<PAGE> 1
FILED PURSUANT TO
RULE 424(B)(1)
REGISTRATION NO. 333-68453
<TABLE>
<S> <C> <C>
(LOGO) $11,000,000
BLUS(SM)
HAMILTON CAPITAL TRUST I
9.75% BENEFICIAL UNSECURED SECURITIES, SERIES A
(LIQUIDATION AMOUNT $10 PER CAPITAL SECURITY)
</TABLE>
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
HAMILTON BANCORP INC.
<TABLE>
<S> <C> <C>
- ------------------------------------
We urge you to carefully
read the "Risk Factors"
section of this
Prospectus beginning on
page 14, where we
describe specific risks
associated with the
securities offered by
this Prospectus, along
with the other
information contained in
this Prospectus, before
you make your investment
decision.
These securities are not
deposits or other
obligations of a bank and
are not insured by the
Federal Deposit Insurance
Corporation or any other
governmental agency.
- ------------------------------------
</TABLE>
THE TRUST
- - The Trust is offering capital securities representing preferred beneficial
interests in the assets of the Trust.
- - The Trust will issue common securities representing common beneficial
interests in the assets of the Trust to Hamilton Bancorp Inc.
- - The sole assets of the Trust are the 9.75% junior subordinated deferrable
interest debentures of Hamilton Bancorp Inc., which mature on December 31,
2028.
- - Distributions on the capital securities will be paid quarterly on March 31,
June 30, September 30 and December 31 of each year commencing on March 31,
1999.
The capital securities have been approved for quotation on the Nasdaq National
Market under the trading symbol "HABKP."
THE OFFERING
<TABLE>
<CAPTION>
PER SECURITY TOTAL
------------ -----
<S> <C> <C>
Public price(1).............................. $10.00 $11,000,000
Underwriting discounts....................... (2) (2)
Proceeds to the Trust(3)..................... $10.00 $11,000,000
</TABLE>
- -------------------------
(1) Plus accrued distributions, if any, from December 28, 1998 to the date of
delivery.
(2) Because the proceeds of the sale of the securities will be used by the Trust
to purchase the 9.75% junior subordinated deferrable interest debentures of
Hamilton Bancorp Inc., Hamilton Bancorp Inc. will pay the Underwriters as
compensation $0.35 per security, or $385,000 in the aggregate (or $442,750
in the aggregate if the over-allotment option is exercised in full).
(3) All expenses of this offering will be paid by Hamilton Bancorp Inc.
BLUS(SM) is a service mark of Canadian Imperial Bank of Commerce.
The Trust has granted the Underwriters of the offering a 30-day option to
purchase up to 165,000 additional capital 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 proceeds to the Trust will be
$12,650,000.
The Underwriters are severally underwriting the capital securities being
offered.
The capital securities should be delivered on or about December 28, 1998
through the book-entry facilities of The Depository Trust Company in New York,
New York.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CIBC OPPENHEIMER RAYMOND JAMES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS DECEMBER 22, 1998
<PAGE> 2
WHERE YOU CAN FIND MORE INFORMATION
Hamilton Bancorp Inc. (the "Corporation," "we," "us" or "our") is subject
to the information requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and accordingly, files annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). You may read and copy any document that
the Corporation files at the Commission's public reference room facility located
at 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. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference room. The Commission maintains an Internet
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers (including the Corporation)
that file documents with the Commission electronically through the Commission's
electronic data gathering, analysis and retrieval system ("EDGAR"). The
Corporation's common stock is traded on the Nasdaq National Market under the
symbol "HABK." The Corporation's reports, proxy and information statements may
also be reviewed at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington D.C. 20006.
This Prospectus is part of a registration statement filed by the Trust and
the Corporation with the Commission. Because the rules and regulations of the
Commission allow the Trust and the Corporation to omit certain portions of the
registration statement from this Prospectus, this Prospectus does not contain
all the information set forth in such registration statement. You should review
the registration statement and the exhibits filed with such registration
statement for further information regarding the Corporation, the Trust and the
Series A Capital Securities being sold pursuant to this Prospectus. The
registration statement and its exhibits may be inspected at the public reference
facilities of the Commission at the addresses set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows the Corporation to "incorporate by reference" the
information the Corporation filed with it, which means that the Corporation can
disclose important information to you by referring to those documents. The
information incorporated by reference is considered to be part of this
Prospectus, and later information that the Corporation files with the Commission
will automatically update and supersede this information. The Corporation
incorporates by reference the documents listed below and any future filings made
with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, until the Trust sells all of the Series A
Capital Securities:
- Annual Report on Form 10-K for the year ended December 31, 1997.
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998.
2
<PAGE> 3
You may request a copy of these filings, at no cost, by writing or telephoning
the Corporation at the following address: 3750 N.W. 87th Avenue, Miami, Florida
33178, Attention: Corporate Secretary, telephone (305) 717-5608.
You should rely only on the information incorporated by reference or
provided in this Prospectus or any supplement. The Corporation has not
authorized anyone else to provide you with different information. Neither the
Corporation nor the Trust is making an offer of the Series A Capital Securities
in any state where the offer is not permitted. You should not assume that the
information in this Prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
FORWARD-LOOKING STATEMENTS
Information contained (or incorporated by reference) in this Prospectus may
constitute "forward-looking statements." Statements used (or incorporated by
reference) in this Prospectus which use words such as "believes," "expects,"
"may," "will," "should," "projected," "contemplates" or "anticipates" or the
negative of such terms or other variations may constitute forward-looking
statements. Forward-looking statements are inherently uncertain, and there is no
assurance that such forward-looking statements will be accurate. Such
forward-looking statements include, without limitation, the Corporation's
expectations and estimates as to its business operations, including growth in
net interest income and net income, as well as its expectations and beliefs as
to the projected costs and anticipated timetable to address Year 2000 compliance
issues, the adequacy of its plans to address such issues and the impact on the
Corporation's operations in the event that certain or all of its plans or the
plans of third parties in respect of Year 2000 compliance issues prove to be
inadequate. The statements in the "Risk Factors" section contained in this
Prospectus, as well as other statements described elsewhere herein or
incorporated by reference in the Prospectus, 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 United States
economy, as well as the economic and political conditions of the countries in
which the Corporation conducts business operations, could also cause actual
results to vary materially from the future results covered in such
forward-looking statements.
3
<PAGE> 4
SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial information appearing elsewhere in this Prospectus.
For purposes of this Prospectus, the term "Corporation" includes Hamilton
Bancorp Inc. and its 99.8%-owned subsidiary, Hamilton Bank, N.A.
HAMILTON BANCORP INC.
The Corporation is a bank holding company that conducts its operations
through its 99.8 percent owned subsidiary, Hamilton Bank, N.A. (the "Bank"). The
Corporation provides global trade finance, with particular emphasis on trade
with and between South America, Central America, the Caribbean (collectively,
the "Region") and the United States or otherwise involving the Region. We
believe that trade finance provides the Corporation with the opportunity for
profitable growth, together with moderate credit risk, and that the Bank is the
only domestic financial institution headquartered in the State of Florida
focusing primarily on financing foreign trade. The Corporation has been able to
take advantage of substantial growth in foreign trade through its relationships
with approximately 500 correspondent banks and with importers and exporters in
the United States and the Region, as well as its location in South Florida,
which is becoming a focal point for trade in the Region. Much of this growth has
been associated with the adoption of economic stabilization policies in the
major countries of the Region.
The Corporation's lending activities are funded primarily through domestic
consumer and commercial deposits gathered through a network of eight branches
located in Florida and Puerto Rico, as well as deposits received from
correspondent banks, corporate customers and private banking customers within
the Region. The Corporation opened its branch in San Juan, Puerto Rico in March
1998. The Corporation's branches are strategically located in markets where it
believes that there is both a concentration of retail deposits and foreign trade
activity. The Corporation also participates in various community lending
activities. Under several United States and Florida laws and regulations, the
Bank is considered a minority-owned bank and is able to participate in certain
minority programs involving both deposits and loans.
The Corporation has experienced asset growth and increases in earnings
since it acquired the Bank in 1988, and has also achieved a high level of
profitability. The Corporation's average total loans increased from $370.6
million for the year ended December 31, 1995 to $737.9 million for the year
ended December 31, 1997. During the nine months ended September 30, 1998,
average total loans increased to $1.1 billion from $670.0 million for the
comparable period of 1997. Additionally, net income increased from $8.0 million
for the year ended December 31, 1995 to $15.9 million for the year ended
December 31, 1997. For the nine months ended September 30, 1998, net income
increased to $16.1 million, or $1.56 per share on a diluted basis, from $11.2
million, or $1.27 per share on a diluted basis, for the nine months ended
September 30, 1997. For the years ended December 31, 1996 and 1997, return on
average assets was 1.41% and 1.58%, respectively, and return on average total
equity was 24.29% and 20.05%, respectively. For the nine months ended September
30, 1998, return on average assets was 1.48% (annualized) and return on average
total equity was 19.84% (annualized). Along with its growth, the Corporation has
maintained strong credit quality. Net loan charge-offs as a
4
<PAGE> 5
percentage of average outstanding loans were 0.36% and 0.32% for the years ended
December 31, 1996 and 1997, respectively, and 0.63% for the nine months ended
September 30, 1998. At December 31, 1997 and September 30, 1998, non-performing
assets represented 0.64% and 0.53% of total loans, respectively. See "Selected
Consolidated Financial Data."
The Corporation was incorporated in the state of Florida in 1988. The
Corporation's principal offices are located at 3750 N.W. 87th Avenue, Miami,
Florida 33178, and its telephone number is (305) 717-5500.
RECENT DEVELOPMENTS
Effective December 1, 1998, the Corporation appointed John M.R. Jacobs to
serve as its Senior Vice President-Finance. Mr. Jacobs succeeds Maria
Ferrer-Diaz as the Corporation's principal financial officer. Ms. Diaz, who is
leaving for personal reasons, will continue to work part time for the
Corporation. Mr. Jacobs has over 23 years experience in the banking industry.
Mr. Jacobs established and managed trade finance divisions for leading
international banks in New York from 1979 to 1992 until he was appointed Chief
Financial Officer of Amerop Sugar Corporation. Mr. Jacobs joined the Bank in
1997 as a Vice President responsible for the Bank's Commodities and
Correspondent Banking and was elected Senior Vice President of the Bank in March
1998. Mr. Jacobs received a Bachelor's Degree in Politics and Economics from the
University of Southampton, England and a Masters of Business Administration in
Finance and International Business from New York University.
HAMILTON CAPITAL TRUST I
Hamilton Capital Trust I (the "Trust") is a statutory business trust formed
by the Corporation under Delaware law pursuant to a declaration of trust
executed by the Corporation, as depositor for the Trust, and certain appointed
trustees and the filing of a certificate of trust on December 3, 1998 with the
Delaware Secretary of State. The Corporation and the trustees will enter into an
amended and restated declaration of trust (the "Trust Agreement"), in the form
filed as an exhibit to the registration statement relating to this offering of
9.75% Beneficial Unsecured Securities, Series A (the "Series A Capital
Securities") of the Trust, which will state the terms and conditions for the
Trust to issue and sell its Series A Capital Securities, as well as its common
securities (the "Series A Common Securities").
The Trust exists solely to:
- issue and sell the Series A Capital Securities and the Series A Common
Securities;
- use the proceeds from the sale of the Series A Capital Securities and
Series A Common Securities to purchase subordinated debentures of the
Corporation, which will be the only assets of the Trust;
- maintain its status as an entity that is not an association taxable as a
corporation for federal income tax purposes; and
- engage in other activities that are necessary or incidental to these
purposes.
5
<PAGE> 6
The Corporation will purchase all of the Series A Common Securities of the
Trust. The Series A Common Securities will represent an aggregate liquidation
amount equal to at least 3% of the Trust's total capitalization. The Series A
Capital Securities will represent the remaining 97% of the total capitalization
of the Trust. The Series A Common Securities will have terms substantially
identical to, and will rank equal in priority of payment with, the Series A
Capital Securities. However, if the Corporation defaults on the subordinated
debentures, cash distributions and liquidation, redemption and other amounts
payable with respect to the Series A Common Securities will be subordinate to
the Series A Capital Securities in priority of payment.
The Trust has a term of approximately 55 years, but may be dissolved
earlier as provided in the Trust Agreement (as defined herein). The Corporation
has appointed the following trustees (collectively, the "Trustees") to conduct
the Trust's business and affairs:
- Wilmington Trust Company ("Property Trustee");
- Wilmington Trust Company ("Delaware Trustee"); and
- Three individuals who are employees and officers of the Corporation
("Administrative Trustees").
As the sole holder of the Series A Common Securities, the Corporation can
replace or remove any of the Trustees. However, if an event of default occurs
and is continuing under the Trust Agreement, the Property Trustee and the
Delaware Trustee can only be replaced and removed by the holders of at least a
majority in aggregate liquidation amount of the Series A Capital Securities.
Only the Corporation, as owner of all of the Trust's Series A Common Securities,
can remove or replace the Administrative Trustees. The duties and obligations of
each Trustee are governed by the Trust Agreement.
The Corporation will pay all fees and expenses related to the Trust and the
offering of the Series A Capital Securities, as well as all of the ongoing costs
and expenses of the Trust, except that the Corporation will not be responsible
for the Trust's obligations under the Series A Capital Securities.
The Trust has no separate financial statements. The statements would not be
material to you because the Trust has no independent operations. The Trust
exists solely for the reasons summarized above. The Series A Capital Securities
will be fully and unconditionally guaranteed by the Corporation to the extent
described later in this Prospectus.
6
<PAGE> 7
THE OFFERING
Securities Offered........... 1,100,000 Series A Capital Securities are being
offered for sale.
Offering Price............... The offering price is $10 for each Series A
Capital Security, plus accumulated
distributions, if any, from December 28, 1998.
Use of Proceeds.............. The Trust will use all of the proceeds from the
sale of the Series A Capital Securities in this
offering and the sale of the Series A Common
Securities to the Corporation to purchase the
9.75% Junior Subordinated Deferrable Interest
Debentures, Series A (the "Series A Subordinated
Debentures") of the Corporation. The Corporation
currently intends to use the net proceeds from
the sale of the Series A Subordinated
Debentures, which are estimated to be $10.2
million ($11.8 million if the over-allotment
option granted to the Underwriters is exercised
in full) net of estimated commissions and other
estimated offering expenses, to invest in the
Bank to increase its capital level. Initially,
the net proceeds will be invested in short-term
investment grade financial securities. See "Use
of Proceeds."
Distributions................ As a holder of Series A Capital Securities, you
will be entitled to receive quarterly cash
distributions (the "Distributions") accumulating
from December 28, 1998 at the annual rate of
9.75% of the liquidation amount of $10 per
Series A Capital Security. These distributions
will be payable on March 31, June 30, September
30 and December 31 of each year, beginning on
March 31, 1999. The amount of each distribution
payable with respect to your Series A Capital
Securities will include amounts accrued to, but
excluding, the date the distribution is due.
Extension Periods............ So long as no event of default under the Series
A Subordinated Debentures has occurred and is
continuing, the Corporation has the right, at
one or more times, to defer interest payments on
the Series A Subordinated Debentures for up to
20 consecutive quarters, but not beyond the
stated maturity date of the Series A
Subordinated Debentures (an "Extension Period").
If the Corporation elects to defer interest
payments on the Series A Subordinated
Debentures, the Trust will also defer
distributions on your Series A Capital
Securities. During this deferral period, you
will still accumulate distributions at an annual
rate of 9.75% of the liquidation amount of $10
per Series A Capital Security, plus you will
accumulate additional distribu-
7
<PAGE> 8
tions at the same rate, compounded quarterly, on
any unpaid distributions (to the extent
permitted by law). You will also be required to
continue to accrue interest income and include
it in your gross income for U.S. federal income
tax purposes, even if you are a cash basis
taxpayer. See "Description of Series A Capital
Securities -- Option to Defer Interest
Payments," "Description of Series A Subordinated
Debentures -- Option to Extend Interest Payment
Date" and "Certain Federal Income Tax
Consequences -- Original Issue Discount."
Guarantee.................... The Corporation has, through the Series A
Guarantee (as defined in this paragraph), the
Trust Agreement, the Series A Subordinated
Debentures and the Indenture governing the
Series A Subordinated Debentures, taken
together, fully, irrevocably and unconditionally
guaranteed, on a subordinated basis, the payment
of distributions and all other amounts under the
Series A Capital Securities. The Series A
Guarantee of the Corporation (the "Series A
Guarantee") guarantees the payment of
distributions and payments on liquidation of the
Trust or redemption of the Series A Capital
Securities, but only in each case to the extent
of funds held by the Trust. If the Corporation
does not make a payment on the Series A
Subordinated Debentures held by the Trust, the
Trust will not have sufficient funds to make
payments on the Series A Capital Securities. The
Series A Guarantee does not cover the payment of
distributions when the Trust has insufficient
funds to pay such distributions. See
"Relationship Among the Series A Capital
Securities, the Series A Subordinated Debentures
and the Series A Guarantee -- Full and
Unconditional Guarantee."
Ranking...................... The Series A Capital Securities will rank equal
in priority, and payments thereon will be made
pro rata, with the Series A Common Securities,
except as described under "Description of Series
A Capital Securities -- Subordination of Series
A Common Securities." The Series A Subordinated
Debentures will constitute unsecured obligations
of the Corporation and will rank subordinate and
junior in right of payment to all Senior
Indebtedness (as defined in "Description of the
Series A Subordinated
Debentures -- Subordination"), to the extent and
in the manner set forth in the Indenture. See
"Description of Series A Subordinated
Debentures." Additionally, the Series A
Subordinated Debentures will rank equal in
priority with all other subordinated debentures,
if any, issued by the Corporation, which may be
issued and sold to other trusts established by
the Corporation, in each case similar to the
Trust. The
8
<PAGE> 9
Series A Guarantee will rank equal in priority
with all other guarantees, if any, issued by the
Corporation with respect to capital securities,
if any, issued by other trusts established by
the Corporation. The Series A Guarantee will
constitute an unsecured obligation of the
Corporation 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
Series A Guarantee. See "Description of Series A
Guarantee." In addition, because the Corporation
is a bank holding company, the Series A
Subordinated Debentures and the Series A
Guarantee will be effectively subordinated to
all existing and future liabilities of the
Corporation's subsidiaries, including the Bank's
deposit liabilities. See "Description of Series
A Subordinated Debentures -- Subordination."
Redemption................... The Trust must redeem the Series A Capital
Securities when the Series A Subordinated
Debentures are paid at maturity on or after
December 31, 2028, or upon earlier redemption.
Subject to the Corporation having received any
required approval of regulatory agencies, the
Corporation has the option at any time on or
after December 31, 2008 to redeem the Series A
Subordinated Debentures, in whole or in part.
The Corporation has the option at any time prior
to December 31, 2008 to redeem the Series A
Subordinated Debentures, in whole but not in
part, if certain regulatory or tax events occur
or if there is a change in the Investment
Company Act of 1940 that requires the Trust to
register under that law. Upon any redemption,
the redemption price will be equal to the
liquidation amount of $10 per Series A Capital
Security plus any unpaid distributions on your
Series A Capital Securities to the date of
redemption. See "Description of Series A Capital
Securities -- Redemption" and "Description of
Series A Subordinated Debentures -- Special
Event Prepayment."
Book-entry................... The Series A Capital Securities will be
represented by one or more global securities
that will be deposited with and registered in
the name of The Depository Trust Company, New
York, New York ("DTC") or its nominee. This
means that you will not receive a certificate
for the Series A Capital Securities.
Absence of Market for the
Series A Capital
Securities................. The Series A Capital Securities will be a new
issue of securities for which there currently is
no market. The Series A Capital Securities have
been approved for quotation on the National
Market of the National Association of Securities
Dealers Automated Quotation
9
<PAGE> 10
system ("Nasdaq National Market") under the
symbol "HABKP." See "Underwriting." Although the
Underwriters have informed the Trust and the
Corporation that they currently intend to make a
market in the Series A Capital Securities, the
Underwriters are not obligated to do so, and may
discontinue any market making activities at any
time without notice. Accordingly, we cannot
provide you with assurance as to the development
or liquidity of any market for your Series A
Capital Securities.
Limited Voting Rights........ You will have no voting rights with respect to
the Series A Capital Securities, except in
limited circumstances. See "Description of
Series A Capital Securities -- Voting Rights;
Amendment of the Trust Agreement."
ERISA Considerations......... For a discussion of certain prohibited
transactions and fiduciary duty issues
pertaining to purchases by or on behalf of an
employee benefit plan, see "ERISA
Considerations."
Risk Factors................. An investment in the Series A Capital Securities
involves a number of risks. Some of these risks
relate to the Series A Capital Securities and
other risks relate to the Corporation. We urge
you to carefully consider the information
contained in "Risk Factors" set forth in this
Prospectus, as well as the other information
contained in this Prospectus and in the
documents which are incorporated by reference in
this Prospectus, before you buy any Series A
Capital Securities. See "Risk Factors."
