Under this strategy, the Bank provides a
broad line of financial products and services to small and medium-sized
businesses and consumers through full service community banking offices. As a
result of the development of broad banking relationships with their customers
and the convenience and service of the Bank's fourteen full-service banking
offices, lending and investing activities are funded almost entirely by core
deposits, approximately three-fourths of which are demand and savings deposits.
On March 18, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") to acquire First Houston Bancshares, Inc. ("First
Houston") and its subsidiary, Houston National Bank, in a stock-for-stock merger
(the "Merger"). See "Sterling Bancshares, Inc.," "Recent Developments" and "Pro
Forma Consolidated Financial Statements."
The principal executive office of the Company is located at 15000 Northwest
Freeway, Suite 200, Houston, Texas 77040, and its telephone number is (713)
466-8300.
STERLING BANCSHARES CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to: (i) the Trust Agreement executed by the Company, as Sponsor, Bankers Trust
Company, as Property Trustee, and Bankers Trust (Delaware), as Delaware Trustee,
and the three individual Administrative Trustees named therein; and (ii) the
filing of a certificate of trust with the Delaware Secretary of State. The
Trust's business and affairs are conducted by the Issuer Trustees, the Property
Trustee, the Delaware Trustee, and the three individual Administrative Trustees,
who are officers of the Company. The Trust exists for the exclusive purposes of:
(i) issuing and selling the Trust Securities; (ii) using the proceeds from the
sale of the Trust Securities to acquire the Junior Subordinated Debentures
issued by the Company; and (iii) engaging in only those other
5
<PAGE> 6
activities necessary, advisable or incidental thereto. The Junior Subordinated
Debentures will be the sole assets of the Trust and, accordingly, payments on
the Junior Subordinated Debentures will be the sole revenue of the Trust. All of
the Common Securities will be owned by the Company. The Trust's principal
offices are located at 15000 Northwest Freeway, Suite 200, Houston, Texas 77040.
THE OFFERING
Trust Preferred Securities
Issuer................... Sterling Bancshares Capital Trust I
Securities Offered......... 1,000,000 Trust Preferred Securities. The Trust
Preferred Securities represent undivided beneficial
interests in the Trust's assets, which will consist
solely of the Junior Subordinated Debentures and
payments thereunder.
Distributions.............. The Distributions payable on each Trust Preferred
Security will be fixed at a rate per annum of 9.28%
of the Liquidation Amount of $25 per Trust
Preferred Security, will be cumulative, will accrue
from the date of issuance of the Trust Preferred
Securities, and will be payable quarterly in
arrears on the first day of March, June, September
and December of each year, commencing on September
2, 1997 (subject to possible deferral as described
below) and on the Stated Maturity Date. The amount
of each Distribution due with respect to the Trust
Preferred Securities will include amounts accrued
through the date the Distribution payment is due.
See "Description of Trust Preferred Securities --
Distributions."
Extension Periods.......... So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing, the
Company will have the right to defer the payment of
interest on the Junior Subordinated Debentures for
a period not exceeding 20 consecutive quarterly
periods. No Extension Period will end on a date
other than an Interest Payment Date or extend
beyond the Stated Maturity Date. During an
Extension Period, Distributions on Trust Preferred
Securities will be deferred. See "Description of
Junior Subordinated Debentures -- Option to Extend
Interest Payment Date" and "Certain Federal Income
Tax Consequences -- Interest Income and Original
Issue Discount."
Maturity................... The Junior Subordinated Debentures will mature on
June 6, 2027, which date may be shortened to a date
not earlier than June 6, 2002 if certain conditions
are met (including the Company having received
prior approval of the Federal Reserve to do so, if
then required under applicable capital guidelines
or policies of the Federal Reserve, and any other
required regulatory approvals).
Ranking.................... The Trust Preferred Securities will rank pari
passu, and payments thereon will be made pro rata,
with the Common Securities, except as described
under "Description of Trust Preferred
Securities -- Subordination of Common Securities."
The Junior Subordinated Debentures will rank pari
passu with all other junior subordinated debentures
(if any) issued by the Company (the "Other
Debentures"), which are issued and sold (if at all)
to other trusts established by the Company (if
any), in each case similar to the Trust ("Other
Trusts"), and will constitute unsecured obligations
of the Company and will rank subordinate and junior
in right of payment to all current and future
Senior Indebtedness to the extent and in the manner
set forth in the Indenture. See "Description of
Junior Subordinated Debentures." The
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<PAGE> 7
Guarantee will rank pari passu with all other
guarantees (if any) issued by the Company with
respect to trust preferred securities (if any)
issued by Other Trusts ("Other Guarantees") and
will constitute an unsecured obligation of the
Company and will rank subordinate and junior in
right of payment to all Senior Indebtedness to the
extent and in the manner set forth in the Guarantee
Agreement. See "Description of Guarantee." In
addition, because the Company is a holding company,
the Junior Subordinated Debentures and the
Guarantee will be effectively subordinated to all
existing and future liabilities of the Company's
subsidiaries, including the Bank's deposit
liabilities. See "Description of Junior
Subordinated Debentures -- Subordination."
Redemption................. The Trust Securities will be subject to mandatory
redemption in a Like Amount: (i) in whole but not
in part, on the Stated Maturity Date upon repayment
of the Junior Subordinated Debentures; (ii) in
whole but not in part, at any time prior to June 6,
2002, contemporaneously with the optional
prepayment of the Junior Subordinated Debentures by
the Company upon the occurrence and continuation of
a Special Event (as defined herein); and (iii) in
whole or in part, on or after June 6, 2002,
contemporaneously with the optional prepayment by
the Company of all or part of the Junior
Subordinated Debentures, in each case, at a
redemption price equal to 100% of the Liquidation
Amount of the Trust Securities to be redeemed, plus
the accrued and unpaid Distributions on the Trust
Preferred Securities to be redeemed to the
Redemption Date. See "Description of Trust
Preferred Securities -- Redemption" and
"Description of Junior Subordinated
Debentures -- Prepayment."
Distribution of Junior
Subordinated
Debentures................. The Company has the right at any time to terminate
the Trust and cause the Junior Subordinated
Debentures to be distributed to holders of Trust
Securities in liquidation of the Trust, subject to
the Company having received (i) an opinion of
counsel that such distribution will not be a
taxable event to the holders of the Trust Preferred
Securities and (ii) prior approval of the Federal
Reserve to do so, if then required under applicable
capital guidelines or policies of the Federal
Reserve, and any other required regulatory
approvals. See "Description of Trust Preferred
Securities -- Liquidation of the Trust and
Distribution of Junior Subordinated Debentures."
Use of Proceeds............ All of the proceeds from the sale of the Trust
Securities will be invested by the Trust in the
Junior Subordinated Debentures. The Company intends
to use the net proceeds from the sale of the Junior
Subordinated Debentures to repay outstanding
indebtedness (including accrued interest) of
approximately $3.7 million and for general
corporate purposes, which may include the financing
of future cash acquisitions. Pending the
application of such net proceeds, the Company
intends to invest them in short term securities.
Guarantee.................. The Company has guaranteed the payment of
Distributions and payments on liquidation or
redemption of the Trust Preferred Securities, but
only in each case to the extent of funds held by
the Trust, as described herein. The Company and the
Trust believe that, taken together, the obligations
of the Company under the Guarantee, the Trust
Agreement, the Junior Subordinated Debentures and
the Indenture provide, in the aggregate, a full,
irrevocable and unconditional guaranty, on a
subordi-
7
<PAGE> 8
nated basis, of all of the obligations of the
Company relating to the Trust Preferred Securities.
The obligations of the Company under the Guarantee
and the Trust Preferred Securities are subordinate
and junior in right of payment to all current and
future Senior Indebtedness of the Company. If the
Trust has insufficient funds to pay Distributions
on the Trust Preferred Securities (i.e., if the
Company has failed to make required payments under
the Junior Subordinated Debentures) a holder of the
Trust Preferred Securities would have the right to
institute a legal proceeding directly against the
Company to enforce payment of such Distributions to
such holder. See "Description of Junior
Subordinated Debentures -- Enforcement of Certain
Rights by Holders of Trust Preferred Securities,"
"-- Debenture Events of Default" and "Description
of Guarantee."
Limited Voting Rights...... Holders of Trust Preferred Securities generally
will have limited voting rights relating only to
the modification of the Trust Preferred Securities
and the exercise of the Trust's rights as holder of
Junior Subordinated Debentures. Holders of Trust
Preferred Securities will not be entitled to vote
to appoint, remove or replace, or to increase or
decrease the number of, the Issuer Trustees, which
voting rights are vested exclusively in the holder
of the Common Securities except upon the occurrence
of certain events described this Prospectus.
Absence of Market for the
Trust Preferred
Securities................. The Trust Preferred Securities will be a new issue
of securities for which there currently is no
market. Although the Underwriters have informed the
Trust and the Company that they currently intend to
make a market in the Trust Preferred Securities,
the Underwriters are not obligated to do so, and
any such market making may be discontinued at any
time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the Trust Preferred Securities. The
Trust and the Company have applied for quotation of
the Trust Preferred Securities on the Nasdaq
National Market. See "Underwriting."
Proposed Nasdaq Trading
Symbol................... "SBIBP."
Risk Factors............... For a discussion of considerations relevant to an
investment in the Trust Preferred Securities which
should be carefully considered by prospective
investors, see "Risk Factors" beginning on page 11
of this Prospectus.
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<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The consolidated financial data below summarizes historical consolidated
financial information of the Company for the periods indicated and should be
read in connection with the financial information included in the Company's 1996
Annual Report on Form 10-K for the year ended December 31, 1996. The data for
the three month periods ended March 31, 1997 and 1996 has been derived from, and
should be read in connection with, the Quarterly Report on Form 10-Q for the
three-month period ended March 31, 1997. See "Available Information" and
"Incorporation of Certain Documents by Reference." In the opinion of management,
all adjustments considered necessary for a fair presentation have been included
in the unaudited interim data. Interim results for the three months ended March
31, 1997 are not necessarily indicative of results which may be expected for
future periods, including the year ending December 31, 1997.
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED
MARCH 31, AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF INCOME:
Interest income........................... $15,005 $12,435 $53,413 $46,734 $39,735 $27,231 $26,136
Interest expense.......................... 4,653 3,968 16,727 14,557 11,140 7,301 8,699
Net interest income....................... 10,352 8,467 36,686 32,177 28,595 19,930 17,437
Provision for credit losses............... 612 513 2,113 919 921 856 808
Non-interest income....................... 1,959 1,925 7,964 7,536 7,135 4,424 3,690
Non-interest expense...................... 7,961 6,323 27,134 25,781 24,458 15,661 13,266
Income before income taxes................ 3,738 3,556 15,403 13,013 10,351 7,837 7,053
Income taxes.............................. 1,233 1,153 4,749 4,147 3,200 2,474 2,274
Net income................................ 2,505 2,403 10,654 8,866 7,151 5,363 4,779
PER SHARE DATA:(1)
Net income per share (fully diluted)...... $0.20 $0.20 $0.86 $0.73 $0.60 $0.45 $0.52
Cash dividends paid per common share...... 0.055 0.048 0.19 0.14 0.12 0.11 0.00
Book value per common share............... 5.12 4.36 4.97 4.22 3.38 3.09 3.58
Tangible book value per share............. 4.99 4.20 4.82 4.03 3.17 2.85 2.93
Weighted average common and common
equivalent shares....................... 12,353 12,216 12,340 12,117 11,883 11,824 9,248
BALANCE SHEET DATA:
Total assets.............................. $828,194 $661,547 $790,073 $647,349 $598,654 $553,196 $380,435
Loans, net of unearned discount........... 511,427 413,789 497,429 392,645 328,560 291,762 205,356
Allowance for credit losses............... 7,001 6,256 6,578 5,907 5,810 5,044 3,373
Investment securities..................... 172,804 159,983 152,253 167,512 191,957 192,919 115,135
Deposits.................................. 750,424 591,277 717,413 574,724 538,335 481,677 337,631
Notes payable and senior debentures....... 3,600 5,200 4,000 5,800 8,050 12,900 2,300
Shareholders' equity...................... 61,484 51,692 59,407 49,691 39,623 35,792 33,077
SELECTED PERFORMANCE RATIOS:
Return on average assets.................. 1.28% 1.49% 1.53% 1.48% 1.26% 1.37% 1.42%
Return on average shareholders' equity.... 16.62 18.95 19.40 19.87 18.76 15.24 20.83
Net interest margin (tax equivalent)...... 6.11 5.98 6.03 6.10 5.72 5.72 5.81
ASSET QUALITY RATIOS:
Non-performing loans to total period-end
loans................................... 0.48% 0.71% 0.55% 0.87% 0.80% 1.04% 0.60%
Period-end non-performing assets to total
assets.................................. 0.55 0.73 0.64 0.80 0.72 1.03 1.30
Period-end allowance for credit losses to
non-performing loans.................... 284.13 212.28 242.56 173.38 221.09 166.91 271.80
Period-end allowance for credit losses to
total loans............................. 1.37 1.51 1.32 1.50 1.77 1.73 1.64
Net charge-offs to average loans.......... 0.15 0.16 0.33 0.23 0.05 0.34 0.18
LIQUIDITY AND CAPITAL RATIOS:
Average loans to average deposits......... 68.99% 69.93% 70.40% 68.69% 61.22% 61.31% 60.87%
Period-end shareholders' equity to total
assets.................................. 7.42 7.81 7.52 7.68 6.62 6.47 8.69
Average shareholders' equity to average
assets.................................. 7.69 7.86 7.89 7.46 6.71 8.99 6.84
Period-end Tier 1 capital to risk weighted
assets(2)............................... 9.97 10.78 10.27 10.82 10.41 9.75 13.13
Period-end total capital to risk weighted
assets(2)............................... 11.37 12.03 11.44 12.07 11.67 10.99 14.38
Period-end Tier 1 leverage ratio (tangible
shareholders' equity to total average
assets)(2).............................. 7.39 7.84 8.03 7.66 6.57 5.96 8.69
</TABLE>
- ---------------
(1) Per share data for all periods and dates have been adjusted retroactively to
give effect to a three-for-two split in the form of a stock dividend to
common shareholders distributed on February 24, 1997.
(2) Calculated in accordance with regulations in effect at December 31, 1996.
9
<PAGE> 10
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
On March 18, 1997, the Company entered into the Merger Agreement to acquire
First Houston and its subsidiary, Houston National Bank, in a stock-for-stock
merger. The Merger Agreement, which is subject to approval of First Houston's
shareholders and various banking regulatory authorities, provides that the
Company will issue approximately 1.72 million shares of the Company's common
stock to the stockholders of First Houston in exchange for all of the issued and
outstanding shares of stock of First Houston. The final purchase price is
subject to certain closing adjustments. The transaction is expected to be
accounted for as a pooling of interests and is expected to close in the third
quarter of 1997.
The following summary pro forma consolidated financial data combines the
historical consolidated financial statements of the Company and First Houston as
if the Merger had occurred on January 1, 1994 after giving effect to the pro
forma adjustments described in the notes to the pro forma consolidated financial
statements included elsewhere in this Prospectus. See "Pro Forma Consolidated
Financial Statements."