10
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
The following presents selected consolidated financial data of the
Corporation and its subsidiaries as of, and for the years ended, December 31,
1997, 1996, 1995, 1994 and 1993. The following financial data has been derived
from the Corporation's audited consolidated financial statements. The following
also presents selected consolidated financial data as of, and for the nine
months ended, September 30, 1998 and 1997, which has been derived from the
Corporation's unaudited consolidated quarterly financial statements and which we
believe includes all adjustments (consisting only of normal, recurring
adjustments) considered necessary for a fair presentation. The "as adjusted"
financial information presented below gives effect to the sale by the
Corporation of the Series A Subordinated Debentures in connection with this
offering (without giving effect to the Underwriters' over-allotment option). The
selected consolidated financial data as of and for the nine months ended
September 30, 1998 and 1997 and as of and for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 should be read in conjunction with the Corporation's
consolidated financial statements and related notes included in the
Corporation's annual report on Form 10-K for the year ended December 31, 1997,
and quarterly reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998, and September 30, 1998, which are incorporated herein by reference.
The selected consolidated financial data for the nine months ended September 30,
1998 is not necessarily indicative of the operating results to be expected for
the year or any other interim period.
<TABLE>
<CAPTION>
AS OF OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income............ $ 38,871 $ 27,406 $ 38,962 $ 27,250 $ 23,885 $ 17,201 $ 13,209
Provision for credit losses.... 7,121 4,989 6,980 3,040 2,450 2,875 2,550
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for credit
losses....................... 31,750 22,417 31,982 24,210 21,435 14,326 10,659
Trade finance fees and
commissions.................. 10,136 9,055 12,768 9,325 9,035 7,422 6,572
Structuring and syndication
fees......................... 1,306 1,372 2,535 138 419 1,410 1,634
Customer service fees.......... 443 567 713 1,252 890 1,044 943
Net (loss) gain on sale of
securities available for
sale......................... (34) 109 108 -- 3 (168) 11
Other income................... 1,143 215 318 270 342 322 403
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-interest income.... 12,994 11,318 16,442 10,985 10,689 10,030 9,563
----------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses............. 19,132 16,323 23,423 19,630 18,949 14,946 13,014
Income before provision for
income taxes................. 25,612 17,412 25,001 15,565 13,175 9,410 7,208
Provision for income taxes..... 9,468 6,219 9,098 5,855 5,172 3,721 2,761
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income..................... $ 16,144 $ 11,193 $ 15,903 $ 9,710 $ 8,003 $ 5,689 $ 4,447
=========== ========== ========== ========== ========== ========== ==========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
AS OF OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE DATA:
Net income per common share:
Basic........................ $1.62 $1.32 $1.81 $1.87 $1.54 $1.09 $0.85
Diluted...................... $1.56 $1.27 $1.73 $1.79 $1.47 $1.05 $0.82
Average common shares
outstanding:
Basic........................ 9,960,679 8,462,114 8,806,379 5,205,030 5,205,030 5,205,030 5,205,030
Diluted...................... 10,336,199 8,833,270 9,173,680 5,430,030 5,430,030 5,430,030 5,430,030
Book value per common share.... $11.54 $9.20 $10.00 $8.07 $6.41 $5.06 $3.10
AVERAGE BALANCE SHEET DATA:
Total assets................... $ 1,455,622 $ 933,023 $1,007,846 $ 687,990 $ 534,726 $ 391,606 $ 276,825
Total loans.................... 1,135,602 669,902 737,921 485,758 370,568 270,798 190,364
Total deposits................. 1,247,163 782,518 842,117 574,388 444,332 317,176 222,397
Stockholders' equity........... 108,482 68,760 79,311 39,969 32,358 22,195 15,267
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets................................................ $1,663,085 $1,674,085
Loans -- net................................................ 1,202,013 1,202,013
Investment securities....................................... 84,825 84,825
Total deposits.............................................. 1,466,328 1,466,328
Other borrowings............................................ 6,116 17,116
Total stockholders' equity.................................. 116,022 116,022
Book value per common share................................. $11.54 $11.54
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR
THE NINE
MONTHS ENDED AS OF OR FOR THE YEAR
SEPTEMBER 30, ENDED DECEMBER 31,
-------------- -----------------------------------------
1998 1997 1997 1996 1995 1994 1993
----- ----- ----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Net interest spread........................ 3.20% 3.58% 3.53% 3.85% 4.20% 4.33% 4.76%
Net interest margin........................ 3.89 4.32 4.28 4.52 4.94 5.06 5.48
Return on average equity(1)................ 19.84 21.70 20.05 24.29 24.73 25.63 29.13
Return on average assets(1)................ 1.48 1.60 1.58 1.41 1.50 1.45 1.61
Efficiency ratio(2)........................ 36.89 42.15 42.28 51.31 54.68 54.89 57.15
Earnings to fixed charges(3):
Excluding interest on deposits........... 30.84x 35.34x 34.61x 44.32x 40.64x 35.19x 28.07x
Including interest on deposits........... 1.50x 1.57x 1.56x 1.52x 1.55x 1.78x 2.02x
</TABLE>
(footnotes are on the following page)
12
<PAGE> 13
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS
ENDED AS OF OR FOR THE YEAR
SEPTEMBER 30, ENDED DECEMBER 31,
---------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET QUALITY RATIOS:
Allowance for credit losses as a
percentage of total loans......... 0.85% 1.06% 1.07% 1.07% 1.05% 1.31% 1.66%
Non-performing assets as a
percentage of total loans......... 0.53 0.58 0.64 0.91 1.07 0.59 1.33
Allowance for credit losses as a
percentage of non-performing
assets............................ 159.57 136.69 166.03 117.97 98.56 221.13 125.00
Net loan charge-offs as a percentage
of average outstanding loans...... 0.63 0.23 0.32 0.36 0.58 0.74 0.50
CAPITAL RATIOS:
Leverage capital ratio.............. 7.36% 8.54% 7.88% 5.80% 5.68% 5.48% 5.21%
Tier 1 risk based capital........... 11.29 13.28 12.43 10.20 9.98 10.30 9.35
Total risk based capital............ 12.30 14.53 13.78 11.50 10.92 11.47 10.60
Average equity to average assets.... 7.45 7.37 7.87 5.81 6.05 5.67 5.53
</TABLE>
- -------------------------
(1) Amounts for the nine months ended September 30, 1998 and 1997 are presented
on an annualized basis.
(2) Amounts reflect operating expenses as a percentage of net interest income
plus non-interest income.
(3) For purposes of computing the ratios of earnings to fixed charges, earnings
represent net income from continuing operations plus total taxes based on
income and fixed charges. Fixed charges, excluding interest on deposits,
include interest expense (other than on deposits), one-third (the proportion
deemed representative of the interest factor) of rents, net of income from
subleases and capitalized interest. Fixed charges, including interest on
deposits, include all interest expense, one-third (the proportion deemed
representative of the interest factor) of rents, net of income from
subleases, and capitalized interest.
13
<PAGE> 14
RISK FACTORS
An investment in the Series A Capital Securities involves a number of
risks. Some of these risks relate to the Series A Capital Securities and others
relate to the Corporation. We urge you to carefully consider the following
information, together with the other information in this Prospectus and in the
documents that are incorporated by reference in this Prospectus before you buy
any Series A Capital Securities.
RISKS RELATED TO THE SERIES A CAPITAL SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE SERIES A GUARANTEE AND THE SERIES
A SUBORDINATED DEBENTURES
The obligations of the Corporation under the Series A Guarantee issued by
the Corporation for your benefit and under the Series A Subordinated Debentures
are unsecured and rank subordinate and junior in right of payment to all of the
Corporation's Senior Indebtedness. As of September 30, 1998, the Corporation had
no Senior Indebtedness.
The Corporation is a bank holding company. Therefore, its right to
participate in any distribution of assets of any subsidiary (including the Bank)
upon the subsidiary's liquidation or reorganization or otherwise (and your
ability 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 Corporation may itself be recognized as a
creditor of that subsidiary. At September 30, 1998, the Corporation's sole
subsidiary, the Bank, had total liabilities, including deposits, of $1.5
billion. Accordingly, because the Series A Subordinated Debentures effectively
will be subordinated to all existing and future liabilities of the Corporation's
subsidiaries, including the Bank's deposit liabilities, you should look only to
the assets of the Corporation, and not its subsidiaries, for payments on the
Series A Subordinated Debentures. The Series A Guarantee will constitute an
unsecured obligation of the Corporation and will rank subordinate and junior in
right of payment to all Senior Indebtedness in the same manner as the Series A
Subordinated Debentures. There is no limit to the Corporation's or the Bank's
ability to incur additional indebtedness, including indebtedness that ranks
senior in priority of payment. See "Description of Series A Guarantee -- Status
of the Series A Guarantee" and "Description of Series A Subordinated
Debentures -- General" and "-- Subordination."
The ability of the Trust to make payments with respect to the Series A
Capital Securities is solely dependent upon the Corporation making payments on
the Series A Subordinated Debentures as and when required. If the Corporation
defaults on its obligations to pay principal, premium or interest on the Series
A Subordinated Debentures, the Trust will not have sufficient funds to make
distributions or to pay the liquidation amount of $10 per Series A Capital
Security. As a result, you will not be able to rely upon the Series A Guarantee
for payment of these amounts. Instead, you or the Property Trustee (under
certain circumstances discussed further on page 59) may enforce the rights of
the Trust under the Series A Subordinated Debentures against the Corporation.
14
<PAGE> 15
LIMITATIONS ON SOURCE OF FUNDS
The Corporation is a bank holding company regulated by the Board of
Governors of the Federal Reserve System (the "FRB"), and almost all of the
operating assets of the Corporation are owned by the Bank. The Corporation
relies primarily on dividends from the Bank to meet its corporate expenses and
will rely on such dividends to satisfy its obligations for payment of principal
and interest on its outstanding debt obligations. Dividend payments from the
Bank are subject to (1) regulatory limitations, generally based on current and
retained earnings, imposed by the various regulatory agencies with authority
over the Bank, (2) regulatory restrictions if such dividends would impair the
capital of the Bank and (3) the Bank's profitability, financial condition and
capital expenditures and other cash flow requirements. Bank regulatory agencies
have authority to prohibit the Bank or the Corporation from engaging in an
unsafe or unsound practice in conducting their business. The payment of
dividends, depending upon the financial condition of the Bank or the
Corporation, could be deemed to constitute such an unsafe or unsound practice.
The FRB has stated that, as a matter of prudent banking, a bank or bank holding
company should not maintain its existing rate of cash dividends on common stock
unless (1) the organization's net income available to common shareholders over
the past year has been sufficient to fund fully the dividends; and (2) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality and overall financial condition.
During the first nine months of 1998, the Bank paid $2.1 million in dividends to
the Corporation, which reflected 4.42% of the total amount of dividends the Bank
was permitted to pay as of September 30, 1998 under existing supervisory
practices. At September 30, 1998, approximately $47.2 million of retained
earnings of the Bank were available for dividend declaration without prior
regulatory approval. We cannot assure you that the Bank will be able to pay
dividends at past levels, or at all, in the future.
Under the Federal Deposit Insurance Act ("FDIA"), the Bank would be
prohibited from making capital distributions, including the payment of
dividends, if, after making any such distribution, the Bank would become
"undercapitalized" (as such term is used in the statute). Based on the Bank's
current financial conditions, the Corporation does not expect that this
provision will have any impact on its ability to obtain dividends from the Bank;
however, no assurance can be given that the Bank will be able to pay dividends
in the future.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
General
So long as no event of default under the Series A Subordinated Debentures
has occurred and is continuing, the Corporation has the right, at one or more
times, to defer interest payments on the Series A Subordinated Debentures for up
to 20 consecutive quarters, but not beyond the maturity date of such debentures.
As a consequence, the Trust will defer distributions on the Series A Capital
Securities during any such deferral period. However, during this deferral period
you would still accumulate distributions at the rate of 9.75% per annum, plus
you would accumulate additional distributions at the same rate of 9.75% per
annum compounded quarterly, on any unpaid distributions, to the extent permitted
by law. The Series A Capital Securities may trade at a price that does not fully
15
<PAGE> 16
reflect the value of accrued but unpaid interest on the Series A Subordinated
Debentures. During the pendency of any deferral period, the Corporation
generally will be prohibited from, among other things, declaring or paying
dividends on its capital stock or from making any payments on or repaying,
repurchasing or redeeming any indebtedness which ranks equal to or junior in
right of payment with the Series A Subordinated Debentures. See "Description of
Series A Capital Securities -- Distributions."
Prior to the termination of any deferral period, the Corporation may
further extend the deferral period, provided that an extension may not cause the
deferral period to exceed 20 consecutive quarterly periods or to extend beyond
the maturity date of the Series A Subordinated Debentures. Upon the termination
of any deferral period and the payment of all interest then accrued and unpaid
on the Series A Subordinated Debentures, the Corporation may elect to begin a
new deferral period, subject to certain requirements. There is no limitation on
the number of times that the Corporation may elect to begin a deferral period.
See "Description of Series A Capital Securities -- Distributions" and
"Description of Series A Subordinated Debentures -- Option to Extend Interest
Payment Date."
Tax Consequences
During a deferral period, you will be required to continue to accrue
interest income for U.S. federal income tax purposes in respect of your pro rata
share of the Series A Subordinated Debentures held by the Trust, even if you are
a cash basis taxpayer. As a result, you must include the accrued interest in
your gross income for U.S. federal income tax purposes prior to your receiving
cash. You will not receive the cash related to any accrued and unpaid interest
from the Trust if you sell your Series A Capital Securities before the
termination of any deferral period. Additionally, during a deferral period,
accrued and unpaid distributions that are included in your gross income will
increase your tax basis in the Series A Capital Securities. If you sell your
Series A Capital Securities during a deferral period, your increased tax basis
will decrease the amount of any capital gain or will create a capital loss or
increase the amount of any capital loss that you realize on the sale. A capital
loss, except in certain limited circumstances, cannot be applied to offset
ordinary income.
Market Price Consequences
The Corporation has no current intention of exercising its right to defer
interest payments on the Series A Subordinated Debentures. However, if it
exercises this right in the future, the market price of the Series A Capital
Securities is likely to be affected. If you sell your Series A Capital
Securities during an interest deferral period, you may not receive the same
return on your investment as someone else who continues to hold the Series A
Capital Securities.
REDEMPTION OF THE SERIES A CAPITAL SECURITIES UPON CERTAIN SPECIAL EVENTS
At any time certain special events occur (an Investment Company Event, a
Regulatory Capital Event or a Tax Event, in each case as defined under
"Description of Series A Subordinated Debentures -- Special Event Prepayment")
and are continuing, the Corporation has the right to redeem the Series A
Subordinated Debentures, in whole but
16
<PAGE> 17
not in part. The redemption of the Series A Subordinated Debentures will cause a
mandatory redemption of the Series A Capital Securities and the Series A Common
Securities within 90 days of such event at a redemption price equal to the
liquidation amount of $10 per Series A Capital Security plus any accrued and
unpaid distributions. The Corporation will have to obtain any required
regulatory approval before it redeems the Series A Subordinated Debentures under
these provisions. See "Description of Series A Capital
Securities -- Redemption."
You should be aware that the Internal Revenue Service ("IRS") has
disallowed a deduction for interest paid by Enron Corporation ("Enron") in 1993
and 1994 on securities issued by Enron that are similar to the Series A
Subordinated Debentures. Enron has filed a petition in the U.S. Tax Court
challenging the disallowance of its deductions. Although Enron's debt
obligations differ in certain respects from the Series A Subordinated
Debentures, the arguments of the IRS that interest on those obligations is not
deductible are not focused on those different terms and thus could apply to the
Series A Subordinated Debentures. Thus, if the Tax Court decides in favor of the
IRS in Enron's case, although its decision might be distinguishable from the
Series A Subordinated Debentures, it is also possible that its decision would
result in the receipt by the Corporation or the Trust of an opinion of counsel
that there is more than an insubstantial risk that interest payable on the
Series A Subordinated Debentures is not or will not be deductible. The receipt
of such an opinion would constitute a Tax Event, which would permit the
Corporation to cause a redemption of the Series A Capital Securities and the
Series A Common Securities. See "Description of Series A Capital Securities --
Redemption."
LIQUIDATION DISTRIBUTION OF SERIES A SUBORDINATED DEBENTURES
The Corporation has the right at any time to dissolve the Trust and, after
satisfaction of liabilities to creditors of the Trust as required by applicable
law, to cause the Series A Subordinated Debentures to be distributed to the
holders of Series A Capital Securities and Series A Common Securities
(collectively, the "Trust Securities"). The Corporation's ability to exercise
this right is subject to its receipt of (1) an opinion of counsel stating that a
distribution of the Series A Subordinated Debentures will not be a taxable event
to you, and (2) any required regulatory approval. As a result, and subject to
the terms of the Trust Agreement, the Trustees may distribute the Series A
Subordinated Debentures to the holders of Trust Securities. Although the
Corporation has agreed to use its best efforts to list the Series A Subordinated
Debentures on the Nasdaq National Market if this were to occur, no assurance can
be given that the Series A Subordinated Debentures will be approved for listing
or that a trading market will exist for the Series A Subordinated Debentures.
Because you may receive Series A Subordinated Debentures upon a liquidation of
the Trust and because distributions on the Series A Capital Securities are
limited to payments on the Series A Subordinated Debentures, you are also making
an investment decision with regard to the Series A Subordinated Debentures.
Accordingly, you should carefully review all the information regarding the
Series A Subordinated Debentures, as well as the Series A Capital Securities,
contained in this Prospectus. See "Description of Series A Subordinated
Debentures." Under current U.S. federal income tax law, a distribution of Series
A Subordinated Debentures following the dissolution of the Trust would not be a
taxable event to you. If the Trust is dissolved following an Investment Company
Event, a Regulatory Capital Event or a Tax Event, and you receive
17
<PAGE> 18
distributions of cash, such distributions would constitute a taxable event to
you. See "Certain Federal Income Tax Consequences -- Receipt of Series A
Subordinated Debentures or Cash Upon Liquidation of the Trust."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
We cannot predict the market prices for the Series A Capital Securities or
the Series A Subordinated Debentures that may be distributed if a dissolution of
the Trust were to occur. Accordingly, the Series A Capital Securities or the
Series A Subordinated Debentures may trade at a discount from the price that you
paid for the Series A Capital Securities.
RIGHTS UNDER THE SERIES A GUARANTEE
The Series A Guarantee will guarantee to you the following payments, to the
extent not paid by or on behalf of the Trust:
- any accumulated and unpaid distributions required to be paid on your
Series A Capital Securities, but only to the extent that the Trust has
funds on hand legally available for the payment of such distributions;
- the redemption price with respect to your Series A Capital Securities to
be redeemed, but only to the extent that the Trust has funds on hand
legally available for the redemption of such Series A Capital Securities
at such time; and
- upon a voluntary or involuntary dissolution, winding up or liquidation of
the Trust (unless the Series A Subordinated Debentures are distributed to
you), the lesser of (a) the aggregate liquidation amount of your Series A
Capital Securities and all accumulated and unpaid distributions on your
Series A Capital Securities to the date of payment, to the extent that
the Trust has funds on hand legally available for the payment of such
amounts at such time, and (b) the amount of assets of the Trust remaining
available for distribution to you at such time, after the satisfaction of
liabilities to creditors of the Trust as provided by applicable law.
The holders of at least a majority in liquidation amount of the Series A
Capital Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available with respect of the Series A
Guarantee or to direct the exercise of any trust power conferred under the
Series A Guarantee. As a holder of Series A Capital Securities, you may
institute a legal proceeding directly against the Corporation to enforce your
rights under the Series A Guarantee without first instituting a legal proceeding
against the Trust, the Series A Guarantee trustee or any other person or entity.
If the Corporation were to default on its obligation to pay amounts payable
under the Series A Subordinated Debentures, the Trust would not have sufficient
funds for the payment of distributions on the Series A Capital Securities or
amounts payable on redemption of the Series A Capital Securities in which case
you will not be able to rely upon the Series A Guarantee for payment of such
amounts. Instead, if an event of default shall have occurred and be continuing
under the indenture governing the Series A Subordinated Debentures and such
event is attributable to the failure of the Corporation to pay, among other
things, the principal of or interest on the Series A Subordinated Debentures on
the day on which such payment is due and payable, then you may institute
18
<PAGE> 19
a legal proceeding directly against the Corporation for enforcement of payment.
Notwithstanding any payments made to you by the Corporation in connection with
such an action, the Corporation shall remain obligated to pay the principal of
and interest on the Series A Subordinated Debentures, and it shall be subrogated
to your rights with respect to payments on the Series A Capital Securities to
the extent of any payments made by the Corporation to you in connection with
your actions taken against the Corporation. Except as described herein, you will
not be able to exercise directly any other remedy available to holders of Series
A Subordinated Debentures or to assert directly any other right in respect of
the Series A Subordinated Debentures. See "Description of Series A Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Series A Capital
Securities," "-- Debenture Events of Default" and "Description of Series A
Guarantee." The Trust Agreement will provide that each holder of Series A
Capital Securities by acceptance of such securities agrees to the provisions of
the Indenture.
LIMITED VOTING RIGHTS
As a holder of Series A Capital Securities, you will have limited voting
rights. These voting rights will relate only to the modification of the Series A
Capital Securities and the exercise of the Trust's rights as a holder of the
Series A Subordinated Debentures. In general, only the Corporation can replace
or remove any of the Trustees. However, if an event of default under the Trust
Agreement is continuing, holders of at least a majority in aggregate liquidation
amount of the Series A Capital Securities may replace the Property Trustee and
the Delaware Trustee. The Property Trustee, the Administrative Trustees and the
Corporation may amend the Trust Agreement without your consent in order to
ensure that the Trust will not be classified as an association taxable as a
corporation or to enable the Trust to qualify as a grantor trust, in each case
for federal income tax purposes, or to ensure that the Trust will not be
required to register as an "investment company" under the Investment Company Act
of 1940, as amended, even if such action adversely affects your interests. You
will have no voting rights with respect to any matters submitted to a vote of
the stockholders of the Corporation. See "Description of Series A Capital
Securities -- Voting Rights; Amendment of the Trust Agreement" and "-- Removal
of Trustees."
TRADING CHARACTERISTICS OF THE SERIES A CAPITAL SECURITIES
The Series A Capital Securities have been approved for quotation on the
Nasdaq National Market. Although the Underwriters of the offering of Series A
Capital Securities have indicated that they intend to make a market in the
Series A Capital Securities, they are not obligated to do so and may discontinue
any such market-making activities at any time without notice. We cannot give you
any assurance as to the liquidity of the trading market for the Series A Capital
Securities.
The Series A Capital Securities may trade at prices that do not fully
reflect the value of accrued and unpaid interest on the underlying Series A
Subordinated Debentures. See "Certain Federal Income Tax Consequences" for a
discussion of the U.S. federal income tax consequences that may result from a
taxable disposition of your Series A Capital Securities.
19
<PAGE> 20
RISKS RELATED TO THE CORPORATION
ECONOMIC CONDITIONS
Recently there have been serious economic downturns for some countries in
the Region, including Brazil, and there can be no assurance that widespread
economic difficulties will not be experienced by countries in the Region at some
time in the near future. Economic downturns, coupled with political instability
and economic disruptions in other parts of the world, including Russia and Asia,
have affected, and may continue to affect, investor confidence in the Region and
may result in a reduction of trade in and with the Region that would adversely
affect the Corporation's business prospects, financial condition and results of
operations. During the 1980s, many of the countries in the Region experienced
severe economic difficulties, including periods of slow or negative growth,
large government budget deficits, high inflation, currency devaluations,
government influence over the private sector, nationalization and expropriation
of assets, vulnerability to weakness in world prices for commodity exports
(particularly in smaller countries), large foreign indebtedness on the part of
their governments, and exchange controls and unavailability of foreign exchange,
including United States dollars. As a result, many governments and public and
private institutions in the Region were unable to make interest and principal
payments on their external debt during this deferral period. If this were to
occur again, and the Corporation's customers did not make payments on amounts
owed to the Corporation, the Corporation's ability to make payments on the
Series A Subordinated Debentures and the Trust's ability to make distributions
on the Series A Capital Securities would be adversely affected.
POLITICAL INSTABILITY
Although democracy has largely prevailed in the Region since the early
1990s, a number of countries in the Region have also experienced popular unrest,
internal insurgencies, terrorist activities, hostilities with neighboring
countries, drug trafficking and authoritarian military governments. Some of
these conditions, such as drug trafficking, continue to be experienced and, to a
lesser extent, certain conditions such as terrorist activities, exist from time
to time in certain countries. Most countries in the Region also have a history
of political instability involving periodic, non-democratic forms of government.
Any return to such non-democratic forms of government or expansion of such
destabilizing activities in one or more of the key countries in the Region in
which the Corporation does business could affect investors' confidence not only
in these countries, but in the Region as a whole, reducing trade with the
Region. This could have a material adverse effect on the Corporation's business,
prospects, financial condition and results of operations.
CREDIT RISKS AND COLLATERAL
The financial difficulty or failure of customers of the Corporation or of
its correspondent banks may adversely affect the Corporation's ability to
recover funds due to it. In addition, a significant amount of the Corporation's
trade financing activity involves collateral in or guarantees from countries
subject to economic and political instability. The Corporation, in its trade
financing, also runs the risk that such collateral or guarantees will be
inadequate, largely due to rapidly changing market conditions, deteriorating
financial condition of guarantors, or fraud in the underlying trade transaction,
which may leave
20
<PAGE> 21
either the Corporation or its customer holding documents of title to
non-existent or defective goods. Accordingly, the Corporation maintains an
allowance for credit losses. The allowance for credit losses is determined after
evaluating historic loan loss experience adjusted for current conditions and
circumstances, ratio analyses of credit quality classifications and their trend
in light of current portfolio trends and economic conditions, as well as other
pertinent considerations, all of which involve significant estimation and
judgment and are subject to rapid changes which may not be foreseeable. In
addition, as part of the regulatory examination process, bank regulators may
require the Corporation to increase its allowance for credit losses. Ultimate
losses could vary significantly from current estimates and may be either greater
or less than the Corporation's allowance for credit losses.
CONCENTRATION OF CROSS-BORDER LENDING ACTIVITIES
At September 30, 1998, approximately 28.8% in principal amount of the
Corporation's cross-border outstandings (as a percentage of total assets) were
outstanding to borrowers in four countries other than the United States:
Guatemala (8.6%), Ecuador (8.1%), Panama (6.1%) and Brazil (6.0%). Although all
of these outstanding amounts are denominated in United States dollars, a
significant deterioration of economic or political conditions or the imposition
of currency exchange or similar controls in one or more of these countries could
have a material adverse effect on the Corporation's business, prospects,
financial condition and results of operations. See "Selected Consolidated
Financial Data" and "Hamilton Bancorp Inc."
EFFECTS OF EVENTS IN DEVELOPING MARKETS
The Corporation's business and services are, to a large degree, influenced
by economic and market conditions in developing market countries. Although
economic conditions are different in each country, developments in one country
can have significant effects on the operations of companies doing business with
other countries, including the Corporation. In December 1994, the Mexican
currency was sharply devalued, triggering an economic crisis in Mexico which
adversely affected the securities markets in many developing markets in the
Region. Beginning in the summer of 1997, the currencies of a number of Southeast
Asian countries, including Thailand, Indonesia, Malaysia, the Philippines and
South Korea have come under pressure, and were allowed to float against the
United States dollar resulting in a significant currency devaluation and a
deterioration of economic conditions in that region. More recently the
deterioration of economic conditions in Russia has resulted in a significant
currency devaluation and sovereign debt restructuring. Developing markets,
including the Asian markets and Russia, have continued to experience significant
volatility, affecting both the United States and Latin American capital markets.
Moreover, a continuation of investor uncertainty in the Region may result in
widespread economic difficulties throughout the Region. We can give you no
assurance that the business and operations of companies which do business in the
Region, such as the Corporation, will not be materially adversely affected by
events elsewhere, especially in developing market countries.
21
<PAGE> 22
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Corporation's profitability is primarily dependent on its net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans, and its interest expense on interest-bearing liabilities,
such as deposits. Financial institutions, including the Bank, are affected by
changes in general interest rate levels and by other economic factors. A sharp
increase in interest rates could impact economic activity in the Region and the
demand for the Corporation's loans. Fluctuations in interest rates are not
predictable or controllable and may vary from country to country. In addition,
interest rates are highly sensitive to many factors which are beyond the
Corporation's control, including general economic conditions and the policies of
various government and regulatory authorities. Interest rate risk arises from
mismatches between repricing or maturity characteristics of assets and
liabilities. Although the Corporation has structured its assets and liabilities
in an effort to mitigate the impact of changes in interest rates, changes in
interest rates on retail deposits typically lag behind changes in interest rates
on loans. There can be no assurance that the Corporation will not experience a
material adverse effect on its net interest income in a changing interest rate
environment.
ABILITY OF THE CORPORATION TO CONTINUE ITS GROWTH STRATEGY
The Corporation has historically achieved growth in its trade financing
activities by attracting new customers, expanding its services to existing
customers and increasing its deposit base. In 1996 and 1997, the Corporation's
net loans, including discounted acceptances, increased approximately 26.8% and
80.6% in the aggregate, respectively, to approximately $527.3 million and $952.4
million, and deposits increased by approximately 26.5% and 77.7% in the
aggregate, respectively, to approximately $638.6 million and $1.1 billion, in
each case, when compared to the prior year. For the nine months ended September
30, 1997 and September 30, 1998, the Corporation's net loans, including
discounted acceptances, increased approximately 62.0% and 26.2% in the
aggregate, respectively, to approximately $854.1 million and $1.2 billion, and
deposits increased by approximately 52.9% and 29.2% in the aggregate,
respectively, to approximately $976.3 million and $1.5 billion, in each case,
when compared to the previous period. There can be no assurance that the
Corporation will be able to continue to grow at these rates in the future.
Historical growth rates are not necessarily indicative of future results, and it
becomes more difficult to maintain historical rates of growth as a corporation
increases in size. The Corporation's ability to further implement its strategy
for continued growth of its trade financing activities is largely dependent upon
the Corporation's ability to attract and retain quality customers for the
Corporation's services in a competitive market, on the business growth of those
customers, on its ability to maintain, expand and develop relationships with
correspondent banks, and on its ability to increase deposit growth, all of which
may be affected by a number of factors not within its control. As most of the
Corporation's loans and deposits are short-term in nature and thereby turn over
rapidly, any decline or reversal of the growth rate could occur more quickly
than it would for most other financial institutions. Moreover, as part of its
growth strategy, the Corporation expects to increase its exposure to certain
customers and to attract larger customers. A significant loss on these larger
exposures could have a material adverse effect on the Corporation's business,
prospects, financial condition and results of operations.
22
<PAGE> 23
CONCENTRATION OF DEPOSITS
A significant portion of the Corporation's deposits are comprised of
certificates of deposit and other time deposits in amounts in excess of
$100,000. At September 30, 1998, approximately 39.2% and 4.8% of the
Corporation's total deposits were comprised of certificates of deposit and other
time deposits in amounts in excess of $100,000, respectively. Most of the
Corporation's deposits closely match the maturity of its assets. Notwithstanding
the short-term nature of its loan portfolio, in the event that all or
substantially all of such deposits were withdrawn at or prior to their
respective maturities, the Corporation could be required to satisfy such deposit
withdrawals through the (1) use of available interbank funding, (2) sale of
bankers' acceptances, (3) interbank certificate of deposit network or (4)
liquidation of certain assets. Although we believe that the Corporation has
historically been successful in matching the maturity dates of these deposits
against its loan portfolio, there can be no assurance that the Corporation will
continue to be able to do so or that it would not ultimately be required to
liquidate assets in order to satisfy such deposit withdrawals.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
The Corporation's success depends to a significant degree upon the
continued contributions of members of its senior management, particularly
Eduardo A. Masferrer, its Chairman of the Board, President and Chief Executive
Officer, and J. Carlos Bernace, an Executive Vice President of the Corporation
and President of the Bank, as well as other officers and key personnel, many of
whom would be difficult to replace. The future success of the Corporation also
depends on its ability to identify, attract and retain additional qualified
personnel, particularly managerial personnel with experience in international
trade financing. No employees or executive officers have employment agreements
with the Corporation. The loss of Mr. Masferrer or Mr. Bernace, or other
officers or key personnel, could have a material adverse effect on the
Corporation's business, prospects, financial condition and results of
operations. The Corporation does not maintain key person life insurance with
respect to any of its officers.
COMPETITION
International trade financing is a highly competitive industry that is
dominated by large, multinational financial institutions such as Citibank, N.A.,
UBS, AG and Barclays Bank, plc among others. With respect to trade finance in or
relating to larger countries in the Region, primarily in South America, these
larger institutions are the Corporation's primary competition. The Corporation
has less competition from these multinational financial institutions providing
trade finance services in or relating to smaller countries in the Region,
primarily in Central America and the Caribbean, because the volume of trade
financing in such smaller countries has not been as attractive to these larger
institutions. With respect to Central American and Caribbean countries, as well
as United States domestic customers, the Corporation also competes with regional
institutions in the United States and smaller local financial institutions
engaged in trade finance. Many of the Corporation's competitors, particularly
multinational financial institutions, have substantially greater financial and
other resources than the Corporation.
23
<PAGE> 24
Although to date the Corporation has competed successfully, on a limited
basis, in those countries in the Region which have high trade volumes, such as
Brazil and Argentina, there can be no assurance that the Corporation will be
able to continue competing successfully in those countries with either large,
multinational financial institutions or regional United States or local
financial institutions. Any significant decrease in the Corporation's trade
volume in such large-volume countries could adversely affect its results of
operations. Although the Corporation faces less competition from multinational
financial institutions in those smaller countries in the Region, particularly
countries in Central America and the Caribbean, there can be no assurance that
such financial institutions will not seek to finance greater volumes of trade in
those countries or that the Corporation would be able to successfully compete
with those financial institutions in the event of increased competition. In
addition, there can be no assurance that the Corporation will be able to
continue to compete successfully in smaller countries with the regional United
States financial institutions and smaller local financial institutions engaged
in trade finance in such countries. Continued political stability and
improvement in economic conditions in such countries is likely to result in
increased competition.
In addition, the Corporation faces competition in attracting deposits. The
Corporation competes with other insured depository institutions such as thrifts,
credit unions and banks, as well as uninsured investment alternatives including
money market funds. These competitors may offer higher rates than the
Corporation, which could result in the Corporation either attracting fewer
deposits or in requiring it to increase the rates it pays to attract deposits.
Increased deposit competition could adversely affect the Corporation's results
of operations.
SUPERVISION AND REGULATION
Bank holding companies and national banks operate in a highly regulated
environment and are subject to supervision and examination by federal regulatory
agencies. The Corporation is subject to the federal Bank Holding Company Act of
1956, as amended (the "BHC Act"), and to regulation and supervision by the FRB.
The Bank, as a national bank that is a member of the Federal Reserve System and
insured by the Federal Deposit Insurance Corporation (the "FDIC"), is subject to
the primary regulation and supervision of the Office of the Comptroller of the
Currency (the "OCC"), and secondarily, of the FDIC. Federal laws and regulations
govern numerous matters including changes in the ownership or control of banks
and bank holding companies, maintenance of adequate capital and the financial
condition of a financial institution, permissible types, amounts and terms of
extensions of credit and investments, permissible non-banking activities, the
level of reserves against deposits and restrictions on dividend payments. The
OCC and the FDIC possess cease and desist powers to prevent or remedy unsafe or
unsound practices or violations of law by national banks, and the FRB possesses
similar powers with respect to bank holding companies. These and other
restrictions limit the manner in which the Corporation and the Bank may conduct
business and obtain financing. Furthermore, the commercial banking business is
affected not only by general economic conditions, but also by the monetary
policies of the FRB. Changes in monetary or legislative policies may affect the
interest rates the Bank must offer to attract deposits and the interest rates it
must charge on its loans, as well as the manner in which it offers deposits and
makes loans. These monetary policies have had, and are expected to continue to
have, significant effects on the operating results of commercial banks,
including the Bank.
24
<PAGE> 25
PENDING LITIGATION
On January 13, 1998, Development Specialists, Inc., the Liquidating Trustee
(the "Trustee") of the Model Imperial Liquidating Trust, which was established
under the Plan of Reorganization in the Model Imperial, Inc. ("Model Imperial")
Chapter 11 Bankruptcy proceeding, filed an action against the Bank in the United
States Bankruptcy Court for the Southern District of Florida. In the action, the
Trustee raised objections to the Bank's proof of claim in the Chapter 11
proceeding and is affirmatively seeking damages against the Bank of $34 million,
plus interest, costs and punitive damages for its alleged involvement with
former officers and directors of Model Imperial in a scheme to defraud Model
Imperial and its bank lenders and other related causes of action. The action is
one of several similar actions filed by the Trustee against other defendants
that were involved with Model Imperial seeking the same damages as in the action
against the Bank. Certain of these defendants have settled such claims with the
Trustee. Pretrial discovery is currently proceeding and a motion has been made
to remove the matter from the bankruptcy court to the United States District
Court. The Trustee has made a motion for partial summary judgment on the issue
of liability with respect to one of the causes of action.
Although the Corporation believes that the claims asserted by the Trustee
are without merit either as a matter of law or fact and is vigorously defending
the action, there can be no assurance that the Bank will be successful in
defending these claims. Any adverse outcome in this action could have a material
adverse effect on the Corporation's financial position, results of operations
and liquidity.
YEAR 2000 COMPLIANCE
The ability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year after 1999 is commonly referred to as the "Year 2000" compliance
issue. The Year 2000 issue is the result of computer programs and equipment
which are dependent on "embedded chip technology" using two digits rather than
four to define the applicable year. Any of the Corporation's computer programs
or equipment that are date dependent may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, or a temporary inability to
process transactions, send invoices or engage in similar normal business
activities.
The Corporation began the process of assessing and preparing its computer
systems and applications to be functional on January 1, 2000 in June 1996. The
Corporation has also been communicating with third parties which it interfaces
with, such as customers, counter parties, payment systems, vendors and others to
determine whether they will be functional on or before January 1, 2000. The
Corporation has provided compliance certification questionnaires to each of its
customers in order to determine their ability to be Year 2000 compliant. If a
customer does not respond to the questionnaire or if its response does not
provide the Corporation with adequate assurance that such customer's failure to
be Year 2000 compliant would not have a material adverse effect on the
Corporation, the Corporation will require that all amounts owed to it by such
customer be satisfied in full prior to December 31, 1999. The Corporation has
also amended its Credit Policy Manual to require the Corporation to terminate
business with a customer unless the Corporation is assured that such customer is
or will be Year 2000 compliant in the near future, except in
25
<PAGE> 26
such instances where the customer's failure to be Year 2000 compliant will not,
either individually or in the aggregate, have a material adverse effect on the
Corporation. There can be no assurance that any of these parties will become
Year 2000 compliant on a timely basis.
We believe that the process of modifying all mission critical applications
of the Corporation will continue as planned and expect to have substantially all
of the testing and changes completed by December 31, 1998. In addition,
non-mission critical applications are scheduled to have substantially all the
testing and updates completed by June 30, 1999.
We believe the total costs to be Year 2000 compliant will be approximately
$250,000, which amount is not material to the Corporation's financial position
or results of operations. To date, the Corporation has incurred approximately
$50,000 of these estimated expenses. Any purchased hardware or software in
connection with this process will be capitalized in accordance with normal
company policy. Personnel and all other costs are being expensed as incurred.
The costs and dates on which the Corporation plans to complete the Year
2000 process are based on our best estimates. However, there can be no assurance
that these estimates will be achieved and actual results could differ.
HAMILTON BANCORP INC.
The Corporation, through its subsidiary, the Bank, provides global trade
finance, with particular emphasis on trade with and between the Region and the
United States or otherwise involving the Region. We believe that trade finance
provides the Corporation with the opportunity for substantial and profitable
growth, primarily with moderate credit risk, and that the Bank is the only
domestic financial institution headquartered in the State of Florida focusing
primarily on financing foreign trade. The Corporation has been able to take
advantage of substantial growth in this trade through its relationships with
approximately 500 correspondent banks and with importers and exporters in the
United States and the Region, as well as its location in South Florida, which is
becoming a focal point for trade in the Region. Much of this growth has been
associated with the adoption of economic stabilization policies in the major
countries of the Region.
The Corporation operates in all major countries throughout the Region and
has been particularly active in several smaller markets, such as Guatemala,
Ecuador, Panama and Peru, in addition to being active in larger markets, such as
Brazil. We believe that these smaller markets are not primary markets for
larger, multinational financial institutions, and, therefore, customers in such
markets do not receive a similar level of service from such institutions as that
provided by the Corporation. To enhance its position in certain markets, the
Corporation has made and currently holds minority investments in indigenous
financial institutions in Guyana, Ecuador and Peru. The Corporation has also
strengthened its relationships with correspondent financial institutions in the
Region by acting as placement agent, from time to time, for debt instruments or
certificates of deposit issued by such institutions.
The Corporation seeks to generate income by participating in multiple
aspects of trade transactions that generate both fee and interest income. The
Corporation earns fees primarily from opening and confirming letters of credit
and discounting acceptances, and
26
<PAGE> 27
earns interest on credit extended, primarily in the form of commercial loans,
for pre- and post-export financing, such as refinancing of letters of credit,
and to a lesser extent, from discounted acceptances. As the economy in the
Region has grown and stabilized, the Corporation has begun to service larger
customers, and a significant portion of the Corporation's trade financing
activities has shifted from providing letters of credit to discounting
commercial trade paper and originating loans. This has resulted in relatively
less fee income and increased interest income. Increased competition has also
resulted in a reduction in the growth rate of letter of credit fees relative to
the growth in the Corporation's loan portfolio. Virtually all of the
Corporation's business is conducted in United States dollars. We believe that
the Corporation's primary focus on trade finance, its wide correspondent banking
network in the Region, broad range of services offered, management experience,
reputation and prompt decision-making and processing capabilities provide it
with important competitive advantages in the trade finance business. The
Corporation seeks to mitigate its credit risk through its knowledge and analysis
of the markets it serves, by obtaining third-party guarantees of both local
banks and importers on many transactions, by often obtaining security interests
in goods being financed and by the short-term, self-liquidating nature of trade
transactions. At September 30, 1998, 75.1% of the Corporation's loan portfolio
consisted of short-term trade related loans maturing in 365 days or less, and
64.7% of such portfolio have average remaining maturities of approximately 180
days. Credit is generally extended under specific credit lines for each customer
and country. These credit lines are reviewed at least annually.