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED AT OR FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
--------------------- ---------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME:
Interest income.................................... $ 17,369 $ 14,467 $ 62,171 $ 54,268 $ 44,475
Interest expense................................... 5,448 4,674 19,807 17,271 12,444
Net interest income................................ 11,921 9,793 42,364 36,997 32,031
Provision for credit losses........................ 692 561 2,343 1,149 1,426
Non-interest income................................ 2,110 2,085 8,598 8,068 7,740
Non-interest expense............................... 9,097 7,331 32,354 29,829 27,171
Income before income taxes......................... 4,242 3,986 16,265 14,087 11,174
Income taxes....................................... 1,404 1,282 5,112 4,404 3,472
Net income......................................... 2,838 2,704 11,153 9,683 7,702
PER SHARE DATA:(1)
Net income per share (fully diluted)............... $ 0.20 $ 0.19 $ 0.79 $ 0.70 $ 0.57
Book value per common share........................ 5.05 4.38 4.90 4.24 3.26
Tangible book value per share...................... 4.92 4.23 4.77 4.08 3.08
Weighted average common and common equivalent
shares........................................... 14,077 13,940 14,064 13,841 13,607
BALANCE SHEET DATA:
Total assets....................................... $956,713 $775,251 $922,330 $767,972 $672,616
Loans, net of unearned discount.................... 572,791 462,788 554,325 441,375 372,538
Allowance for credit losses........................ 7,565 6,832 7,053 6,465 6,317
Investment securities.............................. 225,885 211,990 205,465 216,376 214,494
Deposits........................................... 869,317 696,023 840,344 687,125 607,899
Notes payable and senior debentures................ 3,600 5,200 4,000 5,800 8,050
Shareholders' equity............................... 69,353 59,505 67,004 57,280 43,909
SELECTED PERFORMANCE RATIOS:
Return on average assets........................... 1.25% 1.43% 1.37% 1.38% 1.22%
Return on average shareholders' equity............. 16.70 18.50 17.74 19.03 18.00
Net interest margin................................ 5.92 5.76 5.80 5.84 5.63
ASSET QUALITY RATIOS:
Non-performing loans to total period-end loans..... 0.46% 0.83% 0.53% 0.90% 0.73%
Period-end non-performing assets to total assets... 0.51 0.80 0.58 0.74 0.66
Period-end allowance for credit losses to
non-performing loans............................. 289.18 176.81 239.25 162.64 230.72
Period-end allowance for credit losses to total
loans............................................ 1.32 1.48 1.27 1.46 1.70
Net charge-offs to average loans................... 0.13 0.17 0.36 0.25 0.17
LIQUIDITY AND CAPITAL RATIOS:
Average loans to average deposits.................. 66.52% 66.32% 66.68% 65.72% 61.44%
Period-end shareholders' equity to total assets.... 7.25 7.68 7.26 7.46 6.53
Average shareholders' equity to average assets..... 7.47 7.71 7.70 7.25 6.76
Period-end Tier 1 capital to risk weighted
assets(2)........................................ 10.18 11.08 10.49 11.12 10.28
Period-end total capital to risk weighted
assets(2)........................................ 11.52 12.30 11.62 12.34 11.49
Period-end Tier 1 leverage ratio (tangible
shareholders' equity to total average
assets)(2)....................................... 7.24 7.72 7.78 7.62 6.59
</TABLE>
- ---------------
(1) Per share data for all periods and dates have been adjusted retroactively to
give effect to a three-for-two stock split in the form of a stock dividend
to common shareholders distributed on February 24, 1997.
(2) Calculated in accordance with regulations in effect at December 31, 1996.
10
<PAGE> 11
RISK FACTORS
Prospective purchasers of the Trust Preferred Securities should carefully
review the information contained elsewhere in this Prospectus and should
particularly consider the following matters. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "projected," "contemplates" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology. See, e.g., "Summary --
Sterling Bancshares, Inc." and "Sterling Bancshares, Inc." No assurance can be
given that the future results covered by the forward-looking statements will be
achieved. The following matters constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to vary
materially from the future results covered in such forward-looking statements.
Other factors, such as the general state of the economy, could also cause actual
results to vary materially from the future results covered in such
forward-looking statements.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES; LIMITATIONS ON SOURCE OF FUNDS
The obligations of the Company under the Guarantee issued by it for the
benefit of the holders of Trust Preferred Securities, as well as under the
Junior Subordinated Debentures, will be unsecured and will rank subordinate and
junior in right of payment to all Senior Indebtedness to the extent and in the
manner set forth in the Indenture and the Guarantee, respectively. No payment
may be made of the principal of or interest on the Junior Subordinated
Debentures, or in respect of any redemption, retirement, purchase or other
acquisition of any of the Junior Subordinated Debentures, at any time when (i)
there shall have occurred and be continuing a default in any payment in respect
of any Senior Indebtedness, or there has been an acceleration of the maturity
thereof because of a default, or (ii) in the event of the acceleration of the
maturity of the Junior Subordinated Debentures, until payment has been made on
all Senior Indebtedness. At March 31, 1997, the Company had Senior Indebtedness
of approximately $3.6 million outstanding, which the Company intends to repay
from a portion of the proceeds of this Offering. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise (and thus the ability of holders of the Trust Preferred Securities to
benefit indirectly from such distribution) is subject to the prior claims of
creditors of that subsidiary (including depositors, in the case of the Bank),
except to the extent that the Company may itself be recognized as a creditor of
that subsidiary. At March 31, 1997, the subsidiaries of the Company had total
liabilities, excluding liabilities owed to the Company, of $766.7 million (or
approximately $887.2 million on a pro forma basis as of such date after giving
effect to the Merger). Accordingly, the Junior Subordinated Debentures
effectively will be subordinated to all existing and future liabilities of the
Company's subsidiaries (including the Company's subsidiaries' deposit
liabilities, which aggregated $750.4 million at March 31, 1997, (or
approximately $869.3 million after giving effect to the Merger)) and holders of
Junior Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. The Guarantee will constitute an
unsecured obligation of the Company and will rank subordinate and junior in
right of payment to all current and future Senior Indebtedness in the same
manner as the Junior Subordinated Debentures. None of the Indenture, the
Guarantee or the Trust Agreement places any limitation on the amount of secured
or unsecured debt, including Senior Indebtedness, that may be incurred by the
Company or any of its subsidiaries. See "Description of Guarantee -- Status of
the Guarantee" and "Description of Junior Subordinated Debentures -- General"
and "-- Subordination."
The ability of the Trust to pay amounts due on the Trust Preferred
Securities is solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required.
The Company is a holding company and substantially all of the operating
assets of the Company are owned by the Company's subsidiaries. The Company
relies primarily on dividends from the Bank to pay dividends to its stockholders
and to meet its obligations for payment of its corporate expenses. There are
regulatory limitations on the payment of dividends directly or indirectly to the
Company from the Bank. As of March 31, 1997, under applicable banking statutes
and the Bank's dividend policy, the total capital available for payment of
dividends by the Bank to the Company was approximately $18.0 million (or
approximately
11
<PAGE> 12
$18.9 million on a pro forma basis after giving effect to the Merger). Federal
and state bank regulatory agencies, however, have the power to prohibit any act,
including the payment of dividends, if such act would reduce the Bank's capital
to a point that, in their opinion, would render the Bank undercapitalized and
thus constitute an unsafe or unsound banking practice. In addition to
restrictions on the payment of dividends, the Bank is subject to certain
restrictions imposed by federal law on any extensions of credit to, and certain
other transactions with, the Company and certain other affiliates, and on
investments in stock or other securities thereof. Such restrictions prevent the
Company and such other affiliates from borrowing from the Bank unless the loans
are secured by various types of collateral. Further, such secured loans, other
transactions and investments by the Bank are generally limited in amount as to
the Company and as to each of such other affiliates to 10% of the Bank's capital
and surplus and as to the Company and all of such other affiliates to an
aggregate of 20% of the Bank's capital and surplus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
So long as no Debenture Event of Default (as defined herein) has occurred
and is continuing, the Company will have the right under the Indenture to defer
payments of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarterly periods with
respect to each Extension Period, provided that no Extension Period shall end on
a date other than an Interest Payment Date or extend beyond the Stated Maturity
Date. As a consequence of any such deferral, quarterly Distributions on the
Trust Securities by the Trust will be deferred (and the amount of Distributions
to which holders of the Trust Securities are entitled will accumulate additional
Distributions thereon at the rate of 9.28% per annum, compounded quarterly) from
the relevant payment date for such Distributions during any such Extension
Period. During any Extension Period, the Company generally will be prohibited
from, among other things, declaring or paying dividends on the Company's capital
stock. See "Description of Trust Preferred Securities -- Distributions."
Before the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarterly periods, to end
on a date other than an Interest Payment Date or to extend beyond the Stated
Maturity Date. Upon the termination of any Extension Period and the payment of
all interest then accrued and unpaid on the Junior Subordinated Debentures
(together with interest thereon at the annual rate of 9.28%, compounded
quarterly, to the extent permitted by applicable law), the Company may elect to
begin a new Extension Period, subject to the above requirements. There is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Trust Preferred
Securities -- Distributions" and "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment Date."
The Company has no current plan to exercise its right to defer payments of
interest on the Junior Subordinated Debentures. However, should the Company
exercise its right to defer payments of interest on the Junior Subordinated
Debentures, each holder of Trust Securities will be required to accrue income
(as original issue discount ("OID")) in respect of the deferred stated interest
allocable to its Trust Securities for United States Federal income tax purposes,
which will be accrued but not distributed to holders of Trust Securities. As a
result, each holder of Trust Securities will recognize income for United States
Federal income tax purposes in advance of the receipt of cash and will not
receive the cash related to such income from the Trust if the holder disposes of
the Trust Securities prior to the record date for the payment of Distributions
thereafter. See "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount" and "-- Sales of Trust Preferred Securities."
Should the Company elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures in the future, the market price
of the Trust Preferred Securities is likely to be affected. A holder that
disposes of its Trust Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Trust Preferred Securities. In addition, the mere
existence of the Company's right to defer payments of interest on the Junior
Subordinated Debentures may cause the market price of the Trust Preferred
Securities to be more volatile than the market prices of other securities that
are not subject to such deferrals.
12
<PAGE> 13
SPECIAL EVENT REDEMPTION
Upon the occurrence and continuation of a Special Event (defined as a Tax
Event, an Investment Company Event or a Regulatory Capital Event in "Description
of Junior Subordinated Debentures -- Prepayment"), whether occurring before or
after June 6, 2002, the Company will have the right to prepay the Junior
Subordinated Debentures in whole (but not in part) at 100% of the principal
amount plus accrued and unpaid interest to the date fixed for redemption within
90 days following the occurrence of such Special Event and, therefore, cause a
mandatory redemption of the Trust Securities at a redemption price equal to the
Liquidation Amount of such Trust Securities plus accrued and unpaid
Distributions thereon. See "Description of Junior Subordinated
Debentures -- Prepayment." The exercise of such right is subject to the Company
having received any required regulatory approval. See "Description of Trust
Preferred Securities -- Redemption."
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than June 6, 2002 and
thereby cause the Trust Securities to be redeemed on such earlier date. The
exercise of such right is subject to the Company having received prior approval
of the Federal Reserve, if then required under applicable capital guidelines or
policies of the Federal Reserve, and any other required regulatory approvals.
See "Description of Junior Subordinated Debentures -- Prepayment."
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the United States Treasury Department proposed legislation that would,
among other things, deny an issuer a deduction for United States Federal income
tax purposes for the payment of interest on instruments with characteristics
similar to the Junior Subordinated Debentures that are issued on or after the
date of first Congressional committee action which has not yet occurred. The
proposed legislation, if enacted in its current form, will not apply to the
Junior Subordinated Debentures if they are issued prior to the date of first
Congressional committee action.
Additionally, similar legislation, proposed in 1996, included a
transitional rule that provided that the legislation would not apply to debt
obligations issued pursuant to a registration statement filed with the SEC on or
before the effective date of the legislation, to the extent that such debt
obligations were described in, and the amount of such debt obligations did not
exceed in the aggregate the amount stated in such registration statement. If the
proposed legislation is enacted so as to include such a transitional rule, the
proposed legislation will not apply to the Junior Subordinated Debentures even
if they are not issued prior to the date of first Congressional committee action
because they will be issued pursuant to a registration statement filed with the
SEC before the date of first Congressional committee action and the aggregate
amount of Junior Subordinated Debentures issued will not exceed the maximum
aggregate amount described in such registration statement.
There can be no assurance that the proposed legislation, if enacted, will
be enacted in its current form, that it will include the transitional rule
described above or that other legislation enacted after the date hereof would
not adversely affect the tax treatment of the Junior Subordinated Debentures,
resulting in a Tax Event, which may permit the Company, upon the receipt of any
required regulatory approval, to cause a redemption of the Trust Securities by
electing to prepay the Junior Subordinated Debentures. See "Description of Trust
Preferred Securities -- Redemption" and "Description of Junior Subordinated
Debentures -- Prepayment." See also "Certain Federal Income Tax
Consequences -- Proposed Tax Legislation."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for Trust Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Trust Preferred Securities if a termination of the Trust were to
occur. Accordingly, the Trust Preferred Securities or the Junior Subordinated
Debentures
13
<PAGE> 14
may trade at a discount from the price that the investor paid to purchase the
Trust Preferred Securities offered hereby. Because holders of Trust Preferred
Securities may receive Junior Subordinated Debentures in liquidation of the
Trust and because Distributions are otherwise limited to payments on the Junior
Subordinated Debentures, prospective purchasers of Trust 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."
RIGHTS UNDER THE GUARANTEE
The Guarantee will guarantee to the holders of the Trust Preferred
Securities the following payments, to the extent not paid by or on behalf of the
Trust: (i) any accumulated and unpaid Distributions required to be paid on the
Trust Preferred Securities, to the extent that the Trust has funds on hand
legally available therefor at such time; (ii) the redemption price with respect
to the Trust Preferred Securities called for redemption, to the extent that the
Trust has funds on hand legally available therefor at such time; and (iii) upon
a voluntary or involuntary termination, winding up or liquidation of the Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Trust 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 Trust has funds on hand legally available therefor at such
time and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Trust Preferred Securities at such time, after
the satisfaction of liabilities to creditors of the Trust as provided by
applicable law.
The holders of a majority in Liquidation Amount of the Trust Preferred
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of the Trust
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 Trust, the Guarantee Trustee or any other person or
entity. If the Company defaults on its obligation to pay amounts payable under
the Junior Subordinated Debentures, the Trust will not have sufficient funds for
the payment of Distributions or amounts payable on redemption of the Trust
Preferred Securities or otherwise, and, in such event, holders of the Trust
Preferred Securities will not be able to rely upon the Guarantee for payment of
such amounts. Instead, in the event a Debenture Event of Default shall have
occurred and be continuing and such event is attributable to the failure of the
Company to pay the principal of, or interest (including Additional Sums (as
defined below) if any) on, the Junior Subordinated Debentures on the payment
date on which such payment is due and payable, then a holder of Trust Preferred
Securities may institute a legal proceeding directly against the Company for
enforcement of payment to such holder of the aggregate Liquidation Amount of the
Trust Preferred Securities of such holder (a "Direct Action"). Notwithstanding
any payments made to a holder of Trust Preferred Securities by the Company in
connection with a Direct Action, the Company shall remain obligated to pay the
principal and interest (including Additional Sums, if any) on the Junior
Subordinated Debentures, and the Company shall be subrogated to the rights of
the holder of such Trust Preferred Securities with respect to payments on the
Trust Preferred Securities to the extent of any payments made by the Company to
such holder in any Direct Action. Except as described herein, holders of Trust
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures or to assert
directly any other rights in respect of the Junior Subordinated Debentures. See
"Description of Junior Subordinated Debentures -- Enforcement of Certain Rights
by Holders of Trust Preferred Securities," "-- Debenture Events of Default" and
"Description of Guarantee." The Trust Agreement will provide that each holder of
Trust Preferred Securities by acceptance of the Trust Preferred Securities
agrees to the provisions of the Indenture. Bankers Trust Company will act as
Guarantee Trustee and will hold the Guarantee for the benefit of the holders of
the Trust Preferred Securities. Bankers Trust Company will also act as Property
Trustee and as Debenture Trustee under the Indenture. Bankers Trust (Delaware)
will act as Delaware Trustee under the Trust Agreement.
14
<PAGE> 15
LIMITED VOTING RIGHTS
Holders of Trust Preferred Securities generally will have voting rights
relating only to the modification of the Trust Preferred Securities and the
exercise of the Trust's rights as holder of Junior Subordinated Debentures.
Holders of Trust Preferred Securities will not be entitled to vote to appoint,
remove or replace, or to increase or decrease the number of, the Issuer
Trustees, which voting rights are vested exclusively in the holder of the Common
Securities, except upon the occurrence of certain events described in this
Prospectus. The Property Trustee, the Administrative Trustees and the Company
may amend the Trust Agreement without the consent of holders of Trust Preferred
Securities to ensure that the Trust will be classified for United States Federal
income tax purposes as a grantor trust. Holders of Trust Preferred Securities
will have no voting rights with respect to any matters submitted to a vote of
the Company's stockholders. See "Description of Trust Preferred
Securities -- Voting Rights; Amendment of the Trust Agreement" and "-- Removal
of Issuer Trustees."