27
<PAGE> 28
The following tables reflect the Corporation's growth and diversification
in financing trade flows between the United States and the Region in terms of
loans by country and cross-border outstandings by country. The aggregate amount
of the Corporation's cross-border outstandings by primary credit risk include
cash and demand deposits with other banks, interest earning deposits with other
banks, investment securities, due from customers on bankers acceptances, due
from customers on deferred payment letters of credit and loans-net. Exposure
levels in any given country at the end of each period may be impacted by the
flow of trade between the United States (and to a large extent Florida) and the
given countries, as well as the price of the underlying goods or commodities
being financed.
Loans by Country
(Dollars in thousands)
<TABLE>
<CAPTION>
AMOUNT AT AMOUNT AT
SEPTEMBER 30, PERCENT OF DECEMBER 31, PERCENT OF
COUNTRY 1998 TOTAL LOANS 1997 TOTAL LOANS
- ------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
United States............... $ 366,950 30.19% $236,834 24.55%
Argentina................... 44,057 3.63 58,477 6.06
Bolivia..................... 38,071 3.13 38,058 3.94
Brazil...................... 59,520 4.90 58,040 6.02
Colombia.................... 34,832 2.87 23,768 2.46
Dominican Republic.......... 50,547 4.16 40,161 4.16
Ecuador..................... 98,155 8.08 74,485 7.72
El Salvador................. 44,848 3.69 40,306 4.18
Guatemala................... 146,981 12.09 91,178 9.45
Honduras.................... 53,587 4.41 59,439 6.16
Jamaica(1).................. 21,397 1.76 -- --
Panama...................... 99,143 8.16 77,295 8.01
Peru........................ 63,524 5.23 68,094 7.06
Russia...................... 0 0.0 17,500 1.81
Venezuela(1)................ -- -- 16,299 1.69
Other(2).................... 93,749 7.70 64,860 6.73
---------- ----- -------- ------
Total............. $1,215,361 100.0% $964,794 100.00%
========== ===== ======== ======
</TABLE>
- -------------------------
(1) These countries had loans in periods presented which did not exceed 1% of
total loans.
(2) Consists of loans in countries in which loans did not exceed 1% of total
loans at one of the dates shown.
28
<PAGE> 29
Total Cross-Border Outstandings By Country
(Dollars in millions)
<TABLE>
<CAPTION>
AMOUNT AT AMOUNT AT PERCENT OF
SEPTEMBER 30, PERCENT OF DECEMBER 31, TOTAL
COUNTRY 1998 TOTAL ASSETS 1997 ASSETS
- ------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Argentina....................... $ 63 3.8% $ 69 5.2%
Bolivia......................... 37 2.2 44 3.3
Brazil.......................... 100 6.0 85 6.3
B.W. Indies..................... 19 1.1 11 0.8
Colombia........................ 35 2.1 24 1.8
Costa Rica(1)................... 13 0.8 -- --
Dominican Republic.............. 51 3.1 39 2.9
Ecuador......................... 135 8.1 90 6.7
El Salvador..................... 64 3.8 46 3.4
Guatemala....................... 143 8.6 92 6.9
Honduras........................ 61 3.7 52 3.9
Jamaica......................... 43 2.6 32 2.4
Nicaragua(1).................... -- -- 12 0.9
Other Europe(1)................. 32 1.9 -- --
Panama.......................... 101 6.1 72 5.4
Peru............................ 59 3.5 74 5.5
Russia.......................... 0 0.0 17 1.3
Suriname(1)..................... 24 1.4 -- --
Venezuela(1).................... 29 1.7 -- --
Other(2)........................ 91 5.6 39 2.8
------ ---- ---- ----
Total................. $1,100 66.1% $798 59.5%
====== ==== ==== ====
</TABLE>
- -------------------------
(1) These countries had cross-border outstandings in periods presented which did
not exceed 0.75% of total assets.
(2) Consists of cross-border outstandings to countries in which such
cross-border outstandings did not exceed 0.75% of the Corporation's total
assets at one of the dates shown.
Lending activities are funded primarily through domestic consumer and
commercial deposits gathered through a network of eight branches located in
Florida and Puerto Rico, as well as deposits received from correspondent banks,
corporate customers and private banking customers within the Region. The
Corporation opened its branch in San Juan, Puerto Rico in March 1998. The
Corporation's branches are strategically located in markets where it believes
that there is both a concentration of retail deposits and foreign trade
activity. The Corporation also participates in various community lending
activities and, under several United States and Florida laws and regulations,
the Bank is considered a minority-owned bank and is able to participate in
certain minority programs involving both deposits and loans.
The Corporation's total deposits were approximately $1.5 billion at
September 30, 1998 compared to approximately $1.1 billion as of December 31,
1997. Average interest bearing deposits increased by 51.3% to approximately $1.2
billion as of September 30, 1998 from $778.2 million as of December 31, 1997.
The increase in deposits during the nine
29
<PAGE> 30
month period was largely in certificates of deposits over $100,000 which
increased by $226.9 million. In addition, certificates of deposit of $100,000 or
less increased by $154.5 million. These deposits were used to further diversify
the Corporation's deposit base and as a cost effective alternative for the
short-term funding needs of the Corporation.
The Corporation has experienced asset growth and increased earnings since
it acquired the Bank in 1988, and has also achieved a high level of
profitability. The Corporation's average total loans increased from $370.6
million for the year ended December 31, 1995 to $737.9 million for the year
ended December 31, 1997, and during the nine months ended September 30, 1998,
average total loans increased to $1.1 billion from $670.0 million for the
comparable period of 1997. Additionally, net income increased from $8.0 million
for the year ended December 31, 1995 to $15.9 million for the year ended
December 31, 1997. During the nine months ended September 30, 1998, net income
increased to $16.1 million, or $1.56 per share on a fully diluted basis, from
$11.2 million, or $1.27 per share on a fully diluted basis, during the nine
months ended September 30, 1997. For the years ended December 31, 1996 and 1997,
return on average assets was 1.41% and 1.58%, respectively, and return on
average total equity was 24.29% and 20.05%, respectively. For the nine months
ended September 30, 1998, return on average assets was 1.48% (annualized) and
return on average total equity was 19.84% (annualized). Along with its growth,
the Corporation has maintained strong credit quality. Net loan charge-offs as a
percentage of average outstanding loans were 0.36% and 0.32% for the years ended
December 31, 1996 and 1997, respectively, and 0.63% for the nine months ended
September 30, 1998. At December 31, 1997 and September 30, 1998, non-performing
assets represented 0.64% and 0.53% of total loans, respectively. See "Selected
Consolidated Financial Data."
The Corporation's stockholders' equity at September 30, 1998 was $116.0
million compared to $98.3 million at December 31, 1997. During this period,
stockholders' equity increased by $17.7 million due to the retention of net
income of $16.1 million, as well as approximately $2.0 million from the exercise
of stock options. See "Selected Consolidated Financial Data."
The Corporation's goals are to continue to grow its earnings and maintain a
high level of profitability while maintaining strong credit quality by
continuing its focus on trade finance in the Region. The Corporation's strategy
is to:
- continue to take advantage of the growing trade in the Region;
- use the enhanced capital base resulting from this offering of Series A
Capital Securities to expand credit limits to existing customers;
- take advantage of its enhanced capital base to expand the Bank's
involvement with larger banks in certain of the larger markets in the
Region; and
- continue to expand its domestic branch system in order to attract
additional consumer and commercial deposits in the South Florida and
Puerto Rico markets.
The Corporation is a bank holding company incorporated under the laws of
Florida and established in Miami, Florida, in 1988 to acquire the Bank (then
known as Alliance National Bank), a national bank. The principal executive
offices of the Corporation are located at 3750 N.W. 87th Avenue, Miami, Florida
33178, and its telephone number is (305) 717-5500.
30
<PAGE> 31
HAMILTON CAPITAL TRUST I
The Trust is a statutory business trust formed by the Corporation under
Delaware law pursuant to a Trust Agreement executed by the Corporation, as
sponsor for the Trust, and certain of its trustees and the filing of a
certificate of trust with the Delaware Secretary of State on December 3, 1998.
The Trust exists solely to:
- issue and sell the Series A Capital Securities and the Series A Common
Securities;
- use the proceeds from the sale of the Series A Capital Securities and
Series A Common Securities to purchase the Series A Subordinated
Debentures of the Corporation, which will be the only assets of the
Trust;
- maintain its status as an entity that is not an association taxable as a
corporation for federal income tax purposes; and
- engage in other activities that are necessary or incidental to these
purposes.
The Corporation will purchase all of the Series A Common Securities of the
Trust. The Series A Common Securities will represent an aggregate liquidation
amount equal to at least 3% of the Trust's total capitalization. The Series A
Capital Securities will represent the remaining 97% of the total capitalization
of the Trust. The Series A Common Securities will have terms substantially
identical to, and will rank equal in priority of payment with, the Series A
Capital Securities. However, if the Corporation defaults on the Series A
Subordinated Debentures, cash distributions and liquidation, redemption and
other amounts payable with respect to the Series A Common Securities will be
subordinate to the Series A Capital Securities in priority of payment.
The Trust has a term of approximately 55 years, but may be dissolved
earlier as provided in the Trust Agreement. The Trust's business and affairs are
conducted by the Trustees, each appointed by the Corporation as holder of the
Series A Common Securities. The Corporation has appointed the following Trustees
to conduct the Trust's business and affairs:
- Wilmington Trust Company, as Property Trustee;
- Wilmington Trust Company, as Delaware Trustee; and
- Three individuals who are employees and officers of the Corporation, as
Administrative Trustees.
As the sole holder of the Series A Common Securities, the Corporation can
replace or remove any of the Trustees. However, if an event of default occurs
and is continuing under the Trust Agreement, the Property Trustee and the
Delaware Trustee can only be replaced and removed by the holders of at least a
majority in aggregate liquidation amount of the Series A Capital Securities.
Only the Corporation, as owner of all of the Trust's Series A Common Securities,
can remove or replace the Administrative Trustees. The duties and obligations of
each Trustee are governed by the Trust Agreement.
The Corporation will pay all fees and expenses related to the Trust and the
offering of the Series A Capital Securities, as well as all of the ongoing costs
and expenses of the Trust, except that the Corporation will not be responsible
for the Trust's obligations under the Series A Capital Securities.
The Trust has no separate financial statements. The statements would not be
material to you because the Trust has no independent operations. The Trust
exists solely for the
31
<PAGE> 32
reasons summarized above. The Series A Capital Securities will be fully and
unconditionally guaranteed by the Corporation as described later in this
Prospectus.
The principal executive office of the Trust is c/o Hamilton Bancorp Inc.,
3750 N.W. 87th Avenue, Miami, Florida 33178, and its telephone number is (305)
717-5500.
USE OF PROCEEDS
All of the proceeds from the sale of the Series A Capital Securities and
the Series A Common Securities will be invested by the Trust in the Series A
Subordinated Debentures. The net proceeds to the Corporation from the sale of
the Series A Subordinated Debentures are estimated to be $10.2 million ($11.8
million if the over-allotment option granted to the Underwriters is exercised in
full), net of commissions ($385,000, or $442,750, if the Underwriters'
over-allotment option is exercised in full) and other estimated offering
expenses (which are expected to be $400,000). The Corporation intends to invest
the net proceeds from the sale of the Series A Subordinated Debentures in the
Bank to increase its capital level. Initially, the net proceeds will be invested
in short-term investment grade financial securities.
The Corporation is required by the FRB to maintain certain levels of
capital for bank regulatory purposes. On October 21, 1996, the FRB announced
that cumulative preferred securities having the characteristics of the Series A
Capital Securities could be included as Tier 1 capital (up to 25% of Tier 1
capital) for bank holding companies. Such Tier 1 capital treatment, together
with the Corporation's ability to deduct, for federal income tax purposes,
interest payable on the Series A Subordinated Debentures, will provide the
Corporation with a more cost-effective means of obtaining capital for bank
regulatory purposes than other Tier 1 capital alternatives currently available
to it.
32
<PAGE> 33
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Corporation at September 30, 1998, and as adjusted to give effect to the
consummation of the offering of the Series A Capital Securities (without giving
effect to the exercise by the Underwriters of their over-allotment option) and
the issuance of the Series A Subordinated Debentures to the Trust. The following
data should be read in conjunction with the Consolidated Financial Statements
and Notes incorporated by reference herein to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Other borrowings.......................................... $ 6,116 $ 6,116
Guaranteed preferred beneficial interests in the
Corporation's Junior Subordinated Deferrable Interest
Debentures, Series A(1)................................. -- 11,000
Common stock, par value $0.01 per share: 75,000,000 shares
authorized, 10,050,062 shares issued and outstanding at
September 30, 1998...................................... 100 100
Capital surplus........................................... 58,314 58,314
Retained earnings......................................... 58,160 58,160
Net unrealized loss on securities available for sale, net
of taxes................................................ (552) (552)
-------- --------
Total stockholders' equity...................... 116,022 116,022
-------- --------
Total capitalization............................ $122,138 $133,138
======== ========
</TABLE>
- -------------------------
(1) As described herein, the sole assets of the Trust, which is a subsidiary of
the Corporation, will be $11.3 million aggregate principal amount of the
Series A Subordinated Debentures, which will mature on December 31, 2028.
The Corporation will own all of the Series A Common Securities issued by the
Trust. See "Description of Series A Subordinated Debentures."
33
<PAGE> 34
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of the Corporation, and, accordingly, the accounts of the Trust will be included
in the consolidated financial statements of the Corporation. The Series A
Capital Securities will be presented as a separate line item in the consolidated
balance sheet of the Corporation under the caption "Guaranteed Preferred
Beneficial Interests in the Corporation's Junior Subordinated Deferrable
Interest Debentures, Series A," and appropriate disclosures about the Series A
Capital Securities, the Series A Guarantee and the Series A Subordinated
Debentures will be included in the Notes to Consolidated Financial Statements.
For financial reporting purposes, the Corporation will record distributions
payable on the Series A Capital Securities and the Series A Common Securities as
an expense in the consolidated statements of income.
The Corporation has agreed that future financial reports of the Corporation
filed under the Exchange Act will (1) present the Series A Capital Securities
issued by the Trust as a separate line item entitled "Guaranteed Preferred
Beneficial Interests in the Corporation's Junior Subordinated Deferrable
Interest Debentures, Series A"; (2) include a footnote to the financial
statements, disclosure that the sole assets of the Trust are the Series A
Subordinated Debentures (specifying the principal amount, interest rate and
maturity date of such Series A Subordinated Debentures); and (3) if Staff
Accounting Bulletin 53 treatment is sought, include, in an audited footnote to
the consolidated financial statements, disclosure that (a) the Trust is wholly
owned, (b) the sole assets of the Trust are the Series A Subordinated Debentures
(specifying the principal amount, interest rate and maturity date of such Series
A Subordinated Debentures) and (c) the obligations of the Corporation under the
Series A Subordinated Debentures, the Indenture, the Trust Agreement and the
Series A Guarantee, in the aggregate, constitute a full and unconditional
guarantee by the Corporation of the Trust's obligations under the Series A
Capital Securities.
34
<PAGE> 35
DESCRIPTION OF SERIES A CAPITAL SECURITIES
This summary of certain terms and provisions of the Series A Capital
Securities, which describes the material provisions thereof, does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the Trust Agreement, including the definitions therein of certain terms, and the
Trust Indenture Act, to each of which reference is hereby made. Wherever
particular defined terms of the Trust Agreement (as amended or supplemented from
time to time) are referred to herein, such defined terms are incorporated herein
by reference. The form of the Trust Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
GENERAL
The Series A Capital Securities of the Trust will rank pari passu and
payments will be made thereon pro rata, with the Series A Common Securities of
the Trust, except as described under "-- Subordination of Series A Common
Securities." Legal title to the Series A Subordinated Debentures will be held by
the Property Trustee in trust for the benefit of the holders of the Series A
Capital Securities. The Series A Guarantee executed by the Corporation for the
benefit of the holders of the Series A Capital Securities will be a guarantee on
a subordinated basis with respect to the Series A Capital Securities, but will
not guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Series A Capital Securities when the Trust does not have
funds on hand available to make such payments. See "Description of Series A
Guarantee."
DISTRIBUTIONS
The Series A Capital Securities represent beneficial ownership interests in
the Trust, and Distributions on the Series A Capital Securities will be
cumulative, will accumulate from the date of original issuance and will be
payable at the annual rate of 9.75% on the stated liquidation amount of $10,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each, a "Distribution Date"), to the holders of the Series A
Capital Securities on the relevant record dates. The record dates for the Series
A Capital Securities will be, for so long as the Series A Capital Securities
remain in book-entry form, one Business Day (as defined below) prior to the
relevant Distribution Date and, in the event the Series A Capital Securities are
not in book-entry form, the 15th day of the month in which the relevant
Distribution Date occurs. Distributions will accumulate from the date of
original issuance. The first Distribution Date for the Series A Capital
Securities will be March 31, 1999. The period beginning on and including the
date of original issuance and ending on but excluding the first Distribution
Date and each successive period beginning on and including a Distribution Date
and ending on but excluding the next succeeding Distribution Date is herein
called a "Distribution Period." The amount of Distributions payable for any
Distribution Period will be computed on the basis of a 360-day year consisting
of twelve 30-day months. In the event that any Distribution Date would otherwise
fall on a day that is not a Business Day, such Distribution Date shall be
postponed to the next day that is a Business Day (without any additional
distributions or other payment in respect of such delay), unless it would
thereby fall in the next calendar year, in which event the Distribution Date
shall be brought forward to the immediately preceding Business Day. A "Business
Day" shall mean any day other than a Saturday or a Sunday, or a day on which
banking institutions in New York,
35
<PAGE> 36
New York, Wilmington, Delaware or Miami, Florida are authorized or required by
law or executive order to remain closed or a day on which the principal
corporate trust office of the Property Trustee is closed for business.
The revenue of the Trust available for distribution to holders of the
Series A Capital Securities will be limited to payments made by the Corporation
under the Series A Subordinated Debentures in which the Trustee will invest the
proceeds from the issuance and sale of the Series A Capital Securities and the
Series A Common Securities. See "Description of Series A Subordinated Debentures
- -- General." If the Corporation does not make interest payments on the Series A
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Series A Capital Securities and the Series A Common
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 Corporation to the extent set forth herein under "Description
of Series A Guarantee."
OPTION TO DEFER INTEREST PAYMENTS
So long as no Debenture Event of Default shall have occurred and be
continuing, the Corporation will have the right under the Indenture to elect to
defer the payment of interest on the Series A 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. Upon any such election, quarterly Distributions on the
Series A Capital Securities will be deferred by the Trust during such Extension
Period. Distributions to which you are entitled during any such Extension Period
will accumulate additional distributions thereon at the applicable periodic
Distribution Rate thereof, compounded quarterly from the relevant Distribution
Date, but not exceeding the interest rate then accruing on the Series A
Subordinated Debentures. The term "Distributions," as used herein, shall include
any such additional distributions.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause the 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 amounts then due on any Interest Payment Date, the Corporation may elect to
begin a new Extension Period, subject to the above requirements. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Corporation must give the Property Trustee, the Administrative Trustees and
the Debenture Trustee notice of its election of any such Extension Period (or an
extension thereof) at least five Business Days prior to the earlier of:
- the date the Distributions on the Series A Capital Securities would have
been payable except for the election to begin such Extension Period; and
- the date the Administrative Trustees are required to give notice to any
securities exchange or automated quotation system or to holders of such
Series A Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than five Business
Days prior to such record date.
36
<PAGE> 37
There is no limitation on the number of times that the Corporation may elect to
begin an Extension Period. See "Description of Series A Subordinated
Debentures -- Option to Extend Interest Payment Date" and "Certain Federal
Income Tax Consequences -- Original Issue Discount."
During any such Extension Period, the Corporation may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its
capital stock;
- make any payment of principal of, or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation
(including any other debentures) that rank pari passu with or junior in
right of payment to the Series A Subordinated Debentures; or
- make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsidiary of the Corporation
(including other guarantees) if such guarantee ranks pari passu with or
junior in right of payment to the Series A Subordinated Debentures;
other than (a) dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, the Corporation's common stock,
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Series A Guarantee, (d) as a result of a reclassification of
the Corporation's capital stock or the exchange or conversion of one class or
series of its capital stock for another class or series of its capital stock,
(e) the purchase of fractional interests in shares of the Corporation's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged and (f) purchases of common stock
related to the issuance of common stock or rights under any of the Corporation's
benefit plans for its directors, officers or employees or any of the
Corporation's dividend reinvestment plans. The Corporation has no current
intention to exercise its right to defer payments of interest on the Series A
Subordinated Debentures.