TRADING CHARACTERISTICS OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) and who
disposes of its Trust Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued and unpaid interest on
the Junior Subordinated Debentures through the date of disposition in income as
ordinary income, and to add such amount to its adjusted tax basis in its share
of the underlying Junior Subordinated Debentures deemed disposed of. To the
extent the selling price is less than the holder's adjusted tax basis (which
will include all accrued and unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States Federal income tax purposes. See
"Certain Federal Income Tax Considerations -- Interest Income and Original Issue
Discount" and "-- Sales of Trust Preferred Securities."
ABSENCE OF EXISTING PUBLIC MARKET
There is no existing market for the Trust Preferred Securities. Application
has been made to approve the Trust Preferred Securities for quotation on the
Nasdaq National Market under the trading symbol "SBIBP." There can be no
assurance that an active and liquid trading market for the Trust Preferred
Securities will develop or that the Trust Preferred Securities will continue to
be quoted on the Nasdaq National Market. Future trading prices of the Trust
Preferred Securities will depend on many factors including, among other things,
prevailing interest rates, the Company's operating results, and the market for
similar securities. Although the Underwriters have informed the Trust and the
Company that they intend to make a market in the Trust Preferred Securities, the
Underwriters are not obligated to do so and any such market making activity may
be terminated at any time without notice to the holders of the Trust Preferred
Securities.
DEPENDENCE UPON LOCAL ECONOMIC CONDITIONS
The Company's profitability is dependent on the profitability of the Bank.
The Bank derives substantially all of its loans, deposits and other business
from the greater Houston metropolitan area. The banking industry in Texas and
Houston is affected by general economic conditions such as inflation, recession,
unemployment and other factors beyond the Company's control. During the
mid-1980's, severely depressed oil and gas and real estate prices materially and
adversely affected the Texas and Houston economies, causing a severe recession
and significant unemployment in the region. More recently, the Houston and Texas
economies have improved considerably which has been partially attributable to
expansion into non-energy related industries. As Houston has diversified, its
economy has become more susceptible to adverse developments affecting the
national economy. There can be no assurance, however, that the Company will be
able to withstand adverse changes in the Houston economy should they occur, or
that adverse developments in general economic conditions in the national or
local economy will not adversely affect the Company's financial condition or
results of operations. Accordingly, the Company will remain subject to risks
associated with prolonged declines in either the local or national economies.
15
<PAGE> 16
RELIANCE ON OWNER-OPERATED BUSINESS MARKET
The Bank's business development and marketing strategy is primarily
targeted toward serving the banking and financial services needs of
owner-operated businesses. The owner-operated business market, which the Company
defines as businesses with annual sales between $300,000 and $30 million,
represents a major sector of the Houston economy that has played an important
role in recent years in generating job growth and improving the overall health
of the Houston economy. While the Company believes that this market niche will
continue to play a key role in the future success of the Houston economy, there
can be no assurances that economic conditions affecting this market will
continue to be favorable or that this market will not experience any adverse
developments, which, in time, could adversely affect the Company's financial
condition or results of operations. In addition, no assurance can be given that
the Company's financial condition or results of operations will not be adversary
affected if the Company is unable to maintain or expand its share of the
owner-operated business market or is required, due to changing business and
economic conditions, to serve other market sectors.
16
<PAGE> 17
STERLING BANCSHARES, INC.
GENERAL
Sterling is a bank holding company that provides commercial and retail
banking services through the community banking offices of Sterling Bank, a
banking association chartered under the laws of the State of Texas and
headquartered in Houston, Texas. The Bank has fourteen community banking
offices, all of which are located in the greater Houston metropolitan area. The
Company was incorporated under the laws of the State of Texas in 1980 and became
the parent bank holding company of the Bank in 1981. The Bank was chartered in
Texas in 1974. The Company completed its initial public offering on October 22,
1992. At March 31, 1997, the Company had total assets of $828.2 million,
deposits of $750.4 million and shareholders' equity of $61.5 million.
The Bank provides a wide range of retail and commercial banking services,
including demand, savings and time deposits; commercial, real estate and
consumer loans; merchant credit card services; letters of credit; cash
management services; and drive-in banking services. In addition, the Bank
facilitates sales of brokerage, mutual funds, and insurance products through
third-party vendors. The primary lending focus of the Bank is on commercial
loans and owner-occupied real estate loans to local businesses with annual sales
ranging from $300,000 to $30 million. Typically, borrowers' financing
requirements are between $100,000 and $500,000. The Bank does not seek loans
larger than $2 million per relationship, but will consider larger lending
relationships in cases which involve exceptional levels of credit quality. The
Bank believes that its self-imposed lending limits allow for greater diversity
in the loan portfolio, less competition from large banks and better pricing
opportunities.
The Bank employs a business strategy that is generally known in the
industry as supercommunity banking. Under this strategy, the Bank provides a
broad line of financial products and services to small and medium-sized
businesses and consumers through full service community banking offices. Each
banking office has senior management, with significant lending experience, who
exercise substantial autonomy over credit and pricing decisions, subject to loan
committee approval for larger credits. This decentralized management approach,
coupled with continuity of service by the same staff members, enables the Bank
to develop long-term customer relationships, maintain high quality service and
respond quickly to customer needs. As a result of the development of broad
banking relationships with their customers and the convenience and service of
the Bank's fourteen full-service banking offices, lending and investing
activities are funded almost entirely by core deposits, approximately
three-fourths of which are demand and savings deposits.
The Bank's growth strategy has been concentrated on increasing its
community banking presence in its existing Houston markets, and expanding into
new markets within the greater Houston area in response to the expressed needs
of those markets. The Bank has grown through a combination of internally
generated growth, mergers and acquisitions of additional banking operations, and
the opening of new banking offices.
During 1996, the Bank opened two new community banking offices: one in the
Upper Kirby district of central Houston, and the other in the Galleria area of
Houston. In January 1997, the Bank opened its fourteenth banking office in the
Cypress Station area, north of Houston. The Company intends to pursue selected
acquisitions of existing banking operations where available and consistent with
its supercommunity banking philosophy. To accommodate anticipated growth, the
Company continues to upgrade its data processing and telecommunication systems
in order to provide the Company with the technological capacity necessary to
meet the needs and expectations of its customers and accommodate growth in the
Company's assets and number of offices.
The Company does not presently have plans to open additional banking
offices or to make specific additional acquisitions other than First Houston and
its acquisition of a minority interest in Altair. See "Recent Developments."
The principal executive office of the Company is located at 15000 Northwest
Freeway, Suite 200, Houston, Texas 77040, and its telephone number is (713)
466-8300.
17
<PAGE> 18
RECENT DEVELOPMENTS
PENDING ACQUISITIONS
On March 18, 1997, the Company entered into the Merger Agreement to acquire
First Houston and its subsidiary, Houston National Bank, in a stock-for-stock
merger. At December 31, 1996, First Houston had total assets of approximately
$132 million and total deposits of approximately $123 million. Houston National
Bank operates one banking office in central Houston. The Merger Agreement, which
is subject to approval of First Houston's shareholders and various banking
regulatory authorities, provides that the Company will issue approximately 1.72
million shares of the Company's common stock to the stockholders of First
Houston in exchange for all of the issued and outstanding shares of stock of
First Houston. The final purchase price is subject to certain closing
adjustments. The transaction is expected to be accounted for as a pooling of
interests and is expected to close in the second or third quarter of 1997.
Additional information regarding this transaction is presented in "Summary
Consolidated Financial Data" and "Pro Forma Consolidated Financial Statements."
At the time it entered into the Merger Agreement, the Company also entered into
a letter of intent to acquire a minority interest in Altair Corporation
("Altair"), a company engaged in the developing, marketing and supporting of
financial services software products. A substantial portion of First Houston's
deposits are attributable to deposits from United States bankruptcy trustees
obtained pursuant to a licensing agreement with Altair. The consummation of the
transaction with Altair is subject to the execution of a definitive agreement
and the approval of banking regulatory authorities.
18
<PAGE> 19
USE OF PROCEEDS
The proceeds to the Trust from the offering of the Trust Preferred
Securities will be $25,000,000 (assuming the Underwriters' over-allotment option
is not exercised). All of the proceeds from the sale of Trust Securities will be
invested by the Trust in the Junior Subordinated Debentures. The estimated net
proceeds to the Company (after deducting the estimated underwriting discounts
and commissions and estimated expenses of the Offering) are approximately
$23,510,000 million, of which approximately $3.7 million will be used by the
Company to repay its outstanding indebtedness of approximately $3.6 million plus
accrued interest thereon (which had a LIBOR based interest rate of 7.69% per
annum at March 31, 1997, and is scheduled to mature on July 31, 1999). The
balance of the proceeds will be available to the Company for general corporate
purposes (which could include the financing of one or more future cash
acquisitions by the Company). Although the Company evaluates possible
acquisitions from time to time, as of the date of this Prospectus the Company is
not engaged in negotiations regarding any acquisitions other than the
acquisition of First Houston and a minority interest in Altair. See "Recent
Developments." Pending the application of the net proceeds from this Offering,
the net proceeds may be invested in short-term securities.
The Company expects that Trust Preferred Securities having an aggregate
Liquidation Amount of approximately $20.0 million will be eligible to qualify as
Tier 1 capital under the capital guidelines of the Federal Reserve. Trust
Preferred Securities representing an aggregate Liquidation Amount in excess of
that amount are expected to be treated as Tier 2 capital until all or some of
that excess is eligible to qualify as Tier 1 capital under the capital
guidelines of the Federal Reserve.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth the ratios of earnings to combined fixed
charges of the Company on a consolidated basis for the respective periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, -----------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratios of Earnings to Combined Fixed
Charges:
Including interest on deposits....... 1.79x 1.89x 1.89x 1.92x 2.05x 1.80x
Excluding interest on deposits....... 18.28x 18.65x 7.24x 9.58x 15.22x 13.85x
</TABLE>
For purposes of computing the ratios of earnings to combined fixed charges,
earnings represent net income (loss) before extraordinary items and cumulative
effect of changes in accounting principles plus applicable income taxes and
fixed charges. Fixed charges include gross interest expense (other than interest
on deposits in one case and inclusive of such interest in the other) and the
proportion deemed representative of the interest factor of rent expense, net of
income from subleases. The Company's outstanding series of preferred stock do
not require the payment of dividends.
ACCOUNTING TREATMENT
For financial reporting purposes, the Company intends to treat the Trust as
a subsidiary of the Company and, accordingly, the accounts of the Trust would be
included in the consolidated financial statements of the Company. The Company
intends to present the Trust Preferred Securities as a separate line item in the
consolidated balance sheets of the Company, entitled "Company-Obligated
Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures of the Company" (or similar nomenclature)
and to include appropriate disclosures about the Trust Preferred Securities, the
Guarantee and the Junior Subordinated Debentures in the notes to the
consolidated financial statements of the Company. For financial reporting
purposes, the Company will record Distributions payable on the Trust Preferred
Securities as a minority interest expense in its consolidated statements of
income.
19
<PAGE> 20
CAPITALIZATION
The following table sets forth the unaudited historical consolidated
capitalization of the Company as of March 31, 1997, the unaudited pro forma
consolidated capitalization of the Company as of March 31, 1997, as if the First
Houston Merger had taken place as of that date, and such historical consolidated
and pro forma capitalization as adjusted in each case to give effect to the
consummation of the Offering (assuming the Underwriters' over-allotment option
is not exercised). The following data should be read in conjunction with the
financial information included in this Prospectus or incorporated herein by
reference. See "Incorporation of Certain Documents by Reference" and "Pro Forma
Consolidated Financial Statements."
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED
MARCH 31, 1997 MARCH 31, 1997
------------------- -----------------------
AS AS
ACTUAL ADJUSTED ACTUAL ADJUSTED
------- -------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term debt...................................... $ 3,600 $ -- $ 3,600 $ --
Company-obligated mandatorily redeemable trust
preferred securities of subsidiary trust holding
solely junior subordinated debentures of the
Company(1)........................................ -- 25,000 -- 25,000
Shareholders' equity:
Preferred stock, $1.00 par value
1,000,000 shares authorized, 88,380 issued and
outstanding.................................... 88 88 88 88
Common stock, $1.00 par value, 20,000,000 shares
authorized, 12,004,400 shares issued, actual;
13,728,400 issued, pro forma combined.......... 12,004 12,004 13,728 13,728
Capital surplus................................... 16,243 16,243 23,655 23,655
Retained earnings................................. 33,269 33,269 32,157 32,157
Net unrealized losses on held-to-maturity
investment securities transferred from
available-for-sale............................. (120) (120) (275) (275)
------- ------- ------- -------
Total shareholders' equity................ $61,484 $61,484 $69,353 $69,353
------- ------- ------- -------
Total capitalization...................... $65,084 $86,484 $72,953 $94,353
======= ======= ======= =======
</TABLE>
- ---------------
(1) Reflects the Trust Preferred Securities at their issue price. As described
herein, the sole assets of the Trust, which is a subsidiary of the Company,
will be $25,774,000 aggregate principal amount of Junior Subordinated
Debentures, including the amount attributable to the issuance of the Common
Securities of the Trust, which will mature on June 6, 2027. The Company will
own all of the Common Securities issued by the Trust.
20
<PAGE> 21
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On March 18, 1997, the Company entered into the Merger Agreement to acquire
First Houston and its subsidiary, Houston National Bank, in a stock-for-stock
merger. The Merger Agreement, which is subject to approval of First Houston's
shareholders and various banking regulatory authorities, provides that the
Company will issue approximately 1.72 million shares of the Company's common
stock to the stockholders of First Houston in exchange for all of the issued and
outstanding shares of stock of First Houston. The final purchase price is
subject to certain closing adjustments. The transaction is expected to be
accounted for as a pooling of interests.
The following Pro Forma Consolidated Balance Sheets as of March 31, 1997,
and Consolidated Statements of Income for the year ended December 31, 1996 and
the three months ended March 31, 1997 combine the historical consolidated
financial statements of the Company and First Houston and are presented as if
the Merger had occurred on January 1, 1996 and January 1, 1997, after giving
effect to the pro forma adjustments described in the accompanying notes.
The pro forma consolidated financial statements are not necessarily
indicative of the consolidated financial position or results of future
operations of the combined entity or of the actual results that would have been
achieved had the Merger been consummated as of January 1, 1996.
21
<PAGE> 22
STERLING BANCSHARES, INC. AND SUBSIDIARIES
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
STERLING FIRST HOUSTON PRO FORMA
BANCSHARES BANCSHARES CONSOLIDATED
---------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees................................ $42,861 $5,465 $48,326
Investment securities................................ 9,280 2,673 11,953
Federal funds sold................................... 732 620 1,352
Deposits in financial institutions................... 540 -- 540
------- ------ -------
Total interest income........................ 53,413 8,758 62,171
------- ------ -------
INTEREST EXPENSE:
Deposits............................................. 16,024 3,080 19,104
Securities sold under agreements to repurchase....... 318 -- 318
Notes payable........................................ 384 -- 384
Senior debentures.................................... 1 -- 1
------- ------ -------
Total interest expense....................... 16,727 3,080 19,807
------- ------ -------
Net interest income.......................... 36,686 5,678 42,364
Provision for credit losses.......................... 2,113 230 2,343
------- ------ -------
Net interest income after provision for credit
losses............................................ 34,573 5,448 40,021
------- ------ -------
NON-INTEREST INCOME:
Customer service fees................................ 5,141 454 5,595
Net gain (loss) on sale of investment securities..... -- 87 87
Earnings of unconsolidated subsidiary................ 316 -- 316
Other................................................ 2,507 93 2,600
------- ------ -------
Total non-interest income.................... 7,964 634 8,598
------- ------ -------
NON-INTEREST EXPENSE:
Salaries and employee benefits....................... 16,606 2,840 19,446
Depreciation and amortization........................ 2,520 303 2,823
Net occupancy and equipment expense.................. 2,165 267 2,432
(Gains) losses and carrying costs of real estate
acquired by foreclosure........................... 155 -- 155
FDIC assessment...................................... 2 2 4
Technology........................................... 537 321 858
Professional fees.................................... 490 273 763
Other................................................ 4,659 1,214 5,873
------- ------ -------
Total non-interest expense................... 27,134 5,220 32,354
------- ------ -------
Income before income taxes............................. 15,403 862 16,265
Income taxes........................................... 4,749 363 5,112
------- ------ -------
Net income............................................. $10,654 $ 499 $11,153
======= ====== =======
Net Income Per Common Share:
Primary.............................................. $ 0.87 $ 0.29 $ 0.80
======= ====== =======
Fully diluted........................................ $ 0.86 $ 0.29 $ 0.79
======= ====== =======
Weighted Average Common Shares Outstanding
Primary.............................................. 12,251 1,724 13,975
Fully diluted........................................ 12,340 1,724 14,064
</TABLE>
22
<PAGE> 23
STERLING BANCSHARES, INC. AND SUBSIDIARIES
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
STERLING FIRST HOUSTON PRO FORMA PRO FORMA
BANCSHARES BANCSHARES ADJUSTMENTS CONSOLIDATED
---------- ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks........................ $ 55,636 $ 3,357 $ -- $ 58,993
Federal funds sold............................. 30,000 5,362 -- 35,362
Interest-bearing deposits in financial
institutions................................ 25,427 -- -- 25,427
Available-for-sale investment securities....... 4,231 53,081 -- 57,312
Held-to-maturity investment securities......... 168,573 -- -- 168,573
Equity in unconsolidated subsidiary............ 2,266 -- -- 2,266
Loan held for sale............................. 29,795 205 -- 30,000
Loans.......................................... 481,632 61,159 -- 572,791
Allowance for credit losses.................... (7,001) (564) -- (7,565)
Accrued interest receivable.................... 3,028 1,236 -- 4,264
Real estate acquired by foreclosure............ 1,667 37 -- 1,704
Premises and equipment, net.................... 25,023 2,846 -- 27,869
Goodwill....................................... 1,758 -- -- 1,758
Other assets................................... 6,159 1,800 -- 7,959
-------- -------- ------- --------
Total assets........................... $828,194 $128,519 $ -- $956,713
======== ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits....................................... $750,424 $118,893 $ -- $869,317
Securities sold under agreements to
repurchase.................................. 7,822 -- -- 7,822
Accrued interest payable and other
liabilities................................. 4,864 1,757 -- 6,621
Notes payable.................................. 3,600 -- -- 3,600
-------- -------- ------- --------
Total liabilities...................... 766,710 120,650 -- 887,360
-------- -------- ------- --------
SHAREHOLDERS' EQUITY:
Preferred stock................................ 88 855 (855)(a) 88
Common Stock................................... 12,004 2,098 (374)(a) 13,728
Capital surplus................................ 16,243 6,184 1,229(a) 23,656
Retained earnings.............................. 33,269 (1,113) -- 32,156
Net unrealized losses on held-to-maturity
investment securities transferred from
available-for-sale.......................... (120) (155) -- (275)
-------- -------- ------- --------
Total shareholders' equity............. 61,484 7,869 -- 69,353
-------- -------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $828,194 $128,519 $ -- $956,713
======== ======== ======= ========
</TABLE>
- ---------------
(a) Represents the acquisition adjustment which includes the conversion and
elimination of 21,375 shares of $40.00 par value preferred stock and the
elimination 2,098,000 shares of common stock of First Houston, and the
issuance of 1,724,000 shares of the Company's common stock. The excess par
value of the retired shares over the issued shares has been adjusted to
capital surplus.
23
<PAGE> 24
STERLING BANCSHARES, INC. AND SUBSIDIARIES
FIRST HOUSTON BANCSHARES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
STERLING FIRST HOUSTON PRO FORMA
BANCSHARES BANCSHARES CONSOLIDATED
---------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees..................................... $ 11,973 $ 1,575 $ 13,548
Investment securities..................................... 2,617 731 3,348
Federal funds sold........................................ 289 58 347
Deposits in financial institutions........................ 126 -- 126
-------- -------- --------
Total interest income............................. 15,005 2,364 17,369
-------- -------- --------
INTEREST EXPENSE:
Deposits.................................................. 4,499 795 5,294
Securities sold under agreements to repurchase............ 61 -- 61
Notes payable............................................. 93 -- 93
-------- -------- --------
Total interest expense............................ 4,653 795 5,448
-------- -------- --------
Net interest income............................... 10,352 1,569 11,921
Provision for credit losses................................. 612 80 692
-------- -------- --------
Net interest income after provision for credit losses....... 9,740 1,489 11,229
-------- -------- --------
NON-INTEREST INCOME:
Customer service fees..................................... 1,332 122 1,454
Other..................................................... 627 29 656
-------- -------- --------
Total non-interest income......................... 1,959 151 2,110
-------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits............................ 4,710 479 5,189
Depreciation and amortization............................. 742 92 834
Occupancy and equipment expense, net...................... 724 80 804
Technology................................................ 197 38 235
Professional fees......................................... 100 89 189
Other..................................................... 1,488 358 1,846
-------- -------- --------
Total non-interest expense........................ 7,961 1,136 9,097
-------- -------- --------
Income before income taxes.................................. 3,738 504 4,242
Income taxes................................................ 1,233 171 1,404
-------- -------- --------
Net Income.................................................. $ 2,505 $ 333 $ 2,838
======== ======== ========
Net Income Per Common Share:
Primary................................................... $ 0.20 $ 0.19 $ 0.20
======== ======== ========
Fully diluted............................................. $ 0.20 $ 0.19 $ 0.20
======== ======== ========
Weighted Average Common Shares Outstanding
Primary................................................... 12,333 1,724 14,057
Fully diluted............................................. 12,353 1,724 14,077
</TABLE>
24
<PAGE> 25
STERLING BANCSHARES CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law upon the
filing of a certificate of trust with the Delaware Secretary of State on April
2, 1997. The Trust exists for the exclusive purposes of: (i) issuing and selling
the Trust Securities; (ii) using the proceeds from the sale of the Trust
Securities to acquire the Junior Subordinated Debentures; and (iii) engaging in
only those other activities necessary, advisable or incidental thereto (such as
registering the transfer of the Trust Securities). The Junior Subordinated
Debentures will be the sole assets of the Trust, and, accordingly, payments on
the Junior Subordinated Debentures will be the sole revenues of the Trust. All
of the Common Securities will be owned by the Company. The Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the Trust
Preferred Securities, except that upon the occurrence and continuance of an
event of default under the Trust Agreement resulting from a Debenture Event of
Default, the rights of the Company as holder of the Common Securities to
payments in respect of Distributions and payments upon liquidation, redemption
or otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities. See "Description of Trust Preferred
Securities -- Subordination of Common Securities." The Company will acquire
Common Securities in a Liquidation Amount equal to at least 3% of the total
capital of the Trust. The Trust has a term of approximately 31 years, but may
terminate earlier as provided in the Trust Agreement. The Trust's business and
affairs are conducted by the Issuer Trustees, each appointed by the Company as
holder of the Common Securities. The Issuer Trustees for the Trust will be
Bankers Trust Company, as the Property Trustee, Bankers Trust (Delaware), as the
Delaware Trustee and three Administrative Trustees who are officers of the
Company. Bankers Trust Company, as Property Trustee, will act as sole indenture
trustee under the Trust Agreement. Bankers Trust Company will also act as
indenture trustee under the Guarantee and the Indenture. See "Description of
Guarantee" and "Description of Junior Subordinated Debentures." The holder of
the Common Securities of the Trust or, if an Event of Default under the Trust
Agreement has occurred and is continuing, the holders of not less than a
majority in Liquidation Amount of the Trust Preferred Securities will be
entitled to appoint, remove or replace the Property Trustee and the Delaware
Trustee. In no event will the holders of the Trust Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees; such
voting rights will be vested exclusively in the holder of the Common Securities.
The duties and obligations of each Issuer Trustee are governed by the Trust
Agreement. The Company, as issuer of the Junior Subordinated Debentures, will
pay all fees, expenses, debts and obligations (other than the payment of
principal, interest and premium, if any, on the Trust Securities) related to the
Trust and the offering of the Trust Preferred Securities and will pay, directly
or indirectly, all ongoing costs, expenses and liabilities (other than the
payment of principal and interest on the Trust Securities) of the Trust. The
principal executive office of the Trust is c/o Sterling Bancshares, Inc., 15000
Northwest Freeway, Suite 200, Houston, Texas 77040.
25
<PAGE> 26
DESCRIPTION OF TRUST PREFERRED SECURITIES
The Trust Preferred Securities will represent beneficial interests in the
Trust and the holders thereof will be entitled to a preference over the Common
Securities in certain circumstances with respect to Distributions and amounts
payable on redemption of the Trust Securities or liquidation of the Trust. See
"-- Subordination of Common Securities." The Trust Agreement will be qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This summary of certain provisions of the Trust Preferred Securities, the Common
Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Trust Agreement, including the definitions therein of certain terms and
the Trust Indenture Act. The form of the Trust Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Issuer Trustees, on
behalf of the Trust, will issue the Trust Securities. All of the Common
Securities will be owned by the Company. The Trust Preferred Securities will
represent preferred undivided beneficial interests in the assets of the Trust.
The Trust Preferred Securities will rank pari passu, and payments will be made
thereon pro rata, with the Common Securities except as described under
"-- Subordination of Common Securities." The Trust Agreement does not permit the
issuance by the Trust of any securities other than the Trust Securities or the
incurrence of any indebtedness by the Trust. Legal title to the Junior
Subordinated Debentures will be held by the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The Guarantee will not guarantee
payment of Distributions or amounts payable on redemption of the Trust Preferred
Securities or liquidation of the Trust when the Trust does not have funds on
hand legally available for such payments. See "Description of Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on the Trust Securities will be
cumulative, will accumulate from June 6, 1997 and will be payable quarterly in
arrears on the first day of March, June, September and December of each year and
on the Stated Maturity Date, commencing September 2, 1997, at the annual rate of
9.28% of the stated Liquidation Amount of $25 to the holders of the Trust
Securities on the relevant record date. The relevant record date will be the
close of business on the 15th day of the month preceding the month in which the
relevant Distribution Date occurs. The amount of Distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months
and, for any period of less than a full calendar month, the number of days
elapsed in such month. In the event that any date on which Distributions are
payable on the Trust Securities is not a Business Day, payment of the
Distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect to any
such delay), except that if such next succeeding Business Day falls in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date (each date on which Distributions are payable in accordance with
the foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in New York,
New York or Houston, Texas are authorized or required by law or executive order
to remain closed.
Extension Period. So long as no Debenture Event of Default has occurred and
is continuing, the Company will have the right under the Indenture to elect to
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 20 consecutive quarterly periods
with respect to each Extension Period, provided that no Extension Period shall
end on a date other than an Interest Payment Date (as defined) or extend beyond
the Stated Maturity Date. Upon any such election, Distributions on the Trust
Securities will be deferred by the Trust during such Extension Period.
Distributions to which holders of the Trust Securities are entitled during any
such Extension Period will accumulate additional Distributions thereon at the
rate per annum of 9.28% thereof, compounded quarterly from the relevant
Distribution Date. The term "Distributions," as used herein, shall include any
such additional Distributions.
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Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarterly periods, to end
on a date other than an Interest Payment Date or to extend beyond the Stated
Maturity Date. Upon the termination of any such Extension Period and the payment
of all amounts then due on any Interest Payment Date, the Company may elect to
begin a new Extension Period, subject to the above requirements. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of any such Extension Period (or an
extension thereof) at least five Business Days prior to the earlier of: (i) the
date the Distributions on the Trust Preferred Securities would have been payable
except for the election to begin such Extension Period or (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or automated inter-dealer quotation system or to holders of such Trust Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than five Business Days prior to such record date. There is
no limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Junior Subordinated Debentures -- Option
to Extend Interest Payment Date" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not: (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock, (other
than (a) dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, common stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
as a result of a reclassification of any class or series of the Company's
capital stock solely into another class or series of the Company's capital
stock, (d) the purchase of fractional shares of the Company's capital stock
resulting from such a reclassification or pursuant to the conversion or exchange
provisions of such capital stock or any security convertible or exchangeable
into shares of the Company's capital stock and (e) purchases of common stock
related to the issuance of common stock or rights under any of the Company's
benefit plans for its directors, officers or employees or any of the Company's
dividend reinvestment plans); or (ii) make any payment of principal of, premium,
if any, or interest on or repay, repurchase or redeem any debt securities of the
Company (including Other Debentures) that rank pari passu with or junior in
right of payment to the Junior Subordinated Debentures; or (iii) make any
guarantee payments (other than payments under the Guarantee) with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
(including Other Guarantees) if such guarantee ranks pari passu with or junior
in right of payment to the Junior Subordinated Debentures. The Company has no
current intention to exercise its option to defer payments of interest on the
Junior Subordinated Debentures.
Source of Distributions. The revenue of the Trust available for
distribution to holders of the Trust Securities will be limited to payments on
the Junior Subordinated Debentures in which the Trust will invest the proceeds
from the issuance and sale of the Trust Securities. See "Description of Junior
Subordinated Debentures -- General." If the Company does not make interest
payments on the Junior Subordinated Debentures, the Property Trustee will not
have funds available to pay Distributions on the Trust Securities. The payment
of Distributions (if and to the extent the Trust has funds on hand legally
available for the payment of such Distributions) will be guaranteed by the
Company on a limited basis as set forth herein under "Description of Guarantee."
REDEMPTION
Mandatory Redemption. Upon the repayment or prepayment at any time, in
whole or in part, of the Junior Subordinated Debentures (other than following
the distribution of the Junior Subordinated Debentures to the holders of the
Trust Securities), the proceeds from such repayment or prepayment shall be
applied by the Property Trustee to redeem a Like Amount (as defined below) of
the Trust Securities, upon not less than 30 nor more than 60 days' notice of a
date of redemption (the "Redemption Date"), at a redemption price equal to 100%
of the Liquidation Amount of the Trust Securities to be redeemed together with
accrued and
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unpaid Distributions thereon to the Redemption Date, if any. See "Description of
Junior Subordinated Debentures -- Redemption." If less than all of the Junior
Subordinated Debentures are to be prepaid on a Redemption Date, then the
proceeds of such prepayment shall be allocated pro rata to the Trust Securities.
Optional Redemption. The Company will have the right to prepay the Junior
Subordinated Debentures on or after June 6, 2002, in whole at any time or in
part from time to time at a prepayment price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so prepaid to the date fixed for
redemption, plus 100% of the principal amount thereof, in each case subject to
receipt of prior approval by the Federal Reserve, if then required under
applicable capital guidelines or policies of the Federal Reserve, and any other
required regulatory approvals. See "Description of Junior Subordinated
Debentures -- Prepayment."
If a Special Event shall occur and be continuing, the Company will have the
right to prepay the Junior Subordinated Debentures in whole (but not in part)
and thereby cause a mandatory redemption of the Trust Securities in whole (but
not in part) within 90 days following the occurrence of such Special Event, in
each case subject to receipt of prior approval by the Federal Reserve, if then
required under applicable capital guidelines or policies of the Federal Reserve,
and any other required regulatory approvals. In the event a Special Event has
occurred and is continuing and the Company does not elect to prepay the Junior
Subordinated Debentures and thereby cause a mandatory redemption of the Trust
Securities or to liquidate the Trust and cause the Junior Subordinated
Debentures to be distributed to holders of the Trust Securities in liquidation
of the Trust as described below, such Trust Securities will remain outstanding
and Additional Sums (as defined below) may be payable on the Junior Subordinated
Debentures.
Definitions.
"Additional Sums" means the additional amounts as may be necessary to be
paid by the Company with respect to the Junior Subordinated Debentures in order
that the amount of Distributions then due and payable by the Trust on the
outstanding Trust Securities of the Trust shall not be reduced as a result of
any additional taxes, duties and other governmental charges to which the Trust
has become subject as a result of a Tax Event.
An "Investment Company Event" means the receipt by the Company of an
opinion of counsel experienced in such matters to the effect that, as a result
of any change in law or regulation or a change in interpretation or application
of law or regulation by any legislative body, court, governmental agency or
regulatory authority, the Trust is or will be considered an "investment company"
that is required to be registered under the Investment Company Act, which change
becomes effective on or after the original issuance of the Trust Preferred
Securities.
"Like Amount" means: (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Trust Preferred Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the redemption price of such Trust Securities and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of the Trust
Securities in connection with a dissolution or upon the liquidation of the
Trust, Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
A "Regulatory Capital Event" means that the Company shall have received an
opinion of independent bank regulatory counsel experienced in such matters to
the effect that, as a result of (i) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any rules, guidelines or policies of the Federal Reserve or
(ii) any official administrative pronouncement 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 date of the original
issuance of the Trust Preferred Securities, the Trust Preferred Securities do
not constitute, or within 90 days of the date
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thereof, will not constitute, Tier I Capital (or its then equivalent); provided,
however, that the distribution of the Junior Subordinated Debentures in
connection with the termination of the Trust by the Company shall not in and of
itself constitute a Regulatory Capital Event.