The revenue of the Trust available for distribution to holders of the
Series A Capital Securities will be limited to payments under the Series A
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Series A Capital Securities and the Series A Common
Securities. See "Description of Series A Subordinated Debentures -- General." If
the Corporation does not make interest payments on the Series A Subordinated
Debentures, the Property Trustee will not have funds available to pay
Distributions on the Series A Capital Securities. The payment of Distributions
(if and to the extent the Trust has funds on hand legally available for the
payment of such Distributions) is guaranteed by the Corporation on a limited
basis as set forth herein under "Description of Series A Guarantee."
REDEMPTION
Upon the repayment on the Stated Maturity Date or prepayment, in whole or
in part, prior to the Stated Maturity Date of the Series A Subordinated
Debentures (other than following the distribution of the Series A Subordinated
Debentures to the holders of the
37
<PAGE> 38
Trust Securities), the proceeds from such repayment or prepayment shall be
applied by the Property Trustee (subject to the Property Trustee having received
written notice no later than 45 days prior to such repayment) to redeem a Like
Amount (as defined below) of the Trust Securities, upon not less than 30 nor
more than 60 days' notice of a date of redemption (the "Redemption Date"), at
the Redemption Price, which shall be equal to 100% of the corresponding
principal amount of Series A Subordinated Debentures so repaid or prepaid, as
the case may be, plus accrued and unpaid interest thereon to the date of
redemption. See "Description of Series A Subordinated Debentures -- Optional
Prepayment" and "-- Special Event Prepayment." If less than all of the Series A
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.
Upon the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction, the Series A Subordinated Debentures thereafter will be
subject to optional prepayment in whole, but not in part, on or after December
31, 2008.
"Like Amount" means: (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Series A Junior Subordinated Debentures to be paid in accordance with
their terms; and (ii) with respect to a distribution of Series A Subordinated
Debentures upon the liquidation of the Trust, Series A Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the holder to whom such Series A Subordinated Debentures are
distributed.
The Corporation will have the right to prepay the Series A Subordinated
Debentures: (i) in whole or in part, on or after December 31, 2008; and (ii) in
whole but not in part, at any time prior to December 31, 2008, upon the
occurrence of certain events, in each case at the Prepayment Price (as described
in "Description of Series A Subordinated Debentures -- Optional Prepayment") and
subject to the receipt of any required regulatory approval. See "Description of
Series A Subordinated Debentures -- Optional Prepayment" and "-- Special Event
Prepayment."
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF SERIES A SUBORDINATED DEBENTURES
The Corporation will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, to cause the Series A Subordinated Debentures to be distributed
to the holders of the Trust Securities in liquidation of the Trust. Such right
is subject to: (1) the Corporation having received an opinion of counsel to the
effect that such distribution will not be a taxable event to holders of Series A
Capital Securities; and (2) receipt of any required regulatory approval.
The Trust automatically shall dissolve upon the first to occur of: (1)
certain events of bankruptcy, dissolution or liquidation of the Corporation; (2)
the distribution of a Like Amount of the Series A Subordinated Debentures to the
holders of the Trust Securities, if the Corporation, as sponsor, has given
written direction to the Property Trustee to dissolve the Trust (which direction
is optional and, except as described above, wholly within the discretion of the
Corporation, as sponsor); (3) redemption of all of the Trust Securities as
described under "-- Redemption;" (4) expiration of the term of the Trust; and
(5) the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
38
<PAGE> 39
If a dissolution occurs as described in clauses (1), (2), (4), or (5)
above, the Trust shall be liquidated by the Trustees as expeditiously as the
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 Series A 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
Series A Capital Securities shall have a priority over the Series A Common
Securities. See "-- Subordination of Series A Common Securities."
If the Corporation elects not to prepay the Series A 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 Series A
Subordinated Debentures to holders of the Trust Securities, the Trust Securities
will remain outstanding until the repayment of the Series A Subordinated
Debentures on the Stated Maturity Date.
After the liquidation date is fixed for any distribution of Series A
Subordinated Debentures to holders of the Trust Securities: (1) the Trust
Securities will no longer be deemed to be outstanding; (2) DTC or its nominee
will receive, in respect of each registered global certificate, if any,
representing Trust Securities and held by it, a registered global certificate or
certificates representing the Series A Subordinated Debentures to be delivered
upon such distribution; and (3) any certificates representing Trust Securities
not held by DTC or its nominee will be deemed to represent Series A Subordinated
Debentures having a principal amount equal to the Liquidation Amount of such
Trust Securities, and bearing accrued and unpaid interest in an amount equal to
the accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon the Corporation will issue to such holder, and the
Debenture Trustee will authenticate, a certificate representing such Series A
Subordinated Debentures.
There can be no assurance as to the market prices for the Series A Capital
Securities or the Series A Subordinated Debentures that may be distributed in
exchange for the Series A Capital Securities if a dissolution and liquidation of
the Trust were to occur. Accordingly, the Series A Capital Securities that you
purchase, or the Series A Subordinated Debentures that you may receive upon a
dissolution and liquidation of the Trust, may trade at a discount to the price
that you paid to purchase the Series A Capital Securities offered hereby.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous repayment or
prepayment of the Series A Subordinated Debentures. Any redemption of Trust
Securities shall be made and the
39
<PAGE> 40
applicable Redemption Price shall be payable on the Redemption Date only to the
extent that the Trust has funds legally available for the payment of such
applicable Redemption Price. See also "-- Subordination of Series A Common
Securities."
If the Trust gives a notice of redemption in respect of the Series A
Capital Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds legally are available, with respect to the Series A
Capital Securities held by DTC or its nominees, the Property Trustee will
deposit or cause the Paying Agent (as defined herein) to deposit irrevocably
with DTC funds sufficient to pay the applicable Redemption Price. See "-- Form,
Denomination, Book-Entry Procedures and Transfer." With respect to the Series A
Capital Securities held in certificated form, the Property Trustee, to the
extent funds are legally available, will irrevocably deposit with the Paying
Agent for the Series A Capital Securities funds sufficient to pay the applicable
Redemption Price and will give such Paying Agent irrevocable instructions and
authority to pay the applicable Redemption Price to the holders thereof upon
surrender of their certificates evidencing the Series A Capital Securities. See
"-- Payment and Paying Agency." Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date shall be payable to the holders of
such Series A Capital Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of the Series A Capital Securities called for redemption will cease,
except the right of the holders of such Series A Capital Securities to receive
the applicable Redemption Price, but without interest on such Redemption Price,
and such Series A Capital Securities will cease to be outstanding. In the event
that any Redemption Date of Series A Capital Securities is not a Business Day,
then the applicable Redemption Price payable on such date will be paid on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such next succeeding
Business Day falls in the next calendar year, such payment shall be made on the
immediately preceding Business Day. In the event that payment of the applicable
Redemption Price is improperly withheld or refused and not paid either by the
Trust or by the Corporation (as described under "Description of Series A
Guarantee") pursuant to the Series A Guarantee: (1) Distributions on Series A
Capital Securities will continue to accumulate at the then applicable rate, from
the Redemption Date originally established by the Trust to the date such
applicable Redemption Price is actually paid; and (2) the actual payment date
will be the Redemption Date for purposes of calculating the applicable
Redemption Price.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Corporation defaults in payment of the applicable
Redemption Price on, or in the repayment of, the Series A Subordinated
Debentures, on and after the Redemption Date, Distributions will cease to accrue
on the Trust Securities called for redemption.
Subject to applicable law (including, without limitation, U.S. federal
securities laws), the Corporation or its subsidiaries may at any time and from
time to time purchase outstanding Series A Capital Securities by tender, in the
open market or by private agreement.
40
<PAGE> 41
SUBORDINATION OF SERIES A COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Series A
Capital Securities and the Series A Common Securities, as applicable, shall be
made pro rata based on the Liquidation Amount of the Trust Securities; provided,
however, that if on any Distribution Date or Redemption Date a Debenture Event
of Default shall have occurred and be continuing, no payment of any Distribution
on, or applicable Redemption Price of, any of the Series A Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of the Series A Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Series A Capital Securities for all Distribution periods terminating
on or prior thereto, or in the case of payment of the applicable Redemption
Price the full amount of such Redemption Price, shall have been made or provided
for, and all funds available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, or Redemption Price of, the
Series A Capital Securities then due and payable.
In the case of any Event of Default, the Corporation, as holder of all of
the Series A 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 Series A Capital Securities and
not on behalf of the Corporation as holder of the Series A Common Securities,
and only the holders of the Series A Capital Securities will have the right to
direct the Property Trustee to act on their behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default under the Indenture
constitutes an "Event of Default" under the Trust Agreement. See "Description of
Series A Subordinated Debentures -- Debenture Events of Default."
The Trust Agreement provides that within ten (10) 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
Series A Capital Securities, the Administrative Trustees and the Corporation, as
sponsor, unless such Event of Default shall have been cured or waived. The
Corporation, as sponsor, and the Administrative Trustees are required to file
annually with the Property Trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under the
Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Series
A Capital Securities shall have a preference over the Series A Common Securities
as described under "-- Liquidation of the Trust and Distribution of Series A
Subordinated Debentures" and "-- Subordination of Series A Common Securities."
The existence of an Event of Default does not entitle the holders of Series A
Capital Securities to accelerate maturity thereof.
41
<PAGE> 42
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
the Property Trustee and the Delaware Trustee may be removed at any time by the
holder of the Series A 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 Series A Capital Securities. In no event will the holders of the
Series A Capital Securities have the right to vote to appoint, remove or replace
the Administrative Trustees, which voting rights are vested exclusively in the
Corporation as the holder of all of the Series A Common Securities. No
resignation or removal of the Property Trustee and the Delaware Trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the provisions of the
Trust Agreement.
MERGER OR CONSOLIDATION OF 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 Trustee shall be a party, or any
Person succeeding to all or substantially all of the corporate trust business of
such Trustee, shall be the successor of such 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 Series A Subordinated Debentures." The Trust may, at
the request of the Corporation, as sponsor, with the consent of the
Administrative Trustees but without the consent of the holders of the Series A
Capital Securities, the Property Trustee or the Delaware Trustee, 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:
- 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;
- the Corporation expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee with
respect to the Series A Subordinated Debentures;
42
<PAGE> 43
- the Successor Securities are listed, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange
or other organization on which the Trust Securities are then listed or
quoted, if any;
- if the Series A Capital Securities (including any Successor Securities)
are rated by any nationally recognized statistical rating organization
prior to such transaction, such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Series A
Capital Securities (including any Successor Securities) or, if the Series
A Subordinated Debentures are so rated, the Series A Subordinated
Debentures, to be downgraded by any such nationally recognized
statistical rating organization;
- 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;
- such successor entity has a purpose substantially identical to that of
the Trust;
- prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Corporation has received an opinion
from independent counsel to the Trust experienced in such matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than
any dilution of such holders' interests in the new entity) and (b)
following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor
entity will be required to register as an investment company under the
Investment Company Act; and
- the Corporation or any permitted successor or assignee owns all of the
common securities of such successor entity and guarantees the obligations
of such successor entity under the Successor Securities at least to the
extent provided by the Series A Guarantee and the Common Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to, any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity to
be classified as an association taxable as a corporation for U.S. federal income
tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "-- Mergers, Consolidations,
Amalgamations or Replacements of the Trust" and "Description of Series A
Guarantee -- Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Series A Capital Securities will have no
voting rights.
43
<PAGE> 44
The Trust Agreement may be amended from time to time by the Corporation,
the Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities: (1) 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 (2) to modify, eliminate or
add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that at all times that any Trust Securities are outstanding
the Trust will not be classified as an association taxable as a corporation or
to enable the Trust to qualify as a grantor trust, in each case for U.S. federal
income tax purposes, or to ensure that the Trust will not be required to
register as an "investment company" under the Investment Company Act; provided,
however, that in the case of clause (1) such action shall not adversely affect
in any material respect the interests of the holders of the Series A Capital
Securities, and any such amendments of the Trust Agreement pursuant to the
foregoing shall become effective when notice thereof is given to the holders of
the Series A Capital Securities.
The Trust Agreement may be amended by the Trustees and the Corporation: (1)
with the consent of holders representing a majority (based upon Liquidation
Amount) of the outstanding Trust Securities; and (2) upon receipt by the
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 Trustees in
accordance with such amendment will not affect the Trust's classification as an
entity that is not an association taxable as a corporation or as being a grantor
trust for U.S. 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: (a) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date;
or (b) 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 Series A Subordinated Debentures are held by the Property
Trustee, the Trustees shall not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the Debenture Trustee, or execute any trust or power
conferred on the Debenture Trustee with respect to the Series A
Subordinated Debentures;
- waive certain past defaults under the Indenture;
- exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the Series A Subordinated Debentures; or
- consent to any amendment, modification or termination of the Indenture or
the Series A Subordinated Debentures, where such consent shall be
required;
without, in each case, obtaining the prior consent of the holders of a majority
in Liquidation Amount of all outstanding Series A Capital Securities; provided,
however, that where a consent under the Indenture would require the consent of
each holder of Series A Subordinated Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior approval of
each holder of the Series A Capital Securities.
44
<PAGE> 45
The Trustees shall not revoke any action previously authorized or approved
by a vote of the holders of the Series A Capital Securities except by subsequent
vote of such holders. The Property Trustee shall notify each holder of Series A
Capital Securities of any notice of default with respect to the Series A
Subordinated Debentures. In addition to obtaining the foregoing approvals of
such holders of the Series A Capital Securities, prior to taking any of the
foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that the Trust will not be classified as an
association taxable as a corporation for U.S. federal income tax purposes on
account of such action.
Any required approval of holders of Series A Capital Securities may be
given at a meeting of such holders convened for such purpose or pursuant to
written consent. The Property Trustee will cause a notice of any meeting at
which holders of Series A Capital Securities are entitled to vote, or of any
matter upon which action by written consent of such holders has been taken, to
be given to each holder of record of Series A Capital Securities in the manner
set forth in the Trust Agreement.
No vote or consent of the holders of Series A Capital Securities will be
required for the Trust to redeem and cancel the Series A Capital Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Series A Capital Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Series A Capital Securities that are owned by the Corporation, the
Trustees or any affiliate of the Corporation or of 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 Corporation that DTC is a limited-purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers
(including the 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 also has advised the Trust and the Corporation that, pursuant to
procedures established by it, (1) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants designated by the Underwriters with
portions of the liquidation
45
<PAGE> 46
amount of the Global Capital Securities and (2) ownership of such interests in
the Global Capital Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
REGISTRATION OF SERIES A CAPITAL SECURITIES
The Series A Capital Securities will be represented by global certificates
registered in the name of DTC or its nominee. Beneficial interests in the Series
A Capital Securities will be shown on, and transfers thereof will he effected
only through, records maintained by Participants. Except as described below,
Series A Capital Securities in certificated form will not be issued in exchange
for the global certificates. See "-- Exchange of Book-Entry Series A Capital
Securities for Certificated Series A Capital Securities."
You may hold your interests in the Series A global capital security
directly through DTC if you are a Participant, or indirectly through
organizations that are Participants. All interests in a Global Capital Security
will be subject to the procedures and requirements of DTC. The laws of some
states require that certain persons take physical delivery in certificated form
of securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Capital Security to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Capital Security to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Capital Securities, see "-- Exchange
of Book-Entry Series A Capital Securities for Certificated Series A Capital
Securities."
Payments in respect of the Global Capital Security registered in the name
of DTC, or its nominee, will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Series A Capital Securities, including the Global Capital Securities, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Property
Trustee nor any agent thereof has or will have any responsibility or liability
for:
- any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Capital Securities, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Capital Securities; or
- any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised the Trust and
the Corporation that its current practice, upon receipt of any payment in
respect of securities such as the Series A Capital Securities, is to
credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
liquidation amount of beneficial
46
<PAGE> 47
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 Series A Capital Securities will be governed by standing instructions
and customary practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of DTC, the
Property Trustee, the Trust or the Corporation. None of the Trust, the
Corporation or the Property Trustee will be liable for any delay by DTC or any
of its Participants or Indirect Participants in identifying the beneficial
owners of the Series A Capital Securities, and the Trust, the Corporation and
the Property Trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
Any secondary market trading activity in interests in the Global Capital
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 Corporation that it will take any action
permitted to be taken by a holder of Series A Capital Securities (including,
without limitation, the presentation of Series A Capital Securities for exchange
as described below) only at the direction of one or more Participants to whose
account with DTC interests in the Global Capital Securities are credited and
only in respect of such portion of the liquidation amount of the Series A
Capital Securities as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default under the Trust
Agreement, DTC reserves the right to exchange the Global Capital Securities for
Series A Capital Securities in certificated form and to distribute such Series A
Capital 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 Corporation believe to be
reliable, but neither the Trust nor the Corporation takes responsibility for the
accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Capital Securities among Participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of the Trust, the
Corporation or the Property Trustee will have any responsibility or liability
for any aspect of the performance by DTC or its Participants or Indirect
Participants of any of their respective obligations under the rules and
procedures governing their operations or for maintaining, supervising or
reviewing any records relating to the Global Capital Securities that are
maintained by DTC or any of its Participants or Indirect Participants.
EXCHANGE OF BOOK-ENTRY SERIES A CAPITAL SECURITIES FOR CERTIFICATED SERIES A
CAPITAL SECURITIES
A Global Capital Security is exchangeable for Series A Capital Securities
in registered certificated form if: (1) DTC (a) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global Capital Security
and the Trust thereupon fails to appoint a successor Depositary within 90 days
of receipt of such notice, or (b) has ceased
47
<PAGE> 48
to be a clearing agency registered under the Exchange Act and the Trust
thereupon fails to appoint a successor Depositary within 90 days of becoming
aware of such condition; (2) the Corporation in its sole discretion elects to
cause the issuance of the Series A Capital Securities in certificated form; or
(3) there shall have occurred and be continuing an Event of Default or any event
which after notice or lapse of time or both would be an Event of Default under
the Trust Agreement. In addition, beneficial interests in a Global Capital
Security may be exchanged by or on behalf of DTC for certificated Series A
Capital 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 Series A Capital Securities delivered in
exchange for any Global Capital Security or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of the Depositary (in accordance with its customary procedures).
PAYMENT AND PAYING AGENCY
Payments in respect of the Series A Capital Securities held in global form
shall be made to the DTC, which shall credit the relevant accounts at the
Depositary on the applicable Distribution Dates, or in respect of the Series A
Capital Securities that are not held by the DTC, 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 Corporation. The Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' notice to the
Property Trustee, the Administrative Trustees and the Corporation. In the event
that the Property Trustee shall no longer be the Paying Agent, the
Administrative Trustees shall appoint a successor (which shall be a bank or
trust company acceptable to the Administrative Trustees and the Corporation) to
act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Series A Capital Securities.
Registration of transfers of the Series A Capital Securities will be
effected without charge by or on behalf of the Trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Trust will not be required to register or cause to be
registered the transfer of the Series A Capital Securities after they have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, will undertake to perform only such duties
as are specifically set forth in the Trust Agreement and, after such 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,
48
<PAGE> 49
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 Series A Capital
Securities or the Series A Common Securities are entitled under the Trust
Agreement to vote, then the Property Trustee shall take such action as is
directed by the Corporation and, if not so directed, shall take such action as
it deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability, except for its own bad faith, negligence
or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that: (1) the Trust will not
be deemed to be an "investment company" required to be registered under the
Investment Company Act; (2) the Trust will not be classified as an association
taxable as a corporation and may be classified as a grantor trust for U.S.
federal income tax purposes; and (3) the Series A Subordinated Debentures will
be treated as indebtedness of the Corporation for U.S. federal income tax
purposes. The Corporation and the Administrative Trustees are authorized to take
any action, not inconsistent with applicable law, the certificate of trust of
the Trust or the Trust Agreement, that the Corporation and the Administrative
Trustees determine in their discretion to be necessary or desirable for such
purposes, as long as such action does not materially adversely affect the
interests of the holders of the Trust Securities.
The Trust Agreement provides that (1) holders of the Trust Securities have
no preemptive or similar rights to subscribe for any additional Trust Securities
and (2) the issuance of Trust Securities is not subject to preemptive rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
49
<PAGE> 50
DESCRIPTION OF SERIES A SUBORDINATED DEBENTURES
This summary of certain terms and provisions of the Series A Subordinated
Debentures set forth below, which describes the material provisions thereof,
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the Indenture, and the Trust Indenture Act, to each of which
reference is hereby made. The Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Wilmington Trust
Company will act as Indenture Trustee ("Debenture Trustee") under the Indenture.
The Indenture is qualified under the Trust Indenture Act. Whenever particular
defined terms of the Indenture (as supplemented or amended from time to time)
are referred to herein, such defined terms are incorporated herein by reference.