A "Special Event" means a Tax Event, an Investment Company Event or a
Regulatory Capital Event, as the case may be.
A "Tax Event" means the receipt by the Company and the Trust of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the original issuance of
the Trust Preferred Securities, there is more than an insubstantial risk that
(i) the Trust is, or will be within 90 days of the date of such opinion, subject
to United States federal income tax with respect to income received or accrued
on the Junior Subordinated Debentures, (ii) interest payable by the Company on
the Junior Subordinated Debentures is not, or within 90 days of the date of such
opinion will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes or (iii) the Trust is, or will be within 90
days of the date of such opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to elect to terminate the Trust
and, after satisfaction of liabilities to creditors of the Trust as required by
applicable law, to cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust. Such right is
subject to: (i) the Administrative Trustees having received an opinion of
counsel to the effect that such distribution will not be a taxable event to the
holders of the Trust Preferred Securities; and (ii) the Company having received
any regulatory approval required in connection with such termination and
distribution.
The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount of the Junior Subordinated Debentures to the
holders of the Trust Securities, if the Company, as Sponsor, has given written
direction to the Property Trustee to terminate the Trust (which direction is
optional and, except as described above, wholly within the discretion of the
Company, as Sponsor); (iii) redemption of all of the Trust Securities as
described under "-- Redemption;" (iv) expiration of the term of the Trust; and
(v) the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
If a termination occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law, to the
holders of the Trust Securities a Like Amount of the Junior Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practicable, in which event such holders will be entitled to receive out
of the assets of the Trust legally available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the aggregate of the Liquidation Amount plus accumulated
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets on hand legally available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Trust Securities shall be paid on a pro rata basis,
except that if a Debenture Event of Default has occurred and is continuing, the
Trust Preferred Securities shall have a priority over the Common Securities. See
"-- Subordination of Common Securities." If the Company elects not to prepay the
Junior Subordinated Debentures prior to maturity in accordance with their terms
and either elects not to or is unable to liquidate the Trust and distribute the
Junior Subordinated Debentures to holders of the Trust Securities, the Trust
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures on the Stated Maturity Date.
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If the Company elects to liquidate the Trust and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Trust Securities in
liquidation of the Trust, the Company shall continue to have the right to
shorten the maturity of such Junior Subordinated Debentures, subject to certain
conditions. See "Description of Junior Subordinated Debentures -- General."
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) DTC or its nominee
will receive, in respect of each registered global certificate, if any,
representing Trust Preferred Securities and held by it, a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution and (iii) any certificates representing
Trust Securities not held by DTC or its nominee will be deemed to represent
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of such Trust Securities, and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid Distributions on such
Trust Securities until such certificates are presented to the Administrative
Trustees or their agent for cancellation, whereupon the Company will issue to
such holder, and the Debenture Trustee will authenticate, a certificate
representing such Junior Subordinated Debentures.
There can be no assurance as to the market prices for the Trust Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Securities if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Trust Preferred Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Trust Preferred Securities offered
hereby.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the redemption price
with the proceeds from the contemporaneous repayment or prepayment of the Junior
Subordinated Debentures. Any redemption of Trust Securities shall be made and
the redemption price shall be payable on the Redemption Date only to the extent
that the Trust has funds legally available for the payment of such redemption
price. See "-- Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the Trust
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the Trust Preferred
Securities held by DTC or its nominees, the Property Trustee will deposit or
cause the Paying Agent (as defined under "-- Payment and Paying Agent" below) to
deposit irrevocably with DTC funds sufficient to pay the redemption price and
will give DTC or its nominees irrevocable instructions and authority to pay the
redemption price to the holders of such Trust Preferred Securities. See
"-- Depositary Procedures." If such Trust Preferred Securities are no longer in
book-entry form, the Property Trustee, to the extent funds are legally
available, will irrevocably deposit with the Paying Agent for such Trust
Preferred Securities funds sufficient to pay the aggregate redemption price and
will give such Paying Agent irrevocable instructions and authority to pay the
redemption price to the holders thereof upon surrender of their certificates
evidencing such Trust Preferred Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date shall be payable to the
holders of such Trust 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 the Trust Preferred Securities called for redemption will cease,
except the right of the holders of such Trust Preferred Securities to receive
the redemption price, but without interest on such redemption price, and such
Trust Preferred Securities will cease to be outstanding. In the event that any
Redemption Date of Trust Preferred Securities is not a Business Day, then the
redemption price payable on such date will be paid on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such next succeeding Business Day falls in the
next calendar year, such payment shall be made on the immediately preceding
Business Day. In the event that payment of the redemption price is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Guarantee as described under "Description of Guarantee," (i)
Distributions on Trust Securities will continue to accumulate at the then
applicable rate, from the Redemption Date originally established by the Trust to
the date such redemption
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price is actually paid and (ii) the actual payment date will be the Redemption
Date for purposes of calculating the redemption price.
Subject to applicable law (including, without limitation, United States
Federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Trust Preferred Securities by tender, in
the open market or by private agreement.
Payment of the redemption price on the Trust Preferred Securities to
holders of Trust Preferred Securities shall be made on the Redemption Date.
If less than all of the Trust Securities issued by the Trust are to be
redeemed on a Redemption Date, then the aggregate redemption price for such
Trust Securities to be redeemed shall be allocated pro rata to the Trust
Preferred Securities and Common Securities based upon the relative Liquidation
Amounts of such classes. The particular Trust Preferred Securities to be
redeemed shall be selected by the Property Trustee from the outstanding Trust
Preferred Securities not previously called for redemption, by such method as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $25 or an integral multiple
thereof) of the Liquidation Amount of Trust Preferred Securities. The Property
Trustee shall promptly notify the security registrar in writing of the Trust
Preferred Securities selected for redemption and, in the case of any Trust
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 Trust
Preferred Securities shall relate to the portion of the aggregate Liquidation
Amount of Trust 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 prior to the Redemption Date to each holder of Trust Preferred
Securities at its registered address. Unless the Company defaults in payment of
the redemption price on, or in the repayment of, the Junior Subordinated
Debentures, on and after the Redemption Date, Distributions will cease to accrue
on the Trust Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the redemption price of, the Trust
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of the Trust Securities; provided, however, that if on any Distribution
Date or Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or the redemption price of, any
of the Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of the Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding Trust 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, 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 the redemption price of,
the Trust Preferred Securities then due and payable.
In the case of any Event of Default under the Trust Agreement relating to a
Debenture Event of Default, the Company as holder of the Common Securities will
be deemed to have waived any right to act with respect to such Event of Default
until the effect of such Event of Default shall have been cured, waived or
otherwise eliminated. Until any such Event of Default has been so cured, waived
or otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Trust Preferred Securities and not on behalf of the Company as
holder of the Common Securities, and only the holders of the Trust Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Trust Preferred Securities (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or be
effected by
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operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default for 30 days by the Trust in the payment of any
Distribution when it becomes due (subject to the deferral of any due date
in the case of an Extension Period) and payable; or
(iii) default by the Trust in the payment of the Liquidation Amount of
any Trust Security when it becomes due, whether at maturity, upon
redemption by declaration of acceleration or maturity or otherwise; 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 default or breach in the performance of a covenant or
warranty which is addressed in clause (ii) or (iii) above), and
continuation of such default or breach, for 90 days after written notice to
the defaulting Issuer Trustee or Trustees by the holders of at least 25% in
aggregate Liquidation Amount of the outstanding Trust Preferred Securities;
or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Trust Preferred
Securities, the Administrative Trustees and the Company, as Sponsor, unless such
Event of Default shall have been cured or waived. The Company, as Sponsor, and
the Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities shall have a preference over the Common Securities as
described under "-- Liquidation of the Trust and Distribution of Junior
Subordinated Debentures" and "-- Subordination of Common Securities." Upon a
Debenture Event of Default, unless the principal of all the Junior Subordinated
Debentures has already become due and payable, either the Property Trustee or
the holders of not less than 25% in aggregate principal amount of the Junior
Subordinated Debentures then outstanding may declare all of the Junior
Subordinated Debentures to be due and payable immediately by giving notice in
writing to the Company (and to the Property Trustee, if notice is given by
holders of the Junior Subordinated Debentures). If the Property Trustee or the
holders of the Junior Subordinated Debentures fails to declare the principal of
all of the Junior Subordinated Debentures due and payable upon a Debenture Event
of Default, the holders of at least 25% in Liquidation Amount of the Trust
Preferred Securities then outstanding shall have the right to declare the Junior
Subordinated Debentures immediately due and payable. In either event, payment of
principal and interest on the Junior Subordinated Debentures shall remain
subordinated to the extent provided in the Indenture. In addition, holders of
the Trust Preferred Securities have the right in certain circumstances to bring
a Direct Action. See "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Trust Preferred
Securities."
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a majority in Liquidation Amount of the outstanding Trust Preferred
Securities. In no event will the holders of the Trust Preferred Securities have
the right to vote to appoint, remove or replace the Administrative Trustees,
which voting rights are vested exclusively in the Company as the holder of the
Common Securities. No resignation or removal of 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.
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MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any Person succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
Trust Agreement, provided such Person shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below or as otherwise described under "-- Liquidation of the
Trust and Distribution of Junior Subordinated Debentures." The Trust may, at the
request of the Company, as Sponsor, with the consent of the Administrative
Trustees but without the consent of the holders of the Trust Preferred
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to a trust organized as such under the laws of any
State; provided, that: (i) such successor entity either (a) expressly assumes
all of the obligations of the Trust with respect to the Trust Securities or (b)
substitutes for the Trust Securities other securities having substantially the
same terms as the Trust Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Trust Securities rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise; (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee with
respect to the Junior Subordinated Debentures; (iii) the Successor Securities
are listed or approved for quotation, or any Successor Securities will be listed
or approved for quotation upon notification of issuance, on any national
securities exchange or other organization on which the Trust Preferred
Securities are then listed or quoted, if any; (iv) if the Trust Preferred
Securities (including any Successor Securities) are rated by any nationally
recognized statistical rating organization prior to such transaction, such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not cause the Trust Preferred Securities (including any Successor
Securities) or, if the Junior Subordinated Debentures are so rated, the Junior
Subordinated Debentures, to be downgraded by any such nationally recognized
statistical rating organization within 120 days after such transaction; (v) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not adversely affect the rights, preferences and privileges of the holders
of the Trust Securities (including any Successor Securities) in any material
respect; (vi) such successor entity has a purpose identical to that of the
Trust; (vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Company has received an opinion from
independent counsel to the Trust experienced in such matters to the effect that
(a) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Trust Securities (including any Successor Securities) in any
material respect (other than any dilution of such holders' interests in the new
entity) and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"); and (viii) the Company
or any permitted successor or assignee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to, any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity not
to be classified as a grantor trust for United States Federal income tax
purposes.
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VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "-- Mergers, Consolidations,
Amalgamations or Replacements of the Trust" and "Description of
Guarantee -- Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Trust Preferred Securities will have no
voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities: (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which shall not be inconsistent
with the other provisions of the Trust Agreement; or (ii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that the Trust will be classified for United States Federal
income tax purposes as a grantor trust at all times that any Trust Securities
are outstanding or to ensure that the Trust will not be required to register as
an "investment company" under the Investment Company Act; provided, however,
that such action shall not adversely affect in any material respect the
interests of the holders of any class of the Trust Securities. Any amendments of
the Trust Agreement pursuant to the foregoing shall become effective when notice
thereof is given to the holders of the Trust Securities. The Trust Agreement may
be amended by the Issuer Trustees and the Company: (i) with the consent of
holders representing a majority (based upon Liquidation Amount) of the
outstanding Trust Securities; and (ii) upon receipt by the Issuer Trustees of an
opinion of counsel experienced in such matters to the effect that such amendment
or the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Trust's status as a grantor trust for United
States Federal income tax purposes or the Trust's exemption from status as an
"investment company" under the Investment Company Act, provided that, without
the consent of each holder of Trust Securities, the Trust Agreement may not be
amended to: (i) change the amount or timing of any Distribution on the Trust
Securities or reduce the amount payable on redemption thereof or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date; or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not: (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures; (ii) waive certain past defaults under the
Indenture; (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Junior Subordinated
Debentures; or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in Liquidation Amount of all outstanding Trust Preferred Securities;
provided, however, that where a consent of the Property Trustee under the
Indenture would require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior approval of each holder of the Trust Preferred
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Trust Preferred
Securities except by subsequent vote of such holders. The Property Trustee shall
notify each holder of Trust Preferred Securities of any notice of default with
respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of such holders of the Trust Preferred Securities, prior to
taking any of the foregoing actions, the Issuer Trustees shall obtain an opinion
of counsel experienced in such matters to the effect that the Trust will not be
taxed as an association taxable as a corporation for United States Federal
income tax purposes on account of such action.
Any required approval of holders of Trust Preferred Securities may be given
at a meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Trust 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 holder of record of Trust Preferred Securities in the manner set forth
in the Trust Agreement.
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No vote or consent of the holders of Trust Preferred Securities will be
required for the Trust to redeem and cancel the Trust Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Trust Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Trust Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
DEPOSITARY PROCEDURES
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company organized under the laws of the State of New York, as a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations and
certain other organizations. Indirect access to DTC's system is also available
to other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Trust Preferred Securities,
DTC will credit the accounts of Participants designated by the Underwriters with
portions of the Liquidation Amount of the Global Trust Preferred Securities and
(ii) ownership of such interests in the Global Trust Preferred Securities will
be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Trust Preferred Securities).
Investors in the Global Trust Preferred Securities may hold their interests
therein directly through DTC if they are Participants, or indirectly through
organizations that are Participants. All interests in the Global Trust Preferred
Securities will be subject to the procedures and requirements of DTC. The laws
of some states require that certain persons take physical delivery in
certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in the Global Trust Preferred Securities to such
persons will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in the Global Trust
Preferred Securities to pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing such
interests. For certain other restrictions on the transferability of the Trust
Preferred Securities, see "-- Exchange of Book-Entry Trust Preferred Securities
for Certificated Trust Preferred Securities" and "-- Exchange of Certificated
Trust Preferred Securities for Book-Entry Trust Preferred Securities."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL TRUST
PREFERRED SECURITIES WILL NOT HAVE TRUST PREFERRED SECURITIES REGISTERED IN
THEIR NAME, WILL NOT RECEIVE PHYSICAL DELIVERY OF TRUST PREFERRED SECURITIES IN
CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS
THEREOF UNDER THE TRUST AGREEMENT FOR ANY PURPOSE.
Payments in respect of the Global Trust Preferred Securities registered in
the name of DTC or its nominee will be payable by the Property Trustee to DTC in
its capacity as the registered holder under the Trust Agreement. Under the terms
of the Trust Agreement, the Property Trustee will treat the persons in whose
names the Trust Preferred Securities, including the Global Trust Preferred
Securities, are registered as
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the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Trust Preferred Securities, or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Trust Preferred
Securities or (ii) any other matter relating to the actions and practices of DTC
or any of its Participants or Indirect Participants. DTC has advised the Trust
and the Company that its current practice, upon receipt of any payment in
respect of securities such as the Trust Preferred Securities, is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in Liquidation Amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Trust Preferred Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Property Trustee, the Trust or the Company. None of the Trust, the
Company or the Property Trustee will be liable for any delay by DTC or any of
its Participants in identifying the beneficial owners of the Trust Preferred
Securities, and the Trust or the Company and the Property Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Secondary market trading activity in interests in the Global Trust
Preferred Securities will settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will settle in same-day funds.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Trust Preferred Securities (including,
without limitation, the presentation of Trust Preferred Securities for exchange
as described below) only at the direction of one or more Participants to whose
account with DTC interests in the Global Trust Preferred Securities are credited
and only in respect of such portion of the Liquidation Amount of the Trust
Preferred Securities as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default under the Trust
Agreement, DTC reserves the right to exchange the Global Trust Preferred
Securities for Trust Preferred Securities in certificated form and to distribute
such Trust Preferred Securities to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Trust Preferred Securities among Participants in DTC,
it is under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. None of the Trust, the
Company or the Property Trustee will have any responsibility for the performance
by DTC or its Participants or Indirect Participants of its obligations under the
rules and procedures governing its operations.