GENERAL
Concurrently with the issuance of the Series A Capital Securities, the
Trust will invest the proceeds thereof, together with the consideration paid by
the Corporation for the Series A Common Securities, in the Series A Subordinated
Debentures issued by the Corporation. The Series A Subordinated Debentures will
bear interest at the annual rate of 9.75% of the principal amount thereof,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each, an "Interest Payment Date"), commencing March 31, 1999, and
at maturity to the person in whose name each Series A Subordinated Debenture is
registered at the close of business on the record date immediately preceding
such Interest Payment Date. The period beginning on and including the date of
original issuance of the Series A Subordinated Debentures and ending on but
excluding the first Interest Payment Date and each successive period beginning
on and including an Interest Payment Date and ending on but excluding the next
succeeding Interest Payment Date is herein called an "Interest Period." It is
anticipated that, until the liquidation, if any, of the Trust, each Series A
Subordinated Debenture will be held by the Property Trustee in trust for the
benefit of the holders of the Series A Capital Securities. The amount of
interest payable for any Interest Period will be computed on the basis of a
360-day year consisting of twelve 30-day months. In the event that any Interest
Payment Date would otherwise fall on a day that is not a Business Day, such
Interest Payment Date shall be postponed to the next day that is a Business Day
(without any interest or other payment in respect of any such delay) unless it
would thereby fall in the next calendar year, in which event the Interest
Payment Date shall be brought forward to the immediately preceding Business Day.
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 of 9.75% per annum, compounded quarterly from the relevant Interest
Payment Date. The term "interest" as used herein shall include quarterly
interest payments and interest on quarterly interest payments not paid on the
applicable Interest Payment Date, as applicable. Notwithstanding anything to the
contrary, set forth above, if the maturity date falls on a day that is not a
Business Day, the payment of principal and interest will be paid on the next
succeeding Business Day, with the same force and effect as if made on such
maturity date and no interest on such payments will accrue from and after the
maturity date.
The Series A Subordinated Debentures will be issued as a Series of junior
subordinated deferrable interest debentures under the Indenture.
50
<PAGE> 51
The Series A Subordinated Debentures will mature on December 31, 2028 (the
"Stated Maturity Date").
The Series A 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 Corporation is a bank holding company regulated by the FRB and almost
all of its operating assets are owned by the Bank. The Corporation is a legal
entity separate and distinct from its subsidiary. Holders of Series A
Subordinated Debentures should look only to the Corporation for payments on the
Series A Subordinated Debentures. The principal sources of the Corporation's
income are dividends, interest and fees from the Bank. The Corporation relies
primarily on dividends from the Bank to meet its obligations for payment of
principal and interest on its outstanding debt obligations and corporate
expenses. Dividend payments from the Bank are subject to regulatory limitations,
generally based on current and retained earnings, imposed by the various
regulatory agencies with authority over the Bank. Under the FDIA, an insured
depositary institution such as the Bank is prohibited from making capital
distributions, including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
used in the statute). Based on the Bank's current financial condition, the
Corporation does not expect that this provision will have any impact on its
ability to obtain dividends from the Bank. During the first nine months of 1998,
the Bank paid $2.1 million in dividends to the Corporation, which reflected
4.42% of the total amount of dividends the Bank was permitted to pay as of
September 30, 1998 under existing supervisory practices. At September 30, 1998,
approximately $47.2 million of retained earnings of the Bank were available for
dividend declaration without prior regulatory approval. Payment of dividends by
the Bank is also subject to the respective Bank's profitability, financial
condition and capital expenditures and other cash flow requirements. The FRB has
stated that, as a matter of prudent banking, a bank or bank holding company
should not maintain its existing rate of cash dividends on common stock unless
(1) the organization's net income available to common shareholders over the past
year has been sufficient to fund fully the dividends; and (2) the prospective
rate of earnings retention appears consistent with the organization's capital
needs, asset quality, and overall financial condition. No assurance can be given
that the Bank will be able to pay dividends at past levels, or at all, in the
future.
In addition to restrictions on the payment of dividends, the Bank is
subject to certain restrictions imposed by federal law on any extensions of
credit to, and certain other transactions with, the Corporation and certain
other affiliates, and on investments in stock or other securities thereof. Such
restrictions prevent the Corporation and such other affiliates from borrowing
from the Bank unless the loans are at least 100% secured by various types of
collateral. Furthermore, such secured loans, other transactions and investments
by the Bank are generally limited in amount as to the Corporation and as to each
of such other affiliates to 10% of the Bank's capital and surplus and as to the
Corporation and all of such other affiliates to an aggregate of 20% of the
Bank's capital and surplus.
Because the Corporation is a holding company, its right 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 Series A
Capital Securities to benefit
51
<PAGE> 52
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 Corporation may itself be recognized as a creditor of that
subsidiary. At September 30, 1998, the Bank had total liabilities, including
deposits, of $1.5 billion. Accordingly, the Series A Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Bank (including the Bank's deposit liabilities) and all liabilities of any
future subsidiaries of the Corporation. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Corporation or
the Bank, including Senior Indebtedness. See "-- Subordination."
FORM, REGISTRATION AND TRANSFER
If the Series A Subordinated Debentures are distributed to the holders of
the Trust Securities, the Series A 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 Series A Subordinated
Debentures are expected to be substantially similar to those in effect for the
Series A Capital Securities. For a description of DTC and the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Description of Series A
Capital Securities -- Form, Denomination, Book-Entry Procedures and Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal of and interest on the Series A Subordinated
Debentures will be made at the office of the Debenture Trustee in Wilmington,
Delaware or at the office of such Paying Agent or Paying Agents as the
Corporation may designate from time to time, except that at the option of the
Corporation payment of any interest may be made, except in the case of Series A
Subordinated Debentures in global form: (1) by check mailed to the address of
the Person entitled thereto as such address shall appear in the register for
Series A Subordinated Debentures; or (2) 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 Series A Subordinated Debenture will be made to the Person
in whose name such Series A Subordinated Debenture is registered at the close of
business on the Record Date for such interest, except in the case of defaulted
interest. The Corporation may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent; however the Corporation will at all
times be required to maintain a Paying Agent in each place of payment for the
Series A Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Corporation in trust, for the payment of the principal of or
interest on any Series A Subordinated Debenture and remaining unclaimed for two
years after such principal or interest has become due and payable shall, at the
request of the Corporation, be repaid to the Corporation and the holder of such
Series A Subordinated Debenture shall thereafter look, as a general unsecured
creditor, only to the Corporation for payment thereof.
52
<PAGE> 53
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation will have the right under the Indenture to defer the payment of
interest on the Series A 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 Corporation must pay all interest then
accrued and unpaid (together with interest thereon at the rate of 9.75% per
annum, compounded quarterly from the relevant Interest Payment Date, to the
extent permitted by applicable law). During an Extension Period, interest will
continue to accrue, and holders of the Trust Securities while Trust Securities
are outstanding or, if the Series A Subordinated Debentures have been
distributed to holders of the Trust Securities, holders of Series A Subordinated
Debentures, will be required to continue to include that deferred interest in
gross income for U.S. federal income tax purposes on an accrual method of
accounting prescribed by the Code and Treasury regulation provisions on OID
prior to the receipt of cash attributable to that income. See "Certain Federal
Income Tax Consequences -- Original Issue Discount."
During any such Extension Period, the Corporation may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the
Corporation's capital stock;
- make any payment of principal of, or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation
(including any Other Debentures) that rank pari passu with or junior in
right of payment to the Series A Subordinated Debentures; or
- make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsidiary of the Corporation
(including any Other Guarantees) if such guarantee ranks pari passu with
or junior in right of payment to the Series A Subordinated Debentures;
other than (a) dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, common stock of the Corporation,
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Series A Guarantee, (d) as a result of a reclassification of
the Corporation's capital stock or the exchange or conversion of one class or
series of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged
and (f) purchases of common stock of the Corporation related to the issuance of
common stock or rights under any of the Corporation's benefit plans for its
directors, officers or employees or any of the Corporation's dividend
reinvestment plans. The Corporation has no current intention to exercise its
option to defer payments of interest on the Series A Subordinated Debentures.
Prior to the termination of any such Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension
53
<PAGE> 54
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 interest then
accrued and unpaid (together with interest thereon at the rate of 9.75% per
annum, compounded quarterly, to the extent permitted by applicable law), the
Corporation may elect to begin a new Extension Period, subject to the
requirements set forth herein. No interest shall be due and payable during an
Extension Period, except at the end thereof.
The Corporation must give the Property Trustee, the Administrative Trustees
and the Debenture Trustee notice of its election of any Extension Period (or an
extension thereof) at least five Business Days prior to the earlier of:
- the date the Distributions on the Trust Securities would have been
payable except for the election to begin or extend such Extension Period;
or
- the date the Administrative Trustees are required to give notice to any
securities exchange or automated quotation system on which the Series A
Capital Securities may then be listed or quoted or to holders of Series A
Capital Securities of the record date for such Distributions; or
- the date such Distributions are payable, but in any event not less than
five Business Days prior to such record date. The Debenture Trustee shall
give notice of the Corporation's election to begin or extend a new
Extension Period to the holders of the Series A Capital Securities.
There is no limitation on the number of times that the Corporation may elect to
begin an Extension Period.
OPTIONAL PREPAYMENT
The Series A Subordinated Debentures will be prepayable, in whole or in
part, at the option of the Corporation on or after December 31, 2008, subject to
the Corporation having received any required regulatory approval, at a price
(the "Prepayment Price") equal to 100% of the principal amount of the Series A
Subordinated Debentures so prepaid, plus accrued and unpaid interest thereon, if
any, to the date of prepayment.
SPECIAL EVENT PREPAYMENT
Prior to December 31, 2008, if a Special Event has occurred and is
continuing, the Corporation may, at its option, and subject to receipt of any
required regulatory approval, prepay the Series A Subordinated Debentures, in
whole but not in part, at any time within 90 days of the occurrence of such
Special Event, at the Prepayment Price. If, following the occurrence of a
Special Event, the Corporation exercises its option to prepay the Series A
Subordinated Debentures, then the proceeds of that prepayment must be applied to
redeem a Like Amount of Trust Securities at the Redemption Price. See
"Description of Series A Capital Securities -- Redemption."
A "Special Event" means an Investment Company Event, a Regulatory Capital
Event or a Tax Event, as the case may be.
54
<PAGE> 55
An "Investment Company Event" means the receipt by the Corporation and the
Trust of an opinion of independent securities 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 regulation thereunder of the United States or any
rules, guidelines or policies of any applicable regulatory authority for
the Corporation; or
- any official administrative or judicial decision interpreting or applying
such laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of original
issuance of the Trust Securities;
the Trust is, or within 90 days of the date of such opinion will be, considered
an "investment company" that is required to be registered under the Investment
Company Act.
A "Regulatory Capital Event" means the receipt by the Corporation of an
opinion of independent bank regulatory 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
rules, guidelines or policies of an applicable regulatory agency; or
- 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 the date of original issuance of the Trust Securities;
the Series A Capital Securities do not constitute, or within 90 days of such
opinion will not constitute, Tier 1 capital (or its then equivalent if the
Corporation were subject to such capital requirement).
A "Tax Event" means the receipt by the Corporation and the Trust of an
opinion of independent tax 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
- 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 date of original issuance of the Trust Securities;
there is more than an insubstantial risk that:
- the Trust is, or will be within 90 days of the date of such opinion,
subject to U.S. federal income tax with respect to any income received or
accrued on the Series A Subordinated Debentures;
55
<PAGE> 56
- interest payable by the Corporation on the Series A Subordinated
Debentures is not, or within 90 days of the date of such opinion will not
be, deductible by the Corporation, in whole or in part, for U.S. federal
income tax purposes; or
- 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.
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 Series A Subordinated
Debentures to be prepaid at its registered address. Unless the Corporation
defaults in payment of the Prepayment Price, on the prepayment date interest
shall cease to accrue on such Series A Subordinated Debentures called for
prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional amounts on the Series A Subordinated Debentures such amounts as may
be necessary in order that the amount of Distributions then due and payable by
the Trust on the outstanding Trust Securities shall not be reduced as a result
of any additional taxes, duties or other governmental charges to which the Trust
has become subject as a result of a Tax Event ("Additional Sums").
CERTAIN COVENANTS OF THE CORPORATION
The Corporation will covenant that it will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the
Corporation's capital stock;
- make any payment of principal of, or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Corporation
(including any Other Debentures) that rank pari passu with or junior in
right of payment to the Series A Subordinated Debentures; or
- make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsidiary of the Corporation
(including any Other Guarantees) if such guarantee ranks pari passu with
or junior in right of payment to the Series A Subordinated Debentures;
other than (a) dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, common stock of the Corporation,
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Series A Guarantee, (d) as a result of a reclassification of
the Corporation's capital stock or the exchange or conversion of one class or
series of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
and (f) purchases of common stock of the Corporation related to the issuance of
common stock or rights under any of the Corporation's benefit plans for its
directors, officers or employees or any of the Corporation's dividend
reinvestment plans, if at such time: (1) there shall have occurred
56
<PAGE> 57
any event of which the Corporation has actual knowledge that (A) is, or with the
giving of notice or the lapse of time, or both, would be, a Debenture Event of
Default and (B) in respect of which the Corporation shall not have taken
reasonable steps to cure; (2) the Corporation shall be in default with respect
to its payment of any obligations under the Series A Guarantee; or (3) the
Corporation shall have given notice of its election to exercise its right to
commence an Extension Period as provided in the Indenture and such Extension
Period, or any extension thereof, shall have commenced and be continuing.
So long as the Trust Securities remain outstanding, the Corporation also
will covenant:
- to directly or indirectly maintain 100% direct or indirect ownership of
the Series A Common Securities; provided, however, that any permitted
successor of the Corporation under the Indenture may succeed to the
Corporation's ownership of such Series A Common Securities;
- to use commercially reasonable efforts to cause the Trust (a) to remain a
business trust, except in connection with the distribution of Series A
Subordinated Debentures to the holders of Trust Securities in liquidation
of the Trust, the redemption of all of the Trust Securities, or certain
mergers, consolidations or amalgamations, each as permitted by the Trust
Agreement, and (b) to otherwise continue not to be classified as an
association taxable as a corporation and to be classified as a grantor
trust for U.S. federal income tax purposes;
- to use commercially reasonable efforts to cause each holder of Trust
Securities to be treated as owning an undivided beneficial interest in
the Series A Subordinated Debentures; and
- to not cause, as sponsor of the Trust, or permit, as holder of the Series
A Common Securities, the dissolution, winding-up or liquidation of the
Trust, except as provided in the Trust Agreement.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may, without
the consent of the holders of Series A Subordinated Debentures, amend 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 Series A Subordinated
Debentures, and qualifying, or maintaining the qualification of, the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting the
Corporation and the Debenture Trustee, with the consent of the holders of a
majority in aggregate principal amount of Series A Subordinated Debentures, to
modify the Indenture in a manner affecting the rights of the holders of Series A
Subordinated Debentures; provided that no such modification may, without the
consent of the holders of each outstanding Series A Subordinated Debenture so
affected:
- change the Stated Maturity Date, or reduce the principal amount of the
Series A Subordinated Debentures;
- reduce the amount payable on prepayment thereof or reduce the rate or
extend the time of payment of interest thereon except pursuant to the
Corporation's right
57
<PAGE> 58
under the Indenture to defer the payment of interest as provided therein
(see "-- Option to Extend Interest Payment Date");
- make the principal of, or interest on, the Series A Subordinated
Debentures payable in any coin or currency other than that provided in
the Series A Subordinated Debentures;
- impair or affect the right of any holder of Series A Subordinated
Debentures to institute suit for the payment thereof; or
- reduce the percentage of principal amount of Series A 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 Series A 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):
- failure for 30 days to pay any interest (including compounded interest
and Additional Sums, if any) on the Series A Subordinated Debentures or
any Other Debentures when due (subject to the deferral of any interest
due date in the case of an Extension Period with respect to the Series A
Subordinated Debentures or Other Debentures as the case may be); or
- failure to pay any principal or premium, if any, on the Series A
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon prepayment, by declaration of acceleration of maturity or
otherwise; or
- failure to observe or perform, in any material respect, any other
covenant contained in the Indenture for 90 days after written notice to
the Corporation from the Debenture Trustee or to the Corporation and the
Debenture Trustee from the holders of at least 25% in aggregate
outstanding principal amount of Series A Subordinated Debentures; or
- certain events related to bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of the
Series A 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 Series A
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 Series A Subordinated Debentures may annul
such declaration and waive the default if the default (other than the
non-payment of the principal of the Series A Subordinated Debentures which has
become due solely by such acceleration) has been cured and a sum sufficient to
pay all
58
<PAGE> 59
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
Series A Subordinated Debentures affected thereby may, on behalf of the holders
of all the Series A Subordinated Debentures, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Series A Subordinated Debenture.
The Indenture requires an annual filing by the Corporation with the
Debenture Trustee of a certificate as to the absence of certain defaults under
the Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of a
Debenture Event of Default from the holders of the Series A Subordinated
Debentures if the Debenture Trustee considers it in the interest of such holders
to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF SERIES A CAPITAL SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Corporation to pay the principal of,
or interest (including compounded interest and Additional Sums, if any) on the
Series A Subordinated Debentures on the due date, a holder of Series A Capital
Securities may institute a Direct Action. The Corporation may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Series A Capital Securities.
Notwithstanding any payments made to a holder of Series A Capital Securities by
the Corporation in connection with a Direct Action, the Corporation shall remain
obligated to pay the principal of or interest (including compounded interest and
Additional Sums, if any) on the Series A Subordinated Debentures, and the
Corporation shall be subrogated to the rights of the holder of such Series A
Capital Securities with respect to payments on the Series A Capital Securities
to the extent of any payments made by the Corporation to such holder in any
Direct Action.
The holders of the Series A Capital Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Series A Subordinated Debentures, unless there
shall have been an Event of Default under the Trust Agreement. See "Description
of Series A Capital Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Corporation shall not consolidate with or
merge into any other Person or convey, transfer or lease its properties as an
entirety or substantially as an entirety to any Person, and no Person shall
consolidate with or merge into the Corporation or convey, transfer or lease its
properties as an entirety or substantially as an entirety to the Corporation,
unless:
- in case the Corporation consolidates with or merges into another Person
or conveys or transfers its properties as an entirety or substantially as
an entirety to any Person,
59
<PAGE> 60
the successor Person is organized under the laws of the United States or
any state or the District of Columbia, and such successor Person
expressly assumes the Corporation's obligations under the Indenture with
respect to the Series A Subordinated Debentures;
- 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
- certain other conditions as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the Series
A Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Series A Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Series A
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (1) have become due and payable or (2) will become due and payable
at maturity or called for prepayment within one year, and the Corporation
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Series A Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal and interest
(including compounded interest and Additional Sums, if any) to the date of the
prepayment or to the Stated Maturity Date, as the case may be, then the
Indenture will cease to be of further effect (except as to the Corporation's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Corporation will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Corporation has covenanted and agreed that any Series
A Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, the holders of Senior Indebtedness
will first be entitled to receive payment in full of all Allocable Amounts (as
defined below) in respect of such Senior Indebtedness before the holders of
Series A Subordinated Debentures will be entitled to receive or retain any
payment in respect thereof.
In the event of the acceleration of the maturity of Series A 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 Series A Subordinated Debentures will
be entitled to receive or retain any payment in
60
<PAGE> 61
respect of the principal of (or premium, if any) or interest, if any, on the
Series A Subordinated Debentures.
No payments on account of principal or interest, if any, in respect of the
Series A Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Indebtedness, or an
event of default with respect to any Senior Indebtedness resulting in the
acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Allocable Amounts," when used with respect to any Senior Indebtedness,
means all amounts due or to become due on such Senior Indebtedness less, if
applicable, any amount which would have been paid to, and retained by, the
holders of such Senior Indebtedness (whether as a result of the receipt of
payments by the holders of such Senior Indebtedness from the Corporation or any
other obligor thereon or from any holders of, or trustee in respect of, other
indebtedness that is subordinate and junior in right of payment to such Senior
Indebtedness pursuant to any provision of such indebtedness for the payment over
of amounts received on account of such indebtedness to the holders of such
Senior Indebtedness or otherwise) but for the fact that such Senior Indebtedness
is subordinate or junior in right of payment to (or subject to a requirement
that amounts received on such Senior Indebtedness be paid over to obligees on)
trade accounts payable or accrued liabilities arising in the ordinary course of
business.
"Indebtedness" shall mean, whether recourse is to all or a portion of the
assets of the Corporation and whether or not contingent:
- every obligation of the Corporation for money borrowed;
- every obligation of the Corporation evidenced by bonds, debentures, notes
or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses;
- every reimbursement obligation of the Corporation with respect to letters
of credit, banker's acceptances or similar facilities issued for the
account of the Corporation;
- every obligation of the Corporation issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business);
- every capital lease obligation of the Corporation;
- all indebtedness of the Corporation whether incurred on or prior to the
date of the Indenture or thereafter incurred, for claims in respect of
derivative products, including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements;
and
- every obligation of the type referred to in the clauses above of another
Person and all dividends of another Person the payment of which, in
either case, the Corporation has guaranteed or is responsible or liable
for, directly or indirectly, as obligor or otherwise.
"Indebtedness Ranking on a Parity with the Series A Subordinated
Debentures" shall mean (1) Indebtedness, whether outstanding on the date of
execution of the Indenture or thereafter created, assumed or incurred, to the
extent such Indebtedness by its terms ranks
61
<PAGE> 62
equally with and not prior to the Series A Subordinated Debentures in the right
of payment upon the happening of the dissolution, winding-up, liquidation or
reorganization of the Corporation; and (2) all other debt securities, and
guarantees in respect of those debt securities, issued to any trust other than
the Trust, or a trustee of such trust, partnership or other entity affiliated
with the Corporation that is a financing vehicle of the Corporation (a
"financing entity") in connection with the issuance by such financing entity of
equity securities or other securities guaranteed by the Corporation pursuant to
an instrument that ranks pari passu with or junior in right of payment to the
Series A Guarantee. The securing of any Indebtedness, otherwise constituting
Indebtedness Ranking on a Parity with the Series A Subordinated Debentures,
shall not be deemed to prevent such Indebtedness from constituting Indebtedness
Ranking on a Parity with the Series A Subordinated Debentures.
"Indebtedness Ranking Junior to the Series A Subordinated Debentures" shall
mean any Indebtedness, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, to the extent such
Indebtedness by its terms ranks junior to and not equally with or prior to the
Series A Subordinated Debentures (and any other Indebtedness Ranking on a Parity
with the Series A Subordinated Debentures) in right of payment upon the
happening of the dissolution, winding-up, liquidation or reorganization of the
Corporation. The securing of any Indebtedness, otherwise constituting
Indebtedness Ranking Junior to the Series A Subordinated Debentures, shall not
be deemed to prevent such Indebtedness from constituting Indebtedness Ranking
Junior to the Series A Subordinated Debentures.
"Senior Indebtedness" shall mean the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Corporation whether
or not such claim for post-petition interest is allowed in such proceedings), on
all Indebtedness, whether outstanding on the date of execution of the Indenture
or thereafter created, assumed or incurred, except Indebtedness Ranking on a
Parity with the Series A Subordinated Debentures or Indebtedness Ranking Junior
to the Series A Subordinated Debentures, and any deferrals, renewals or
extensions of such Senior Indebtedness.
The Corporation is a bank holding company and almost all of the operating
assets of the Corporation are owned by the Bank. The Corporation relies
primarily on dividends from the Bank to meet its corporate expenses. The
Corporation is a legal entity separate and distinct from its subsidiary. Holders
of Series A Subordinated Debentures should look only to the Corporation for
payments on the Series A Subordinated Debentures. There are regulatory
limitations on the payment of dividends directly or indirectly to the
Corporation from the Bank. See "-- General." In addition, the Bank is subject to
certain restrictions imposed by federal law on any extensions of credit to, and
certain other transactions with, the Corporation and certain other affiliates,
and on investments in stock or other securities thereof. Such restrictions
prevent the Corporation and such other affiliates from borrowing from the Bank
unless the loans are at least 100% secured by various types of collateral.
Further, such secured loans, other transactions and investments by the Bank are
generally limited in amount as to the Corporation and as to each of such other
affiliates to 10% of the Bank's capital and surplus and as to the Corporation
and all of such other affiliates to an aggregate of 20% of the Bank's capital
and surplus. Accordingly, the Series A
62
<PAGE> 63
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries.
In addition, because the Corporation is a bank holding company, the right
of the Corporation to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise
(and thus the ability of holders of the Series A Capital Securities to benefit
indirectly from such distribution), is subject to the prior claims of creditors
of that subsidiary (including depositors, in the case of the Bank), except to
the extent the Corporation may itself be recognized as a creditor of that
subsidiary. At September 30, 1998, the Corporation's sole subsidiary, the Bank,
had total liabilities, including deposits, of $1.5 billion. Accordingly, the
Series A Subordinated Debentures will be effectively subordinated to all
existing and future liabilities of the Corporation's subsidiaries (including the
Bank's deposit liabilities) and all liabilities of any future subsidiaries of
the Corporation. The Indenture does not limit the incurrence or issuance of
other secured or unsecured debt of the Corporation or any subsidiary, including
Senior Indebtedness.
GOVERNING LAW
The Indenture and the Series A Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York, without
regard to conflict of law principles.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the 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 Series A 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 under the Indenture if the Debenture Trustee
reasonably believes that repayment or adequate indemnity is not reasonably
assured to it.
63
<PAGE> 64
DESCRIPTION OF SERIES A GUARANTEE
The Series A Guarantee will be executed and delivered by the Corporation
concurrently with the issuance by the Trust of the Series A Capital Securities
for the benefit of the holders from time to time of the Series A Capital
Securities. Wilmington Trust Company will act as Series A Guarantee Trustee
under the Series A Guarantee for the purposes of compliance with the Trust
Indenture Act. The Series A Guarantee will be qualified as an Indenture under
the Trust Indenture Act. This summary of certain provisions of the Series A
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 Series A Guarantee,
including the definitions contained therein of certain terms, and the Trust
Indenture Act, to each of which reference is hereby made. The form of the Series
A Guarantee has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. The Series A Guarantee Trustee will hold the
Series A Guarantee for the benefit of the holders of the Series A Capital
Securities.
GENERAL
The Corporation 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 Series A Capital Securities, as and when due, regardless
of any defense, right of set-off or counterclaim that the Trust may have or
assert other than the defense of payment. The following payments with respect to
the Series A Capital Securities, to the extent not paid by or on behalf of the
Trust (the "Guarantee Payments"), will be subject to the Series A Guarantee:
- any accumulated and unpaid Distributions required to be paid on the
Series A Capital Securities, to the extent that the Trust has funds on
hand legally available therefor at such time;
- the applicable Redemption Price with respect to the Series A Capital
Securities called for redemption, to the extent that the Trust has funds
on hand legally available therefor at such time; and
- upon a voluntary or involuntary dissolution, winding-up or liquidation of
the Trust (other than in connection with the distribution of the Series A
Subordinated Debentures to holders of the Series A Capital Securities or
the redemption of all Series A Capital Securities), the lesser of (a) the
Liquidation Distribution, to the extent the Trust has funds legally
available therefor at the time, and (b) the amount of assets of the Trust
remaining available for distribution to holders of Series A Capital
Securities after satisfaction of liabilities to creditors of the Trust as
required by applicable law.
The Series A Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness to the extent provided therein. See "-- Status of the
Series A Guarantee." The Corporation's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amounts by the Corporation to
the holders of the Series A Capital Securities or by causing the Trust to pay
such amounts to such holders.
The Series A Guarantee will be an irrevocable guarantee on a subordinated
basis of the Trust's obligations under the Series A Capital Securities, but will
apply only to the
64
<PAGE> 65
extent that the Trust has funds sufficient to make such payments. If the
Corporation does not make interest payments on the Series A Subordinated
Debentures held by the Trust, the Trust will not be able to pay the
Distributions on the Series A Capital Securities and will not have funds legally
available therefor. See "Relationship Among the Series A Capital Securities, the
Series A Subordinated Debentures and the Series A Guarantee." The Series A
Guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of the Corporation, including Senior Indebtedness, whether under
the Indenture, any other indenture that the Corporation may enter into in the
future or otherwise.
The holders of not less than a majority in aggregate Liquidation Amount of
the Series A Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Series A
Guarantee Trustee in respect of the Series A Guarantee or to direct the exercise
of any trust power conferred upon the Series A Guarantee Trustee under the
Series A Guarantee. Any holder of the Series A Capital Securities may institute
a legal proceeding directly against the Corporation to enforce its rights under
the Series A Guarantee without first instituting a legal proceeding against the
Trust, the Series A Guarantee Trustee or any other person or entity. If the
Corporation were to default on its obligation to pay amounts payable under the
Series A Subordinated Debentures, the Trust would lack funds for the payment of
Distributions or amounts payable on redemption of the Series A Capital
Securities or otherwise, and, in such event, holders of the Series A Capital
Securities would not be able to rely upon the Series A Guarantee for payment of
such amounts. Instead, if a Debenture Event of Default shall have occurred and
be continuing and such event is attributable to the failure of the Corporation
to pay interest on or principal of the Series A Subordinated Debentures on the
applicable payment date, then a holder of Series A Capital Securities may
institute a Direct Action against the Corporation pursuant to the terms of the
Indenture for enforcement of payment to such holder of the principal of or
interest on such Series A Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Series A Capital Securities of
such holder. In connection with such Direct Action, the Corporation will have a
right of set-off under the Indenture to the extent of any payment made by the
Corporation to such holder of Series A Capital Securities in the Direct Action.
Except as described herein, holders of Series A Capital Securities will not be
able to exercise directly any other remedy available to the holders of the
Series A Subordinated Debentures or assert directly any other rights in respect
of the Series A Subordinated Debentures. The Trust Agreement provides that each
holder of Series A Securities by acceptance thereof agrees to the provisions of
the Series A Guarantee and the Indenture.
The Corporation will, through the Series A Guarantee, the Trust Agreement,
the Series A Subordinated Debentures and the Indenture, taken together, fully,
irrevocably and unconditionally guarantee all of the Trust's obligations under
the Series A Capital Securities. No single document standing alone, or operating
in conjunction with fewer than all of the other documents, constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Series A Capital Securities. See "Relationship
Among the Series A Capital Securities, the Series A Subordinated Debentures and
the Series A Guarantee."
65
<PAGE> 66
STATUS OF THE SERIES A GUARANTEE
The Series A Guarantee will constitute an unsecured obligation of the
Corporation and will rank subordinate and junior in right of payment to all
Senior Indebtedness in the same manner as the Series A Subordinated Debentures.
See "Description of Series A Subordinated Debentures -- Subordination." In
addition, because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary upon
such subsidiary's liquidation or reorganization or otherwise is subject to the
prior claims of creditors of such subsidiary (including depositors of the Bank),
except to the extent the Corporation may itself be recognized as a creditor of
such subsidiary. Accordingly, the Corporation's obligations under the Series A
Guarantee effectively will be subordinated to all existing and future
liabilities of the Corporation's present and future subsidiaries (including the
depositors of the Bank). As a result, claimants should look only to the assets
of the Corporation for payments under the Series A Guarantee. See "Description
of Series A Subordinated Debentures -- General."
The Series A Guarantee will rank pari passu with all other guarantees
issued by the Corporation with respect to preferred beneficial interests (if
any) issued by other trusts. The Series A Guarantee does not limit the amount of
secured or unsecured debt, including Senior Indebtedness, that may be incurred
by the Corporation or any of its subsidiaries. The Corporation expects from time
to time that it will incur additional indebtedness and that its subsidiaries
will also incur additional liabilities. The Series A Guarantee will constitute a
guarantee of payment and not of collection (i.e., the guaranteed party may
institute a legal proceeding directly against the Corporation to enforce its
rights under the Series A Guarantee without first instituting a legal proceeding
against any other person or entity). The Series A Guarantee will be held for the
benefit of the holders of the Series A Capital Securities. The Series A
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 Series A Capital Securities of the Series A Subordinated Debentures.
EVENTS OF DEFAULT
An event of default under the Series A Guarantee will occur upon the
failure of the Corporation to perform any of its payment or other obligations
thereunder; provided, however, that except with respect to a default in payment
of any Guarantee Payment, the Corporation shall have received notice of default
and shall not have cured such default within 60 days after receipt of such
notice. The holders of not less than a majority in Liquidation Amount of the
Series A Capital Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Series A
Guarantee Trustee in respect of the Series A Guarantee or to direct the exercise
of any trust or power conferred upon the Series A Guarantee Trustee under the
Series A Guarantee.
Any holder of the Series A Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Series A Guarantee without first instituting a legal proceeding against the
Trust, the Series A Guarantee Trustee or any other person or entity.
66
<PAGE> 67
The Corporation, as guarantor, will be required to file annually with the
Series A Guarantee Trustee a certificate as to whether or not the Corporation is
in compliance with all the conditions and covenants applicable to it under the
Series A Guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Series A Capital Securities (in which case no vote
will be required), the Series A Guarantee may not be amended without the prior
approval of the holders of a majority of the Liquidation Amount of such
outstanding Series A Capital Securities. The manner of obtaining any such
approval will be as set forth under "Description of Series A Capital
Securities -- Voting Rights; Amendment of the Trust Agreement." All guarantees
and agreements contained in the Series A Guarantee Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Corporation
and shall inure to the benefit of the holders of the Series A Capital Securities
then outstanding.
TERMINATION OF THE SERIES A GUARANTEE
The Series A Guarantee will terminate and be of no further force and effect
upon full payment of the applicable Redemption Price of all outstanding Series A
Capital Securities, upon full payment of the Liquidation Amount payable upon
liquidation of the Trust or upon distribution of Series A Subordinated
Debentures to the holders of the Series A Capital Securities. The Series A
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Series A Capital Securities must restore
payment of any sums paid under the Series A Capital Securities or the Series A
Guarantee.
INFORMATION CONCERNING THE SERIES A GUARANTEE TRUSTEE
The Series A Guarantee Trustee, other than during the occurrence and
continuance of a default by the Corporation in performance of the Series A
Guarantee, will undertake to perform only such duties as are specifically set
forth in the Series A Guarantee and, in case a default with respect to the
Series A Guarantee has occurred, 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 Series A Guarantee Trustee will be under
no obligation to exercise any of the powers vested in it by the Series A
Guarantee at the request of any holder of the Series A Capital Securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
GOVERNING LAW
The Series A Guarantee will be governed by and construed in accordance with
the laws of the State of New York, without regard to conflict of law principles.
67
<PAGE> 68
RELATIONSHIP AMONG THE SERIES A CAPITAL SECURITIES,
THE SERIES A SUBORDINATED DEBENTURES AND THE SERIES A GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Series A Capital
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by the Corporation
as and to the extent set forth under "Description of Series A Guarantee." Taken
together, the Corporation's obligations under the Series A Subordinated
Debentures, the Indenture, the Trust Agreement and the Series A Guarantee will
provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of Distributions and other amounts due on the Series A Capital
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Series A Capital Securities. If and to the extent that the Corporation does not
make the required payments on the Series A Subordinated Debentures, the Trust
will not have sufficient funds to make the related payments, including
Distributions, on the Series A Capital Securities. The Series A 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 Series A
Capital Securities is to institute a Direct Action. The obligations of the
Corporation under the Series A 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
Series A Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Series A Capital Securities,
primarily because: (1) the aggregate principal amount or Prepayment Price of the
Series A Subordinated Debentures will be equal to the sum of the Liquidation
Amount or Redemption Price, as applicable, of the Trust Securities; (2) the
interest rate and interest and other payment dates on the Series A Subordinated
Debentures will match the Distribution Rate and Distribution and other payment
dates for the Trust Securities; (iii) the Corporation, as sponsor, shall pay for
all and any costs, expenses and liabilities of the Trust, except the Trust's
obligations to holders of Trust Securities under such Trust Securities; and (iv)
the Trust Agreement further provides that the Trust is not authorized to engage
in any activity that is not consistent with its limited purposes of the Trust.
ENFORCEMENT RIGHTS OF HOLDERS OF SERIES A CAPITAL SECURITIES
A holder of any Series A Capital Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series A
Guarantee without first instituting a legal proceeding against the Series A
Guarantee Trustee, the Trust or any other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Trust Agreement. However, in
the event of payment
68
<PAGE> 69
defaults under, or acceleration of, Senior Indebtedness, the subordination
provisions of the Indenture provide that no payments may be made in respect of
the Series A 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 Series A Subordinated Debentures would constitute
an Event of Default under the Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The Series A Capital 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 Series A Subordinated Debentures and engaging in only those other
activities necessary, advisable or incidental thereto. A principal difference
between the rights of a holder of a Series A Capital Security and a holder of a
Series A Subordinated Debenture is that a holder of a Series A Subordinated
Debenture will be entitled to receive from the Corporation the principal amount
of and interest on Series A Subordinated Debentures held, while a holder of
Series A Capital Securities is entitled to receive Distributions from the Trust
(or, in certain circumstances, from the Corporation under the Series A
Guarantee) if and to the extent the Trust has funds on hand legally available
for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Unless the Series A Subordinated Debentures are distributed to holders of
the Trust Securities, upon any voluntary or involuntary dissolution, winding-up
or liquidation of the Trust, after satisfaction of the liabilities of creditors
of the Trust as required by applicable law, the holders of the Trust Securities
will be entitled to receive, out of assets held by the Trust, the Liquidation
Distribution in cash. See "Description of Series A Capital
Securities -- Liquidation of the Trust and Distribution of Series A Subordinated
Debentures." Upon any voluntary or involuntary liquidation or bankruptcy of the
Corporation, the Property Trustee, as holder of the Series A Subordinated
Debentures, would be a subordinated creditor of the Corporation, subordinated in
right of payment to all Senior Indebtedness as set forth in the Indenture, but
entitled to receive payment in full of principal and interest, before any
stockholders of the Corporation receive payments or distributions. Since the
Corporation will be the guarantor under the Series A Guarantee and will agree to
pay all costs, expenses and liabilities of the Trust (other than the Trust's
obligations to the holders of its Trust Securities), the positions of a holder
of Series A Capital Securities and a holder of Series A Subordinated Debentures
relative to other creditors and to stockholders of the Corporation in the event
of liquidation or bankruptcy of the Corporation are expected to be substantially
the same.
69
<PAGE> 70
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Greenberg Traurig, P.A., special federal income tax
counsel to the Corporation and the Trust ("Special Tax Counsel"), the following
summary accurately describes the material U.S. federal income tax consequences
of the purchase, ownership and disposition of a Series A Capital Security.
This summary addresses only the tax consequences to a person that acquires
a Series A Capital Security on its original issuance at its original issue price
and that holds the security as a capital asset. The summary does not address all
tax consequences that may be applicable to a beneficial owner of a Series A
Capital Security and does not address the tax consequences to holders subject to
special tax regimes (like banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, persons that will hold a Series A Capital
Security as a position in a "straddle," as part of a "synthetic security" or
"hedge" or as part of a "conversion transaction" or other integrated
investment). This summary 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 apply to a Series A Capital Security. Except as
noted below in the discussion of Non-U.S. Holders, this discussion is addressed
to a U.S. Holder, which is defined as a beneficial owner of a Series A Capital
Security that, for U.S. federal income tax purposes, is (or is treated as) (1) a
citizen or individual resident of the United States, (2) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (3) an estate the income of which is
includible in gross income for U.S. federal income tax purposes without regard
to its source or (4) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the ability to control all substantial decisions of the
trust. This summary does not address the tax consequences to any shareholder,
partner or beneficiary of a holder of a Series A Capital Security. 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. An opinion of Special 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. No assurance can be given that the opinions expressed herein
will not be challenged by the IRS or, if challenged, that the challenge will not
be successful.
CLASSIFICATION OF THE SERIES A SUBORDINATED DEBENTURES
The Corporation intends to take the position that the Series A Subordinated
Debentures will be classified for U.S. federal income tax purposes as
indebtedness of the Corporation. Special Tax Counsel will render its opinion
generally to the effect that, under then current law and based on the
representations, facts and assumptions set forth in this Prospectus, and
assuming full compliance with the terms of the Indenture (and other relevant
documents), and based on certain assumptions and qualifications referenced in
the opinion, the Series A Subordinated Debentures will be characterized for U.S.
federal income tax purposes as indebtedness of the Corporation. The Corporation,
the Trust and the holders of the Series A Capital Securities (by acceptance of a
beneficial interest in a
70
<PAGE> 71
Series A Capital Security) will agree to treat the Series A Subordinated
Debentures as indebtedness of the Corporation for all U.S. federal income tax
purposes. No assurance can be given, however, that that position will not be
challenged by the IRS or, if challenged, that the challenge will not be
successful. The remainder of this discussion assumes that the Series A
Subordinated Debentures will be classified as indebtedness of the Corporation
for U.S. federal income tax purposes.
Prospective investors should be aware that the IRS has disallowed a
deduction for interest paid by Enron Corporation ("Enron") in 1993 and 1994 on
securities issued by Enron that are similar to the Series A Subordinated
Debentures. Enron has filed a petition in the U.S. Tax Court challenging the
disallowance of its deductions. The opinion of Special Tax Counsel regarding the
tax classification of the Series A Subordinated Debentures is based on the law
prior to any Tax Court decision in the Enron case. Although Enron's debt
obligations differ in certain respects from the Series A Subordinated
Debentures, the arguments of the IRS that interest on those obligations is not
deductible are not focused on those different terms and thus could apply to the
Series A Subordinated Debentures. Therefore, if the Tax Court decides in favor
of the IRS in Enron's case, although its decision might be distinguishable from
the Series A Subordinated Debentures, it is also possible that its decision
would result in the receipt by the Corporation or the Trust of a subsequent
opinion of counsel that there is more than an insubstantial risk that interest
payable on the Series A Subordinated Debentures is not or will not be
deductible. The receipt of such an opinion would constitute a Tax Event, which
would permit the Corporation to cause a redemption of the Series A Capital
Securities.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Series A Capital Securities, Special
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 that opinion, the Trust will not be classified for U.S.
federal income tax purposes as an association taxable as a corporation.
Accordingly, for U.S. federal income tax purposes, the Trust will not be subject
to U.S. federal income tax, and each holder of a Series A Capital Security
generally will be required to include in its gross income any interest (or
accrued original issue discount ("OID")) with respect to its allocable share of
the Series A Subordinated Debentures.