EXCHANGE OF BOOK-ENTRY TRUST PREFERRED SECURITIES FOR CERTIFICATED TRUST
PREFERRED SECURITIES
A Global Trust Preferred Security is exchangeable for Trust Preferred
Securities in registered certificated form if: (i) DTC (x) notifies the Trust
that it is unwilling or unable to continue as Depositary for the Global Trust
Preferred Security and the Trust thereupon fails to appoint a successor
Depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act; (ii) the Company in its sole discretion elects to cause
the issuance of the Trust Preferred Securities in certificated form; or (iii)
there shall have occurred and be continuing an Event of Default or any event
which after notice or lapse of time or both would be an Event of Default under
the Trust Agreement. In addition, beneficial interests in a Global Trust
Preferred Security may be exchanged by or on behalf of DTC for certificated
Trust Preferred Securities upon request by DTC, but only upon at least 20 days'
prior written notice given to the Property Trustee in accordance with DTC's
customary procedures. In all cases, certificated Trust Preferred Securities
delivered in
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exchange for any Global Trust Preferred Security or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the Depositary (in accordance with its customary
procedures).
PAYMENT AND PAYING AGENCY
Payments in respect of the Trust Preferred Securities held in global form
shall be made to the Depositary, which shall credit the relevant accounts at the
Depositary on the applicable Distribution Dates or in respect of the Trust
Preferred Securities that are not held by the Depositary. Such payments shall be
made by check mailed to the address of the holder entitled thereto as such
address shall appear on the register. The paying agent (the "Paying Agent")
shall initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees and the Company.
The Paying Agent shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Property Trustee, the Administrative Trustees and the
Company. In the event that the Property Trustee shall no longer be the Paying
Agent, the Trust shall appoint a successor (which shall be a bank or trust
company acceptable to the Administrative Trustees and the Company) to act as
Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the Trust
Preferred Securities.
Registration of transfers of the Trust Preferred Securities will be
effected without charge by or on behalf of the Trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Trust will not be required to register or cause to be
registered the transfer of the Trust Preferred Securities after they have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, during the existence of an Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of Trust
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no Event of Default has
occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the Trust
Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of the Trust Preferred
Securities or the Common Securities are entitled under the Trust Agreement to
vote, then the Property Trustee shall take such action as is directed by the
Company and, if not so directed, shall take such action as it deems advisable
and in the best interests of the holders of the Trust Securities and will have
no liability except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that: (i) the Trust will not
be deemed to be an "investment company" required to be registered under the
Investment Company Act; (ii) the Trust will be classified as a grantor trust for
United States Federal income tax purposes; and (iii) the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
Federal income tax purposes. In this connection, the Company and the
Administrative Trustees are authorized to take any action, not inconsistent with
applicable law or the Trust Agreement, that the Administrative Trustees
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights to
subscribe for additional Trust Securities.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under an Indenture, as
supplemented from time to time (as so supplemented, the "Indenture"), between
the Company and Bankers Trust (Delaware), as trustee (the "Debenture Trustee").
The Indenture will be qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). This summary of certain terms and
provisions of the Junior Subordinated Debentures and the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a part
of the Indenture by the Trust Indenture Act.
GENERAL
Concurrently with the issuance of the Trust Preferred Securities, the Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in Junior Subordinated Debentures issued by
the Company. The Junior Subordinated Debentures will be issued as unsecured debt
under the Indenture.
The Junior Subordinated Debentures will bear interest from June 6, 1997 at
the annual rate of 9.28% of the principal amount thereof, payable quarterly in
arrears on the first day of March, June, September and December of each year and
on the Stated Maturity Date (each, an "Interest Payment Date"), commencing on
September 2, 1997, to the Person in whose name each Junior Subordinated
Debenture is registered, subject to certain exceptions, at the close of business
on the 15th day of the month preceding the month in which the relevant Interest
Payment Date falls (the "record date"). It is anticipated that, until the
liquidation, if any, of the Trust, each Junior Subordinated Debenture will be
held in the name of the Property Trustee in trust for the benefit of the holders
of the Trust Securities. The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months and, for any
period less than a full calendar month, the number of days elapsed in such
month. In the event that any Interest Payment Date is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay), except that if such next succeeding Business Day falls in
the next succeeding calendar year, then such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of 9.28% thereof, compounded
quarterly. The term "interest," as used herein, shall include quarterly interest
payments, interest on quarterly interest payments not paid on the applicable
Interest Payment Date and Additional Sums, as applicable.
An aggregate of $25,774,000 principal amount of Junior Subordinated
Debentures will be issued (assuming the Underwriters' over-allotment option is
not exercised). The Junior Subordinated Debentures will be issued in
denominations of $25 and integral multiples thereof. The Junior Subordinated
Debentures will mature on June 6, 2027 (such date, as it may be shortened as
provided for in the next two sentences of this paragraph, the "Stated Maturity
Date"). Such date may be shortened once at any time by the Company to any date
which must be (i) an Interest Payment Date, (ii) an anniversary date of the date
of issuance of the Junior Subordinated Debentures, and (iii) not earlier than
June 6, 2002, subject to the Company having received prior approval of the
Federal Reserve, if then required under applicable capital guidelines or
policies of the Federal Reserve, and any other required regulatory approvals. If
the Company elects to shorten the Stated Maturity Date of the Junior
Subordinated Debentures, it shall give notice to the Indenture Trustee, and the
Indenture Trustee shall give notice of such earlier Stated Maturity Date to the
holders of the Junior Subordinated Debentures no less than 90 days prior to the
effectiveness thereof.
The Junior Subordinated Debentures will rank pari passu with all Other
Debentures and will be unsecured and will rank subordinate and junior in right
of payment to all Senior Indebtedness to the extent and in the manner set forth
in the Indenture. See "-- Subordination."
The Company is a holding company and substantially all of the operating
assets of the Company are owned by the Company's Subsidiaries. The Company is a
legal entity separate and distinct from its
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Subsidiaries. Holders of Junior Subordinated Debentures should look only to the
Company for payments on the Junior Subordinated Debentures. The principal
sources of the Company's income are dividends, interest and fees from its
Subsidiaries. The Company relies primarily on dividends from the Bank to meet
its obligations for payment of principal and interest on its outstanding debt
obligations and corporate expenses. There are regulatory limitations on the
payment of dividends directly or indirectly to the Company from the Bank. As of
March 31, 1997, under applicable regulations, the total capital available for
payment of dividends by the Bank to the Company was approximately $18.0 million.
Banking regulatory authorities, however, have the power to prohibit the payment
of dividends, if such payment would reduce bank capital to a point that, in the
opinion of such regulatory authorities, would render the Bank undercapitalized
and thus constitute an unsafe or unsound banking practice. In addition, the Bank
is subject to certain restrictions imposed by Federal law on any extensions of
credit to, and certain other transactions with, the Company and certain other
affiliates, and on investments in stock or other securities thereof. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless the loans are secured by various types of collateral. Further,
such secured loans, other transactions and investments by the Bank are generally
limited in amount as to the Company and as to each of such other affiliates to
10% of the Bank's capital and surplus and as to the Company and all of such
other affiliates to an aggregate of 20% of the Bank's capital and surplus.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Trust Preferred Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of that subsidiary
(including depositors, in the case of the Bank), except to the extent the
Company may itself be recognized as a creditor of that subsidiary. At March 31,
1997, the Subsidiaries of the Company had total liabilities (including deposit
liabilities, but excluding liabilities owed to the Company) of $766.7 million.
Accordingly, the Junior Subordinated Debentures will be effectively subordinated
to all existing and future liabilities of the Company's Subsidiaries (including
the Subsidiaries's deposit liabilities) and all liabilities of any future
subsidiaries of the Company. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Company or any subsidiary,
including Senior Indebtedness. See "-- Subordination."
FORM, REGISTRATION AND TRANSFER
If the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities, the Junior Subordinated Debentures may be represented by one
or more global certificates registered in the name of Cede & Co. as the nominee
of DTC. The depositary arrangements for such Junior Subordinated Debentures are
expected to be substantially similar to those in effect for the Trust Preferred
Securities. For a description of DTC and the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Description of Trust Preferred
Securities -- Depositary Procedures."
PAYMENT AND PAYING AGENTS
Payment of principal of and interest on Junior Subordinated Debentures will
be made at the office of the Debenture Trustee in New York, New York or at the
office of such Paying Agent or Paying Agents as the Company may designate from
time to time, except that at the option of the Company payment of any interest
may be made, except in the case of Junior Subordinated Debentures in global
form, (i) by check mailed to the address of the holder as such address shall
appear in the register for Junior Subordinated Debentures or (ii) by transfer to
an account maintained by the Person entitled thereto as specified in such
register, provided that proper transfer instructions have been received by the
relevant record date. Payment of any interest on any Junior Subordinated
Debenture will be made to the Person in whose name such Junior Subordinated
Debenture is registered at the close of business on the record date for such
interest, except in the case of defaulted interest. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent; however the Company will at all times be required to maintain a Paying
Agent in each place of payment for the Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent for the
payment of the principal of or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such
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principal or interest has become due and payable shall, at the request of the
Company, be repaid to the Company and the holder of such Junior Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Company for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing,
the Company will have the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time and from time to time
for a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period shall end on a date other
than an Interest Payment Date or extend beyond the Stated Maturity Date. At the
end of such Extension Period, the Company must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of 9.28%, compounded
quarterly, to the extent permitted by applicable law ("Compounded Interest")).
During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (or holders of the Trust Securities while Trust
Securities are outstanding) will be required to accrue such deferred interest
income for United States Federal income tax purposes prior to the receipt of
cash attributable to such income. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not: (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock, (other
than (a) dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, common stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
as a result of a reclassification of any class or series of the Company's
capital stock solely into another class or series of the Company's capital
stock, (d) the purchase of fractional shares of the Company's capital stock
resulting from such a reclassification or pursuant to the conversion or exchange
provisions of such capital stock or any security convertible or exchangeable
into shares of the Company's capital stock, and (e) purchases of common stock
related to the issuance of common stock or rights under any of the Company's
benefit plans for its directors, officers or employees or any of the Company's
dividend reinvestment plans); (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company (including any Other Debentures) that rank pari passu with or junior in
right of payment to the Junior Subordinated Debentures; or (iii) make any
guarantee payments (other than payments under the Guarantee) with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
(including any Other Guarantees) if such guarantee ranks pari passu with or
junior in right of payment to the Junior Subordinated Debentures.
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarterly periods, end on a
date other than an Interest Payment Date or extend beyond the Stated Maturity
Date. Upon the termination of any such Extension Period and the payment of all
amounts then due, the Company may elect to begin a new Extension Period, subject
to the above requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of any Extension Period (or an extension thereof) at least five
Business Days prior to the earlier of (i) the date the Distributions on the
Trust Securities would have been payable except for the election to begin or
extend such Extension Period or (ii) the date the Administrative Trustees are
required to give notice to any securities exchange or to holders of Trust
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 Debenture Trustee shall give the holders of the Junior Subordinated
Debentures notice of the Company's election of any Extension Period at least
five Business Days prior to such record date. There is no limitation on the
number of times that the Company may elect to begin an Extension Period.
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ADDITIONAL SUMS
If the Trust is required to pay additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
PREPAYMENT
Subject to the Company having received prior approval of the Federal
Reserve, if then required under applicable capital guidelines or policies of the
Federal Reserve, and any other required regulatory approvals, the Junior
Subordinated Debentures are prepayable prior to maturity at the option of the
Company (i) on or after June 6, 2002, in whole at any time or in part from time
to time, or (ii) at any time in whole (but not in part), upon the occurrence and
during the continuance of a Special Event, in each case at a prepayment price
equal to plus 100% of the principal amount thereof, the Junior Subordinated
Debentures to be prepaid, plus the accrued and unpaid interest thereon
(including Compounded Interest and Additional Sums, if any) to the date fixed
for prepayment.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the prepayment date to each holder of Junior Subordinated
Debentures to be prepaid at such holder's registered address. Unless the Company
defaults in payments of the prepayment price, on and after the prepayment date
interest ceases to accrue on such Junior Subordinated Debentures or portions
thereof called for prepayment.
The Junior Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Trust Preferred
Securities -- Liquidation of the Trust and Distribution of Junior Subordinated
Debentures," under certain circumstances involving the termination of the Trust,
the Junior Subordinated Debentures may be distributed to the holders of the
Trust Securities in liquidation of the Trust after satisfaction of liabilities
to creditors of the Trust as provided by applicable law. If distributed to
holders of the Trust Preferred Securities in liquidation, the Junior
Subordinated Debentures will initially be issued in the form of one or more
global securities and the Depositary, or any successor depositary for the Trust
Preferred Securities, will act as depositary for the Junior Subordinated
Debentures. If the Junior Subordinated Debentures are distributed to the holders
of Trust Preferred Securities upon the liquidation of the Trust, the Company
will use its best efforts to list the Junior Subordinated Debentures on the
Nasdaq National Market or such other stock exchanges or automated quotation
system, if any, on which the Trust Preferred Securities are then listed or
quoted. There can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of the Trust
Preferred Securities.
CERTAIN COVENANTS OF THE COMPANY
If at any time (1) there shall have occurred any event of which the Company
has actual knowledge that (a) is, or with the giving of notice or the lapse of
time, or both, would be, a Debenture Event of Default and (b) in respect of
which the Company shall not have taken reasonable steps to cure, (2) the Company
shall be in default with respect to its payment obligations under the Guarantee
or (3) the Company shall have given notice of its election of an Extension
Period as provided in the Indenture and shall not have rescinded such notice,
and such Extension Period, or any extension thereof, shall be continuing, the
Company 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 (other than (a) dividends or distributions in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
common stock of the Company, (b) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) as a result of a reclassification of any class or
series of the Company's capital stock solely into another class or series of the
Company's capital stock, (d) the purchase of fractional shares of the Company's
capital stock resulting from such a reclassification or pursuant to the
conversion or exchange provisions of such capital stock or any security
convertible or exchangeable into shares of the Company's
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capital stock, and (e) purchases of common stock related to the issuance of
common stock or rights under any of the Company's benefit plans for its
directors, officers or employees or any of the Company's dividend reinvestment
plans); (ii) make any payment of principal, interest or premium, if any, on or
repay or repurchase or redeem any debt securities of the Company (including
Other Debentures) that rank pari passu with or junior in right of payment to the
Junior Subordinated Debentures; or (iii) make any guarantee payments (other than
payments under the Guarantee) with respect to any guarantee by the Company of
the debt securities of any subsidiary of the Company (including under Other
Guarantees) if such guarantee ranks pari passu or junior in right of payment to
the Junior Subordinated Debentures.
So long as the Trust Securities remain outstanding, the Company also will
covenant: (i) to maintain 100% direct or indirect ownership of the Common
Securities, provided, however, that any permitted successor of the Company under
the Indenture may succeed to the Company's ownership of such Common Securities;
(ii) not to voluntarily terminate, windup or liquidate the Trust except with the
prior approval of the Federal Reserve, if required under applicable capital
guidelines or policies of the Federal Reserve, and any other required regulatory
approvals; (iii) to use its reasonable efforts to cause the Trust (a) to remain
a business trust, except in connection with the distribution of Junior
Subordinated Debentures to the holders of Trust Securities in liquidation of the
Trust, the redemption of all the Trust Securities, or certain mergers or
consolidations, each as permitted by the Trust Agreement, and (b) to otherwise
continue to be classified as a grantor trust for United States Federal income
tax purposes; and (iv) to use its reasonable efforts to cause each holder of
Trust Securities to be treated as owning an undivided beneficial interest in the
Junior Subordinated Debentures.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of Junior
Subordinated Debentures) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of a majority in principal amount of Junior Subordinated Debentures, to
modify the Indenture in a manner affecting the rights of the holders of Junior
Subordinated Debentures; provided that no such modification may, without the
consent of the holders of each outstanding Junior Subordinated Debenture so
affected, (i) change the Stated Maturity Date, or reduce the principal amount of
the Junior Subordinated Debentures or reduce the amount payable on redemption
thereof or reduce the rate or extend the time of payment of interest thereon
except pursuant to the Company's right under the Indenture to defer the payment
of interest as provided therein (see "-- Option to Extend Interest Payment
Date") or make the principal of, or interest or premium on, the Junior
Subordinated Debentures payable in any coin or currency other than that provided
in the Junior Subordinated Debentures, or impair or affect the right of any
holder of Junior Subordinated Debentures to institute suit for the payment
thereof, or (ii) reduce the percentage of principal amount of Junior
Subordinated Debentures, the holders of which are required to consent to any
such modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures constitutes a
"Debenture Event of Default" (whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure for 30 days to pay any interest (including Compounded
Interest and Additional Sums, if any) on the Junior Subordinated Debentures
or any Other Debentures, when due (subject to the deferral of any due date
in the case of an Extension Period); or
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(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon prepayment or redemption, by declaration of acceleration of
maturity or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants and warranties contained in the 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 Junior
Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have, subject to certain exceptions, the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee. The Debenture Trustee or the holders of not
less than 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures may declare the principal due and payable immediately
upon a Debenture Event of Default. The holders of a majority in aggregate
outstanding principal amount of the Junior Subordinated Debentures may annul
such declaration and waive the default if the default (other than the
non-payment of the principal of the Junior Subordinated Debentures which has
become due solely by such acceleration) has been cured and a sum sufficient to
pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default or Debenture
Event of Default, except a default in the payment of principal of (or premium,
if any) or interest on any of the Junior Subordinated Debenture (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 Indenture cannot be modified or amended without the consent of
the holder of each outstanding Junior Subordinated Debenture affected.
The Indenture requires the annual filing by the Company with the Debenture
Trustee of a certificate as to the absence of certain defaults under the
Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of a
Debenture Event of Default from the holders of the Junior Subordinated
Debentures if the Debenture Trustee considers it in the interest of such holders
to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay the principal of, or
interest (including Compounded Interest and Additional Sums, if any) on the
Junior Subordinated Debentures on the due date, a holder of Trust Preferred
Securities may institute a Direct Action. The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Trust Preferred Securities.
Notwithstanding any payments made to a holder of Trust Preferred Securities by
the Company in connection with a Direct Action, the Company shall remain
obligated to pay the principal of and interest (including Compounded Interest
and Additional Sums, if any) on the Junior Subordinated Debentures, and the
Company shall be subrogated to the rights of the holder of such Trust Preferred
Securities with respect to payments on the Trust Preferred Securities to the
extent of any payments made by the Company to such holder in any Direct Action.
The holders of the Trust Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See "Description
of Trust Preferred Securities -- Events of Default; Notice."
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CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or sell, convey, transfer or lease its properties as an
entirety or substantially as an entirety to any other Person, unless: (i) the
Company is the surviving Person or the successor Person is organized under the
laws of the United States or any State or the District of Columbia, and such
successor Person expressly assumes the Company's obligations on the Junior
Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at maturity or called for prepayment 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, including principal (and premium, if any) and interest
due or to become due to the prepayment date or the Stated Maturity Date, as the
case may be, then the Indenture will cease to be of further effect (except as to
the Company's obligations to pay all other sums due pursuant to the Indenture
and to provide the officers' certificates and opinions of counsel described
therein), and the Company will be deemed to have satisfied and discharged the
Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinated and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding-up or reorganization, whether voluntary or
involuntary or in insolvency, bankruptcy receivership or other proceedings of
the Company, all Senior Indebtedness must be paid in full before the holders of
Junior Subordinated Debentures will be entitled to receive or retain any payment
in respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full of such
Senior Indebtedness before the holders of Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect of the Junior Subordinated
Debentures.
No payments on account of principal or interest, if any, in respect of the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to any Senior Indebtedness, or
an event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Indebtedness" shall mean (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,
banker's acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) all indebtedness of the Company
whether incurred on or prior to the date of the Indenture or thereafter
incurred,
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for claims in respect of derivative products, including interest rate, foreign
exchange rate and commodity forward contracts, options and swaps and similar
arrangements; and (vii) every obligation of the type referred to in clauses (i)
through (vii) 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
for, directly or indirectly, as obligor or otherwise.
"Senior Indebtedness" means the principal of and interest, if any
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Indebtedness
of the Company whether incurred on or prior to the date of the Indenture or
thereafter incurred, unless in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such obligations
are not superior in right of payment to the Junior Subordinated Debentures or to
other Indebtedness which is pari passu with, or subordinated to, the Junior
Subordinated Debentures; provided, however, that Senior Indebtedness shall not
be deemed to include (i) any Indebtedness of the Company which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company, (ii)
any Indebtedness of the Company to any of its subsidiaries, (iii) Indebtedness
to any employee of the Company, and (iv) any other debt securities issued
pursuant to the Indenture.
The Company is a holding company and almost all of the operating assets of
the Company are owned by the Company's Subsidiaries. The Company relies
primarily on dividends from the Bank to meet its obligations for payment of
principal and interest on its outstanding debt obligations and corporate
expenses. The Company is a legal entity separate and distinct from the Bank.
Holders of Junior Subordinated Debentures should look only to the Company for
payments on the Junior Subordinated Debentures. There are regulatory limitations
on the payment of dividends directly or indirectly to the Company from the Bank.
See "-- General." In addition, the Bank is subject to certain restrictions
imposed by Federal law on any extensions of credit to, and certain other
transactions with, the Company and certain other affiliates, and on investments
in stock or other securities thereof. Such restrictions prevent the Company and
such other affiliates from borrowing from the Bank unless the loans are secured
by various types of collateral. Further, such secured loans, other transactions
and investments by the Bank are generally limited in amount as to the Company
and as to each of such other affiliates to 10% of the Bank's capital and surplus
and as to the Company and all of such other affiliates to an aggregate of 20% of
the Bank's capital and surplus. Accordingly, the Junior Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Trust Preferred Securities to benefit indirectly from such
distribution), is subject to the prior claims of creditors of that subsidiary
(including depositors, in the case of the Bank), except to the extent the
Company may itself be recognized as a creditor of that subsidiary. At March 31,
1997, the Subsidiaries of the Company had total liabilities (including deposit
liabilities, but excluding liabilities owed to the Company) of $766.7 million.
Accordingly, the Junior Subordinated Debentures will be effectively subordinated
to all existing and future liabilities of the Company's Subsidiaries (including
the Bank's deposit liabilities) and all liabilities of any future subsidiaries
of the Company. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company or any subsidiary, including Senior
Indebtedness.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Debenture Trustee shall have and be subject to all
the duties and responsibilities specified with respect to an
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indenture trustee under the Trust Indenture Act. Subject to such provisions, the
Debenture Trustee is under no obligation to exercise any of the powers vested in
it by the Indenture at the request of any holder of Junior Subordinated
Debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The Debenture
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Debenture
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Trust of the Trust Preferred Securities for the benefit
of the holders from time to time of the Trust Preferred Securities. Bankers
Trust Company will act as Guarantee Trustee under the Guarantee. The Guarantee
will be qualified under the Trust Indenture Act. 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 of the provisions of the
Guarantee, including the definitions therein of certain terms, and the Trust
Indenture Act. The Guarantee Trustee will hold the Guarantee for the benefit of
the holders of the Trust 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 Trust Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Trust Preferred Securities, to the extent not paid by or on behalf of the Trust
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the Trust Preferred
Securities, to the extent that the Trust has funds on hand legally available
therefor at such time, (ii) the redemption price with respect to the Trust
Preferred Securities called for redemption, to the extent that the Trust has
funds on hand legally available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of the Trust
(other than in connection with the distribution of the Junior Subordinated
Debentures to holders of the Trust Preferred Securities or the redemption of all
Trust Preferred Securities), the lesser of (a) the Liquidation Distribution, to
the extent the Trust has funds legally available therefor at the time, and (b)
the amount of assets of the Trust remaining available for distribution to
holders of Trust Preferred Securities after satisfaction of liabilities to
creditors of the Trust as required by applicable law. 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 Trust Preferred Securities or by
causing the Trust to pay such amounts to such holders.
The Guarantee will rank subordinate and junior in right of payment to all
Senior Indebtedness to the extent provided therein. See "-- Status of the
Guarantee." Because the Company is a holding company, the right of the Company
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise is subject to the prior
claims of creditors of that subsidiary, except to the extent the Company may
itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the Guarantee effectively will be subordinated to
all existing and future liabilities of the Company's Subsidiaries (including the
Company's Subsidiaries' deposit liabilities), and all liabilities of any future
subsidiaries of the Company. Claimants should look only to the assets of the
Company for payments under the Guarantee. See "Description of Junior
Subordinated Debentures -- General." The Guarantee does not limit the incurrence
or issuance of other secured or unsecured debt of the Company, including Senior
Indebtedness, whether under the Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guarantee all of the Trust's obligations under the Trust
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of
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the Trust's obligations under the Trust Preferred Securities. See "Relationship
Among the Trust Preferred Securities, the Junior Subordinated Debentures and the
Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
in the same manner as the Junior Subordinated Debentures.
The Guarantee will rank pari passu with all Other Guarantees issued by the
Company after the Issue Date with respect to capital securities (if any) issued
by Other Trusts. The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust or upon
distribution to the holders of the Trust Preferred Securities of the Junior
Subordinated Debentures. The Guarantee does not place a limitation on the amount
of additional Senior Indebtedness that may be incurred by the Company.
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, provided,
however, that except with respect to a default in payment of any Guarantee
Payment, the Company shall have received notice of default and shall not have
cured such default within 60 days after receipt of such notice. The holders of
not less than a majority in Liquidation Amount of the Trust Preferred Securities
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee.
Any holder of the Trust 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 Trust, the
Guarantee Trustee or any other person or entity.
The Company, as guarantor, will be 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.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of a majority of the Liquidation Amount of such outstanding Trust
Preferred Securities. The manner of obtaining any such approval will be as set
forth under "Description of Trust Preferred Securities -- Voting Rights;
Amendment of the Trust Agreement." All guarantees and agreements contained in
the Guarantee Agreement shall bind the successors, assigns, receivers, trustees
and representatives of the Company and shall inure to the benefit of the holders
of the Trust Preferred Securities then outstanding.
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 Trust Preferred Securities, upon
full payment of the Liquidation Amount payable upon liquidation of the Trust or
upon distribution of Junior Subordinated Debentures to the holders of the Trust
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Trust Preferred
Securities must restore payment of any sums paid under the Trust Preferred
Securities or the Guarantee.
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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, will undertake to
perform only such duties as are specifically set forth in the Guarantee and, in
case a default with respect to the Guarantee has occurred, must exercise the
same degree of care and skill as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee will be under no obligation to exercise any of
the powers vested in it by the Guarantee at the request of any holder of the
Trust Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Trust Preferred
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by the Company as
and to the extent set forth under "Description of Guarantee." Taken together,
the Company's obligations under the Junior Subordinated Debentures, the
Indenture, the Trust Agreement and the Guarantee will provide, in the aggregate,
a full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the Trust Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Trust's obligations under the Trust Preferred Securities. If and to the
extent that the Company does not make the required payments on the Junior
Subordinated Debentures, the Trust will not have sufficient funds to make the
related payments, including Distributions, on the Trust Preferred Securities.
The Guarantee will not cover any such payment when the Trust does not have
sufficient funds on hand legally available therefor. In such event, the remedy
of a holder of Trust Preferred Securities is to institute a Direct Action. The
obligations of the Company under the Guarantee will be subordinate and junior in
right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities,
primarily because: (i) the aggregate principal amount or prepayment price of the
Junior Subordinated Debentures will be equal to the sum of the Liquidation
Amount or redemption price, as applicable, of the Trust Securities; (ii) the
interest rate and interest and other payment dates on the Junior Subordinated
Debentures will match the Distribution rate and Distribution and other payment
dates for the Trust Securities; (iii) the Company, as Sponsor, shall pay for all
and any costs, expenses and liabilities of the Trust except the Trust's
obligations to holders of Trust Securities under such Trust Securities; and (iv)
the Trust Agreement will provide that the Trust is not authorized to engage in
any activity that is not consistent with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF TRUST PREFERRED SECURITIES
A holder of any Trust 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 Trust or
any other person or entity.
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A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Trust Agreement. However, in
the event of payment defaults under, or acceleration of, Senior Indebtedness,
the subordination provisions of the Indenture will provide that no payments may
be made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default under the Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The Trust Securities will represent beneficial interests in the Trust, and
the Trust exists for the sole purpose of issuing and selling the Trust
Securities, using the proceeds from the sale of the Trust Securities to acquire
the Junior Subordinated Debentures and engaging in only those other activities
necessary, advisable or incidental thereto.
RIGHTS UPON TERMINATION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary termination, winding-up or
liquidation of the Trust, after satisfaction of the liabilities of creditors of
the Trust as required by applicable law, the holders of the Trust Securities
will be entitled to receive, out of assets held by the Trust, the Liquidation
Distribution in cash. See "Description of Trust Preferred
Securities -- Liquidation of the Trust and Distribution of Junior Subordinated
Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of the
Company, the Property Trustee, as holder of the Junior Subordinated Debentures,
would be a subordinated creditor of the Company, subordinated in right of
payment to all Senior Indebtedness as set forth in the Indenture, but entitled
to receive payment in full of principal and interest, before any stockholders of
the Company receive payments or distributions.
49
<PAGE> 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain of the material United States Federal
income tax consequences of the purchase, ownership and disposition of Trust
Preferred Securities held as capital assets by a holder who purchases such Trust
Preferred Securities upon initial issuance. It does not deal with special
classes of holders such as banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, United States Alien Holders (as defined below)
engaged in a U.S. trade or business or persons that will hold the Trust
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Trust Preferred Securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the Trust Preferred Securities. This summary is based on the Code, Treasury
regulations thereunder and the administrative and judicial interpretations
thereof, as of the date hereof, all of which are subject to change, possibly on
a retroactive basis. In connection with the issuance of the Senior Subordinated
Debentures, Andrews & Kurth L.L.P., special United States Federal income tax
counsel to the Company and the Trust ("Tax Counsel") will render certain
opinions described below. Tax counsel has reviewed this summary and is of the
opinion that, to the extent it constitutes matters of law or purports to
describe provisions of the U.S. Federal income tax laws, it is a correct summary
in all material respects of the matters discussed in this summary.
An opinion of Tax Counsel is not binding on the IRS or the courts. No
rulings have been or are expected to be sought from the IRS with respect to any
of the transactions described herein and no assurance can be given that the IRS
will not take contrary positions. Moreover, no assurance can be given that the
opinions expressed herein will not be challenged by the IRS or, if challenged,
that such a challenge would not be successful.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Corporation intends to take the position that the Junior Subordinated
Debentures will be classified for United States Federal income tax purposes as
indebtedness of the Company. The Company, the Trust and the holders of the Trust
Preferred Securities (by acceptance of a beneficial interest in a Trust
Preferred Security) will agree to treat the Junior Subordinated Debentures as
indebtedness of the Company and the Trust Preferred Securities as evidence of a
beneficial ownership interest in the Junior Subordinated Debentures for all
United States Federal income tax purposes. No assurance can be given, however,
that such position will not be challenged by the IRS or, if challenged, that
such a challenge will not be successful. The remainder of this discussion
assumes that the Junior Subordinated Debentures will be classified as
indebtedness of the Company for United States Federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Trust Preferred Securities, Tax
Counsel will render its opinion generally to the effect that, under then-current
law and assuming full compliance with the terms of the Trust Agreement and the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for United
States Federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States Federal income tax
purposes, each holder of Trust Preferred Securities generally will be considered
the owner of an undivided interest in the Junior Subordinated Debentures, and
each holder will be required to include in its gross income any interest (or OID
accrued) with respect to its allocable share of those Junior Subordinated
Debentures.
50
<PAGE> 51
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations") applicable
to debt instruments issued on or after August 13, 1996, a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with OID. The Company believes that the
likelihood of its exercising its option to defer payments of interest is
"remote" since exercising that option would, among other things, prevent the
Company from declaring dividends on any class of its equity securities.
Accordingly, the Company intends to take the position that the Junior
Subordinated Debentures will not be considered to be issued with OID and,
accordingly, stated interest on the Junior Subordinated Debentures generally
will be taxable to a holder as ordinary income at the time it is paid or accrued
in accordance with such holder's method of tax accounting.
Under the Regulations, if the Company were to exercise its option to defer
payments of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior Subordinated
Debentures remain outstanding. In such event, all of a holder's taxable interest
income with respect to the Junior Subordinated Debentures would thereafter be
accounted for on an economic accrual basis regardless of such holder's method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income. Consequently, a holder of Trust Preferred Securities
would be required to include in gross income OID even though the Company would
not make actual cash payments during an Extension Period. Moreover, under the
Regulations, if the option to defer the payment of interest was determined not
to be "remote," the Junior Subordinated Debentures would be treated as having
been originally issued with OID. In such event, all of a holder's taxable
interest income with respect to the Junior Subordinated Debentures would be
accounted for on an economic accrual basis regardless of such holder's method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income.
The Regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation described herein.
Because income on the Trust Preferred Securities will constitute interest
or OID, corporate holders of the Trust Preferred Securities will not be entitled
to a dividends-received deduction with respect to any income recognized with
respect to the Trust Preferred Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Company will have the right at any time to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities. This right is subject to (i) the Administrative Trustees
having received an opinion of counsel to the effect that such distribution will
not cause the holders of Trust Preferred Securities to recognize gain or loss
for Federal income tax purposes; and (ii) the Company having received any
required regulatory approval. Such a distribution, for United States Federal
income tax purposes, would be treated as a nontaxable event to each holder, and
each holder would receive an aggregate tax basis in the Junior Subordinated
Debentures equal to such holder's aggregate tax basis in its Trust Preferred
Securities. A holder's holding period in the Junior Subordinated Debentures so
received in liquidation of the Trust would include the period during which the
Trust Preferred Securities were held by such holder.
Under certain circumstances described herein (see "Description of Trust
Preferred Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption of
their Trust Securities. Such a redemption would, for United States Federal
income tax purposes, constitute a taxable disposition of the redeemed Trust
Securities, and a holder could recognize gain or loss as if it sold such
redeemed Trust Securities for cash. See "-- Sales of Trust Preferred
Securities."
SALES OF TRUST PREFERRED SECURITIES
A holder that sells Trust Preferred Securities (including a redemption of
the Trust Preferred Securities either on the Stated Maturity Date or upon an
optional redemption of the Junior Subordinated Debentures by
51
<PAGE> 52
the Company) will recognize gain or loss equal to the difference between its
adjusted tax basis in the Trust Preferred Securities and the amount realized on
the sale of such Trust Preferred Securities (other than with respect to accrued
and unpaid interest which has not yet been included in income, which will be
treated as ordinary income). A holder's adjusted tax basis in the Trust
Preferred Securities generally will be its initial purchase price increased by
OID (if any) previously includible in such holder's gross income to the date of
disposition and decreased by payments (if any) received on the Trust Preferred
Securities in respect of OID. Such gain or loss generally will be a capital gain
or loss and generally will be a long-term capital gain or loss if the Trust
Preferred Securities have been held for more than one year.
The Trust Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying Junior Subordinated Debentures. A holder who uses the accrual method
of accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debenture are deemed to have been issued with OID) who disposes of
his Trust Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest on
the Junior Subordinated Debentures through the date of disposition in income as
ordinary income (i.e., interest or, if applicable, OID), and to add such amount
to his adjusted tax basis in his pro rata share of the underlying Junior
Subordinated Debentures deemed disposed of. To the extent the selling price is
less than the holder's adjusted tax basis (which will include all accrued but
unpaid interest) a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States Federal income tax purposes.
SHORTENING OF MATURITY DATE
The Corporation's exercise of its right to shorten the maturity date of the
Junior Subordinated Debentures will be a taxable event to holders of Trust
Preferred Securities (or holders of the Junior Subordinated Debentures if the
Trust has been liquidated and the Junior Subordinated Debentures distributed) if
the Junior Subordinated Debentures are treated as equity for purposes of Federal
income taxation before the maturity is shortened and treated as indebtedness
after the maturity is shortened.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the United States Treasury Department proposed legislation that would,
among other things, deny an issuer a deduction for United States Federal income
tax purposes for the payment of interest on instruments with characteristics
similar to the Junior Subordinated Debentures that are issued on or after the
date of first Congressional committee action which has not yet occurred. The
proposed legislation, if enacted in its current form, will not apply to the
Junior Subordinated Debentures if they are issued prior to the date of first
Congressional committee action.
Additionally, similar legislation, proposed in 1996, included a
transitional rule that provided that the legislation would not apply to debt
obligations issued pursuant to a registration statement filed with the SEC on or
before the effective date of the legislation, to the extent that such debt
obligations were described in, and the amount of such debt obligations did not
exceed in the aggregate the amount stated in such registration statement. If the
proposed legislation is enacted so as to include such a transitional rule, the
proposed legislation will not apply to the Junior Subordinated Debentures even
if they are not issued prior to the date of first Congressional committee action
because they will be issued pursuant to a registration statement filed with the
SEC before the date of first Congressional committee action and the aggregate
amount of Junior Subordinated Debentures issued will not exceed the maximum
aggregate amount described in such registration statement.
There can be no assurance that the proposed legislation, if enacted, will
be enacted in its current form, that it will include the transitional rule
described above or that other legislation enacted after the date hereof would
not adversely affect the tax treatment of the Junior Subordinated Debentures,
resulting in a Tax Event. The occurrence of a Tax Event may result in the
redemption of the Junior Subordinated Debentures for cash, in which event the
holders of the Trust Securities would receive cash in redemption of their Trust
Securities.
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<PAGE> 53
See "Description of Trust Preferred Securities -- Redemption" and "Description
of Junior Subordinated Debentures -- Redemption."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for United States Federal income tax purposes.
A "U.S. Holder" is a holder of Trust Preferred Securities who or which is
(i) a citizen or individual (or is treated as a citizen or individual) of the
United States for Federal income tax purposes, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for Federal income tax purposes without regard to its source or
(iv) a trust over which (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.
Under present United States Federal income tax laws: (i) payments by the
Trust or any of its paying agents to any holder of a Trust Preferred Security
who or which is a United States Alien Holder will not be subject to United
States Federal withholding tax; provided that, (a) the beneficial owner of the
Trust Preferred Security does not actually or constructively own 10 percent 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 Trust Preferred Security is
not a controlled foreign corporation that is related to the Company through
stock ownership, and (c) either (A) the beneficial owner of the Trust Preferred
Security certifies to the Trust or its agent, under penalties of perjury, that
it is not a United States holder and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution"), and holds the Trust Preferred Security in such
capacity, certifies to the Trust or its agent, under penalties of perjury, that
such statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof; and (ii) a United States Alien Holder of
a Trust Preferred Security will not be subject to United States Federal
withholding tax on any gain realized upon the sale or other disposition of a
Trust Preferred Security.
As discussed above, changes in legislation affecting the United States
Federal income tax treatment of the Junior Subordinated Debentures are possible,
and could adversely affect the ability of the Company to deduct the interest
payable on the Junior Subordinated Debentures. Moreover, any such legislation
could adversely affect United States Alien Holders by characterizing income
derived from the Junior Subordinated Debentures as dividends, generally subject
to a 30% income tax (on a withholding basis) when paid to a United States Alien
Holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a United States Alien Holder.
A United States Alien Holder that holds Trust 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.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Trust Preferred Securities will be reported to
holders on Forms 1099, which forms should be mailed to holders of Trust
Preferred Securities by January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Trust Preferred
Securities may be subject to a "backup" withholding tax of 31 percent unless the
holder complies with certain identification requirements. Any withheld amounts
will be allowed as a credit against the holder's United States Federal income
tax, provided the required information is provided to the IRS.
53
<PAGE> 54
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
TRUST 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.
54
<PAGE> 55
ERISA CONSIDERATIONS
Each of the Company (the obligor with respect to the Junior Subordinated
Debentures held by the Trust), and its affiliates and the Property Trustee may
be considered a "party in interest" (within the meaning of ERISA) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to many Plans that are subject to ERISA and certain employee
benefit-related provisions of the Code. The purchase and/or holding of Trust
Preferred Securities by a Plan with respect to which the Company, the Property
Trustee or any affiliate is a service provider (or otherwise is a party in
interest or a disqualified person) may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Trust Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an
exemption for certain transactions determined by an independent qualified
professional asset manager), PTCE 91-38 (an exemption for certain transactions
involving bank collective investment funds), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate accounts), PTCE 95-60
(an exemption for transactions involving certain insurance company general
accounts) or PTCE 96-23 (an exemption for certain transactions determined by an
in-house asset manager). In addition, a Plan fiduciary considering the purchase
of Trust Preferred Securities should be aware that the assets of the Trust may
be considered "plan assets" for ERISA purposes. In such event, the Property
Trustee, as well as any other persons exercising discretion with respect to the
Junior Subordinated Debentures, may become fiduciaries, parties in interest or
disqualified persons with respect to investing Plans. To avoid certain
prohibited transactions under ERISA and the Code that could thereby result, each
investing Plan, by purchasing the Trust Preferred Securities, will be deemed to
have directed the Trust to invest in the Junior Subordinated Debentures and to
have consented to the appointment of the Property Trustee. In this regard, it
should be noted that, in an Event of Default, the Company may not remove the
Property Trustee without the approval of a majority of the holders of the Trust
Preferred Securities.
A Plan fiduciary should consider whether the purchase of Trust Preferred
Securities could result in a delegation of fiduciary authority to the Property
Trustee, and, if so, whether such a delegation of authority is permissible under
the Plan's governing instrument or any investment management agreement with the
Plan. In making such determination, a Plan fiduciary should note that the
Property Trustee is a U.S. bank qualified to be an investment manager (within
the meaning of Section 3(38) of ERISA). Further, prior to an Event of Default
with respect to the Junior Subordinated Debentures, the Property Trustee will
have only limited custodial and ministerial authority with respect to Trust
assets.
THE SALE OF INVESTMENTS TO PLANS IS IN NO RESPECT A REPRESENTATION BY THE
TRUST, THE COMPANY, THE PROPERTY TRUSTEE, THE UNDERWRITERS OR ANY OTHER PERSON
ASSOCIATED WITH THE SALE OF THE TRUST PREFERRED SECURITIES THAT SUCH SECURITIES
MEET ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS
GENERALLY OR ANY PARTICULAR PLAN, OR THAT SUCH SECURITIES ARE OTHERWISE
APPROPRIATE FOR PLANS GENERALLY OR ANY PARTICULAR PLAN. ANY PURCHASER PROPOSING
TO ACQUIRE TRUST PREFERRED SECURITIES WITH ASSETS OF ANY PLAN SHOULD CONSULT
WITH ITS COUNSEL.
55
<PAGE> 56
UNDERWRITING
Legg Mason Wood Walker, Incorporated and Stifel, Nicolaus & Company,
Incorporated (the "Underwriters"), have agreed, subject to the terms and
conditions of an underwriting agreement (the "Underwriting Agreement") to be
entered into by the Underwriters, the Company and the Trust that the Company and
the Trust will sell to the Underwriters, and the Underwriters, severally and not
jointly, will purchase from the Trust, the number of Trust Preferred Securities
set forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
TRUST PREFERRED
UNDERWRITERS SECURITIES
------------ ---------------
<S> <C>
Legg Mason Wood Walker, Incorporated........................ 500,000
Stifel, Nicolaus & Company, Incorporated.................... 500,000
---------
Total............................................. 1,000,000
=========
</TABLE>
The Underwriters have committed to purchase and pay for all such Trust
Preferred Securities if any are purchased. The Underwriting Agreement provides
that, if an Underwriter defaults, the purchase commitments of the non-defaulting
Underwriter may be increased or the Underwriting Agreement terminated.
The Underwriters have advised the Company and the Trust that they propose
to offer the Trust Preferred Securities directly to the public initially 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 Trust
Preferred Security. The Underwriters may allow and such dealers may reallow a
concession not in excess of $0.25 per Trust Preferred Security to certain other
brokers and dealers. After the public offering, the public offering price,
concession and reallowance, and other selling terms may be changed by the
Underwriters. The Underwriting Agreement provides that the obligation of the
Underwriters to pay for and accept delivery of the Trust Preferred Securities is
subject to certain conditions, including delivery of certain legal opinions by
counsel for the Underwriters.
In view of the fact that the proceeds from the sale of the Trust Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation to the Underwriters for the Underwriters arranging the investment
therein of such proceeds an amount of $0.94 per Trust Preferred Security for the
accounts of the Underwriters. In addition, the Company has agreed to pay
one-half of the expenses incurred by the Underwriters in connection with the
Offering. The Company's portion of such expenses is estimated to be $100,000.
The Trust has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 150,000
Trust Preferred Securities at the public offering price set forth on the cover
page hereof less underwriting discounts. The Underwriters may exercise such
option to purchase additional Trust Preferred Securities solely for the purpose
of covering over-allotments, if any, incurred in the sale of the Trust Preferred
Securities.
To the extent that the Underwriters exercise their option to purchase
additional Trust Preferred Securities, the Trust will issue and sell to the
Company additional Common Securities and the Company will issue and sell to the
Trust Junior Subordinated Debentures in an aggregate principal amount equal to
the total aggregate Liquidation Amount of the additional Trust Preferred
Securities being purchased pursuant to the option and the additional Common
Securities.
The Trust Preferred Securities are new securities with no established
trading market. The Company has been advised by each Underwriter that it intends
to make a market in the Trust Preferred Securities, but it is not obligated to
do so and such market making may be interrupted or discontinued without notice.
No assurance can be given about the liquidity of the trading market for the
Trust Preferred Securities.
The Company and the Trust have agreed in the Underwriting Agreement that,
subject to certain conditions, prior to 180 days following the Issue Date,
neither will, directly or indirectly, issue, sell, offer or agree to sell, grant
any option for the sale of, or otherwise dispose of, Trust Preferred Securities,
any securities convertible into, exchangeable or exercisable for Trust Preferred
Securities or the Junior Subordinated
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<PAGE> 57
Debentures or any debt securities substantially similar to the Junior
Subordinated Debentures or any equity security substantially similar to the
Trust Preferred Securities, except with the prior written consent of Legg Mason
Wood Walker, Incorporated, and except for any disposal of the Junior
Subordinated Debentures following a liquidation of the Trust.
The Company and the Trust have agreed to indemnify the Underwriters, their
respective controlling persons and certain other persons against certain
liabilities, including liabilities under the Securities Act, and will contribute
to payments the Underwriters may be required to make in respect thereof.
The Underwriters have advised the Trust that they do not intend to confirm
sales to any account over which they exercise discretionary authority.
In order to facilitate the offering of the Trust Preferred Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Trust Preferred Securities. Specifically, the
Underwriters may over-allot in connection with the offering, creating a short
position in the Trust Preferred Securities for their own account. In addition,
to cover over-allotments or to stabilize the price of the Trust Preferred
Securities, the Underwriters may bid for, and purchase, the Trust Preferred
Securities in the open market. Any of these activities may stabilize or maintain
the market price of the Trust Preferred Securities above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Andrews &
Kurth L.L.P., Houston, Texas, and for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP. Certain matters of Delaware law relating to the validity of
the Trust Preferred Securities will be passed upon on behalf of the Trust by
Andrews & Kurth L.L.P., special counsel to the Trust. Certain matters relating
to United States Federal income tax considerations will also be passed upon for
the Company by Andrews & Kurth L.L.P.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 of Sterling
Bancshares, Inc. and subsidiaries appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and incorporated by reference in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated by reference herein,
and have been so included and incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
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<PAGE> 59
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE TRUST OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN AFFAIRS OF THE COMPANY OR THE TRUST
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 4
Incorporation of Certain Documents by
Reference............................. 4
Summary................................. 5
Summary Consolidated Financial Data..... 9
Risk Factors............................ 11
Sterling Bancshares, Inc. .............. 17
Recent Developments..................... 18
Use of Proceeds......................... 19
Ratios of Earnings to Combined Fixed
Charges............................... 19
Accounting Treatment.................... 19
Capitalization.......................... 20
Pro Forma Consolidated Financial
Statements............................ 21
Sterling Bancshares Capital Trust I..... 25
Description of Trust Preferred
Securities............................ 26
Description of Junior Subordinated
Debentures............................ 38
Description of Guarantee................ 46
Relationship Among the Trust Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee.......... 48
Certain Federal Income Tax
Consequences.......................... 50
ERISA Considerations.................... 55
Underwriting............................ 56
Legal Matters........................... 57
Experts................................. 57
</TABLE>
======================================================
======================================================
1,000,000 TRUST PREFERRED SECURITIES
STERLING BANCSHARES
CAPITAL TRUST I
9.28% CUMULATIVE TRUST PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
[STERLING BANCSHARES LOGO]
-------------------------
PROSPECTUS
-------------------------
LEGG MASON WOOD WALKER
INCORPORATED
STIFEL, NICOLAUS & COMPANY
INCORPORATED
JUNE 4, 1997
======================================================