ORIGINAL ISSUE DISCOUNT
Under the Indenture, the Corporation has the right to defer the payment of
interest on the Series A Subordinated Debentures at any time or from time to
time for one or more Extension Periods not exceeding 20 consecutive quarterly
periods each, provided that no Extension Period shall end on a date other than
an Interest Payment Date or extend beyond the Stated Maturity Date. By reason of
that right, Treasury regulations will subject the Series A Subordinated
Debentures to the rules in the Code and Treasury regulations on debt instruments
issued with OID (the "OID Rules"), unless the Indenture or Series A Subordinated
Debentures contain terms or conditions that make the likelihood of exercise of
the deferral option remote. Because the Corporation does not have a policy of
paying dividends on its common stock and instead reinvests its earnings in its
business, the
71
<PAGE> 72
covenant in the Indenture prohibiting the Corporation from paying dividends
during an Extension Period probably does not provide an effective deterrent to
the Corporation's exercise of the deferral option, and thus the OID Rules
probably apply. Special Tax Counsel to the Corporation is unable to conclude
that the Indenture or the Series A Subordinated Debentures contain terms or
conditions that make the likelihood of exercise of the deferral option remote,
and the Corporation intends to report payments on the Series A Subordinated
Debentures to the Internal Revenue Service on the basis that the OID Rules
apply.
If the OID Rules apply, a U.S. Holder will include income on the Series A
Subordinated Debentures in gross income on a daily economic accrual method of
accounting prescribed by the OID Rules, regardless of the U.S. Holder's regular
method of accounting for federal income tax purposes. A holder of a Series A
Subordinated Debenture thus would include in gross income amounts that had not
yet been received (including, in particular, during any Extension Period, when
the Corporation would not make actual cash payments). Under the OID Rules, a
U.S. Holder would accrue an amount of interest income in each taxable year that
approximates the amount of interest that accrues on the Series A Subordinated
Debentures at the stated interest rate, and actual cash payments of interest on
the Series A Subordinated Debentures would not be separately includible in gross
income. In addition, any holder who disposes of a Series A Capital Security
before the record date for the payment of a Distribution will include OID in
gross income but will not receive any cash related thereto from the Corporation.
The amount of any accrued but unpaid Distributions could be significant if the
disposition of the Series A Capital Security occurs during an Extension Period.
The amount of any OID included in a U.S. Holder's gross income will increase
that holder's tax basis in its Series A Capital Securities, and the amount of
distributions received by a U.S. Holder with respect to those Series A Capital
Securities will reduce the tax basis of those Series A Capital Securities.
Because the Series A Capital Securities will be treated as indebtedness,
corporate holders of the Series A Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to a Series A Capital Security.
RECEIPT OF SERIES A SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST
The Corporation will have the right at any time to liquidate the Trust and
cause the Series A Subordinated Debentures to be distributed to the holders of
the Trust Securities. Under current law, such a distribution, for U.S. federal
income tax purposes, would be treated as a nontaxable event to each holder, and
the aggregate tax basis of each holder in its Series A Subordinated Debentures
received would be equal to its aggregate tax basis in its Series A Capital
Securities surrendered. A holder's holding period in the Series A Subordinated
Debentures received in liquidation of the Trust would be no shorter than the
period during which the Series A Capital Securities were held by that holder. A
holder would account for interest in respect of the Series A Subordinated
Debentures received from the Trust in the manner described above under
"-- Original Issue Discount," including any OID accrued on the Series A
Subordinated Debentures as of the date of any such distribution.
72
<PAGE> 73
Under certain circumstances described herein (see "Description of Series A
Capital Securities"), the Series A Subordinated Debentures may be prepaid in
cash, and the proceeds of that prepayment would be distributed to holders in
redemption of their Series A Capital Securities. Under current law, that
redemption would constitute, for U.S. federal income tax purposes, a taxable
disposition of the redeemed Series A Capital Securities, the tax consequences of
which are described below under "-- Sales or Redemptions of Series A Capital
Securities."
SALES OR REDEMPTIONS OF SERIES A CAPITAL SECURITIES
On a sale or redemption of a Series A Capital Security for cash, a holder
will recognize gain or loss equal to the difference between its adjusted tax
basis in the Series A Capital Security and the amount realized on the sale or
redemption of that Series A Capital Security. If the OID Rules apply, a holder's
adjusted basis in a Series A Capital Security generally will be its initial
purchase price increased by any OID previously included in the holder's gross
income to the date of disposition and decreased by any distributions received on
the Series A Capital Security. If the OID Rules do not apply, a holder's
adjusted basis in a Series A Capital Security generally will be its initial
purchase price, and if the holder uses an accrual method of accounting, the
holder will have a basis in any accrued but unpaid interest. Gain or loss
recognized on a sale or redemption of a Series A Capital Security will be
capital gain or loss. Capital gain recognized by an individual in respect of a
Series A Capital Security held for more than one year as of the date of sale or
redemption is subject to a maximum U.S. federal income tax rate of 20 percent.
The Series A Capital Securities may trade at a price that discounts any
accrued but unpaid interest on the Series A Subordinated Debentures. Therefore,
the amount realized by a holder who disposes of a Series A Capital Security
between Distribution payment dates and whose adjusted basis in the Series A
Capital Security has been increased by the amount of any accrued but unpaid OID
(or interest) may be less than the holder's adjusted basis in the Series A
Capital Security. A holder's basis in a Series A Capital Security could be
increased either under the OID Rules or, if the OID Rules do not apply, in the
case of a holder that uses an accrual method of accounting, under the accrual
accounting rules. In that case, the holder will recognize a capital loss.
Subject to a limited exception in the case of individual taxpayers, capital
losses cannot be applied to offset ordinary income for U.S. federal income tax
purposes.
NON-U.S. HOLDERS
For purposes of this discussion, a "Non-U.S. Holder" generally is any
individual, corporation, partnership, estate or trust that is not a U.S. Holder
for U.S. federal income tax purposes.
Under current U.S. federal income tax laws, subject to the discussion below
of backup withholding, (i) payments by the Trust or any of its paying agents to
a Non-U.S. Holder will not be subject to U.S. federal withholding tax, provided
that (a) the Non-U.S. Holder does not own, actually or constructively, ten
percent or more of the total combined voting power of all classes of stock of
the Corporation entitled to vote, (b) the Non-U.S. Holder is not a controlled
foreign corporation that is related to the Corporation through stock
73
<PAGE> 74
ownership, (c) the Non-U.S. Holder is not a bank whose receipt of interest on
the Series A Subordinated Debentures is described in Section 881(c)(3)(A) of the
Code, and (d) either (A) the Non-U.S. Holder certifies to the Trust or its
agent, under penalties of perjury, that it is not a U.S. 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
business (a "Financial Institution") and holds the Series A Capital Security in
that capacity certifies to the Trust or its agent, under penalties of perjury,
that that statement has been received from the Non-U.S. Holder by it or by a
Financial Institution between it and the Non-U.S. Holder and furnishes the Trust
or its agent with a copy thereof, and (ii) a Non-U.S. Holder will not be subject
to U.S. federal withholding tax on any gain realized upon a sale or other
disposition of a Series A Capital Security. New final Treasury regulations
provide alternative methods for satisfying the certification requirements
described in clause (i)(d) above, effective for certain payments made after
December 31, 1999.
If a Non-U.S. Holder is engaged in trade or business in the United States
and interest on the Series A Capital Securities (or the Series A Subordinated
Debentures) is effectively connected with the conduct of that trade or business,
the Non-U.S. Holder, although exempt from the withholding tax discussed above,
will be subject to U.S. federal income tax on that interest on a net income
basis in generally the same manner as if it were a U.S. Holder. In addition, if
such Non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its effectively connected earnings and profits for
the taxable year, subject to adjustments. For this purpose, the interest income
would be included in the foreign corporation's earnings and profits. In the case
of a Non-U.S. Holder entitled to the benefits of a tax treaty with the United
States, the foregoing discussion generally applies only if the Non-U.S. Holder
is engaged in business in the United States through a U.S. permanent
establishment and the income on the Series A Subordinated Debentures is
attributable to that permanent establishment within the meaning of the treaty,
and the rate of the branch profits tax may be limited to a rate prescribed by
the treaty for the withholding of tax on dividends. New final Treasury
regulations generally prescribe new methods for certifying that a Non-U.S.
Holder is exempt from the withholding of U.S. federal income tax by reason of
being engaged in trade or business in the United States.
Any gain recognized upon a sale or other disposition of Series A Capital
Securities (or Series A Subordinated Debentures) generally will not be subject
to U.S. federal income tax unless (i) the gain is effectively connected with a
U.S. trade or business of the Non-U.S. Holder or (ii) in the case of a Non-U.S.
Holder who is an individual, that individual is present in the United States for
183 days or more in the taxable year of the sale or other disposition, and
certain other conditions are met.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest, including OID, accrued on Series A Capital
Securities held of record by U.S. Holders (other than corporations and other
exempt holders) will be reported to the IRS. "Backup" withholding at a rate of
31% will apply to payments of interest to non-exempt U.S. Holders unless the
holder furnishes its taxpayer identification number in the manner prescribed in
applicable Treasury regulations, certifies that that
74
<PAGE> 75
number is correct, certifies as to no loss of exemption from backup withholding
and meets certain other conditions.
Payment of the proceeds from the disposition of Series A Capital Securities
to or through the U.S. office of a broker is subject to information reporting
and backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
Non-U.S. Holders are generally exempt from the information reporting and
backup withholding rules but may be required to comply with certain
certification and identification requirements to prove their exemption.
Any amount withheld from a holder under the backup withholding rules will
be allowed as a refund or a credit against such holder's U.S. federal income tax
liability, provided the required information is furnished to the IRS.
It is anticipated that income on Series A Capital Securities will be
reported to holders on Form 1099-OID and mailed to holders of Series A Capital
Securities by January 31 following each calendar year.
THE U.S. 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. YOU SHOULD CONSULT YOUR TAX ADVISER WITH RESPECT TO THE
TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF A SERIES A
CAPITAL SECURITY, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX
LAWS.
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
(a "Plan") subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an investment
in the Series A Capital Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the documents
and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemption relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as defined in Section
3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are
not subject to
75
<PAGE> 76
the requirements of ERISA or Section 4975 of the Code; however, governmental
plans may be subject to similar provisions under applicable state laws.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Trust would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire an equity interest in the Trust
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Trust would not be deemed to be "plan assets" of investing Plans
if, at all times, less than 25% of the value of each class of equity interests
in the Trust were held by Plans, other employee benefit plans not subject to
ERISA or Section 4975 of the Code (such as governmental, church and foreign
plans), and entities holding assets deemed to be "plan assets" of any Plan
(collectively, "Benefit Plan Investors"), or if the Series A Capital Securities
were "publicly-offered securities" for purposes of the Plan Assets Regulation.
No assurance can be given that the Series A Capital Securities held by Benefit
Plan Investors will be less than 25% of the total value of such Series A Capital
Securities at the completion of this offering or thereafter, and no monitoring
or other measures will be taken with respect to the satisfaction of the
conditions to this exception. In addition, no assurance can be given that the
Series A Capital Securities would be considered to be "publicly-offered
securities" under the Plan Assets Regulation. All of the Series A Common
Securities will be purchased and initially held by the Corporation.
Certain transactions involving the Trust could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Series A Capital Securities were acquired
with "plan assets" of such Plan and the assets of the Trust were deemed to be
"plan assets" of Plans investing in the Trust. For example, if the Corporation
were a Party in Interest with respect to a Plan (either directly or by reason of
its ownership of the Bank or other subsidiaries), extensions of credit between
the Corporation and the Trust (as represented by the Series A Subordinated
Debentures and the Series A Guarantee) would likely be prohibited by Section
406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code, unless exemptive
relief were available under an applicable administrative exemption (see below).
In addition, if the Corporation were considered to be a fiduciary with respect
to the Trust as a result of certain powers it holds (such as the powers to
remove and replace the Property Trustee and the Administrative Trustees), it is
possible that the optional redemption or acceleration of the Series A
Subordinated Debentures would be considered to be prohibited transactions under
Section 406(b) of ERISA and Section 4975(c)(1)(E) of the Code. In an attempt to
avoid such prohibited transactions, each investing plan, by purchasing Series A
Capital Securities, will be deemed to have directed the Trust to invest in the
Series A Subordinated Debentures and to have appointed the Property Trustee.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or holding of the Series A Capital
Securities. Those class
76
<PAGE> 77
exemptions are PTCE 96-23 (for certain transactions determined by in-house asset
managers), PTCE 95-60 (for certain transactions involving insurance company
general accounts), PTCE 91-38 (for certain transactions involving bank
collective investment funds), PTCE 90-1 (for certain transactions involving
insurance company separate accounts), and PTCE 84-14 (for certain transactions
determined by independent qualified asset managers).
Because the Series A Capital Securities may be deemed to be equity
interests in the Trust for purposes of applying ERISA and Section 4975 of the
Code, the Series A Capital Securities may not be purchased or held by any Plan,
any entity whose underlying assets include "plan assets" by reason of any Plan's
investment in the entity (a "Plan Asset Entity") or any person investing "plan
assets" of any Plan, unless such purchaser or holder is exempt from any
prohibited transactions because of the relief provided under PTCE 96-23, 95-60,
91-38, 90-1 or 84-14 or another applicable exemption. Any purchaser or holder of
the Series A Capital Securities or any interest therein will be deemed to have
represented by its purchase and holding thereof that it either (a) is not a Plan
or a Plan Asset Entity and is not purchasing such securities on behalf of or
with "plan assets" of any Plan or (b) is exempt from any prohibited transactions
because of the relief provided under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or
another applicable exemption with respect to such purchase or holding. If a
purchaser or holder of the Series A Capital Securities that is a Plan or a Plan
Asset Entity elects to rely on an exemption other than PTCE 96-23, 95-60, 91-38,
90-1 or 84-14, the Corporation and the Trust may require a satisfactory opinion
of counsel or other evidence with respect to the availability of such exemption
for such purchase and holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the Series A
Capital Securities on behalf of or with "plan assets" of any Plan consult with
their counsel regarding the potential consequences if the assets of the Trust
were deemed to be "plan assets" and the availability of exemptive relief under
PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or any other applicable exemption.
77
<PAGE> 78
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated December 22, 1998 (the "Underwriting Agreement"), the Corporation and the
Trust have agreed that the Trust will sell to each of the Underwriters named
below, and each of such Underwriters has severally agreed to purchase from the
Trust, the respective number of Series A Capital Securities set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
CAPITAL SECURITIES
------------------
<S> <C>
CIBC Oppenheimer Corp. ..................................... 660,000
Raymond James & Associates, Inc. ........................... 440,000
---------
Total............................................. 1,100,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Series A Capital
Securities if any are taken.
The Underwriters propose initially to offer the Series A Capital Securities
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession not in excess of $0.20 per Series A Capital
Security. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $0.10 per Series A Capital Security to certain brokers and
dealers. After the Series A Capital Securities are released for sale to the
public, the initial public offering price and other selling terms may from time
to time be varied by the Underwriters. No Underwriter will execute any
transaction in a discretionary account without prior approval of the customer.
In view of the fact that the proceeds from the sale of the Series A Capital
Securities will be used to purchase the Series A Subordinated Debentures issued
by the Corporation, the Underwriting Agreement provides that the Corporation
will pay as Underwriters' compensation for the Underwriters' arranging the
investment in such Series A Subordinated Debentures of such proceeds an amount
of $0.35 per Series A Capital Security for the accounts of the several
Underwriters.
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 165,000
Series A Capital 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 Series A Capital Securities solely for the purpose
of covering over-allotments, if any, incurred in the sale of the Series A
Capital Securities.
To the extent that the Underwriters exercise their option to purchase
additional Series A Capital Securities, the Trust will issue and sell to the
Corporation additional Series A Common Securities and the Corporation will issue
and sell to the Trust additional Series A Subordinated Debentures in an
aggregate principal amount equal to the total liquidation amount of the
additional Series A Capital Securities being purchased pursuant to the option
and the additional Series A Common Securities.
The Corporation and the Trust have agreed that, for a period of 180 days
from the date of the Underwriting Agreement, they will not offer, sell, contract
to sell or otherwise
78
<PAGE> 79
dispose of, any other beneficial interests in the assets of the Trust, or any
preferred securities or any other securities of the Trust or the Corporation
which are substantially similar to the Series A Capital Securities, including
any guarantee of such securities, or any securities convertible into or
exchangeable for or representing the right to receive preferred securities or
any such substantially similar securities of either the Trust or the
Corporation, without the prior written consent of the Underwriters, except for
the Series A Capital Securities offered in connection with this offering.
Prior to the offering, there has been no public market for the Series A
Capital Securities. Although the Underwriters have indicated to the Corporation
and the Trust that they intend to make a market in the Series A Capital
Securities, they are not obligated to do so and may discontinue any such
market-making activities at any time without notice. No assurance can be given
as to the liquidity of the trading markets for the Series A Capital Securities.
The Corporation and the Trust have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
It is expected that delivery of the Series A Capital Securities will be
made in book-entry form only through the facilities of The Depository Trust
Company in New York, New York against payment therefor on or about December 28,
1998, as agreed upon by the Corporation, the Trust and the Underwriters in
accordance with Rule 15c6-1 under the Exchange Act.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment services to the
Corporation and its affiliates, for which such Underwriters or their affiliates
have received or will receive customary fees and commissions.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Series A Capital
Securities. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act, pursuant to
which such persons may bid for or purchase Series A Capital Securities for the
purpose of stabilizing the market price for Series A Capital Securities. The
Underwriters may also create a short position for the account of the
Underwriters by selling more Series A Capital Securities in connection with the
offering than they are committed to purchase from the Trust, and in such case
may purchase Series A Capital Securities in the open market following completion
of the offering to cover all or a portion of the Series A Capital Securities or
by exercising the Underwriters' over-allotment option referred to above. In
addition, CIBC Oppenheimer Corp., on behalf of the Underwriters may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the offering) for
the account of the other Underwriters, the selling concession with respect to
Series A Capital Securities that are distributed in the offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Series A Capital Securities at a level above
that which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if undertaken, may be discontinued
at any time.
79
<PAGE> 80
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Series A
Capital Securities, the enforceability of the Trust Agreement and the formation
of the Trust will be passed upon by Richards, Layton & Finger, P.A., special
Delaware counsel to the Corporation and the Trust. The validity of the Series A
Guarantee and the Series A Subordinated Debentures will be passed upon for the
Corporation by Greenberg Traurig, P.A. and for the Underwriters by Thacher
Proffitt & Wood. Greenberg Traurig, P.A. and Thacher Proffitt & Wood will rely
on the opinion of Richards, Layton & Finger, P.A., as to matters of Delaware
law. Thacher Proffitt & Wood will rely on the opinion of Greenberg Traurig, P.A.
as to matters of Florida law. Greenberg Traurig, P.A. will rely on the opinion
of J. Reid Bingham, General Counsel to the Corporation, as to certain matters.
Certain matters relating to U.S. federal income tax considerations described in
this Prospectus will be passed upon for the Corporation by Greenberg Traurig,
P.A.
EXPERTS
The Consolidated Financial Statements incorporated in this Prospectus by
reference from the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
80
<PAGE> 81
INDEX OF SIGNIFICANT DEFINITIONS
Set forth below is a list of the significant defined terms used in this
Prospectus and the pages on which the definitions of such terms may be found
herein.
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Additional Sums............... 56
Administrative Trustees....... 6
Allocable Amounts............. 61
Bank.......................... 4
BHC Act....................... 24
Business Day.................. 35
Commission.................... 2
Corporation................... 2
Delaware Trustee.............. 6
Distribution Date............. 35
Distribution Period........... 35
Distributions................. 7,36
DTC........................... 9
ERISA......................... 75
Exchange Act.................. 2
Extension Period.............. 7
FDIA.......................... 15
FDIC.......................... 24
FRB........................... 15
Guarantee Payments............ 64
Indebtedness.................. 61
Indebtedness Ranking Junior to
the Series A Subordinated
Debentures.................. 62
Indebtedness Ranking on a
Parity with the Series A
Subordinated Debentures..... 61
Indirect Participants......... 45
Interest Payment Date......... 50
Interest Period............... 50
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Investment Company Event...... 55
IRS........................... 17
Like Amount................... 38
Liquidation Distribution...... 39
Nasdaq National Market........ 10
Non-U.S. Holder............... 73
OCC........................... 24
OID........................... 71
OID Rules..................... 71
Participants.................. 45
Paying Agent.................. 48
Prepayment Price.............. 54
Property Trustee.............. 6
Redemption Date............... 38
Region........................ 4
Regulatory Capital Event...... 55
Senior Indebtedness........... 62
Series A Capital Securities... 5
Series A Common Securities.... 5
Series A Guarantee............ 8
Series A Subordinated
Debentures.................. 7
Special Event................. 54
Stated Maturity Date.......... 51
Successor Securities.......... 42
Tax Event..................... 55
Trust......................... 5
Trust Agreement............... 5
Trustees...................... 6
Trust Securities.............. 17
</TABLE>
81
<PAGE> 82
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
SELL ONLY THE SECURITIES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES WHERE IT
IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY
AS OF ITS DATE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION OR THE TRUST SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More
Information....................... 2
Incorporation of Certain Documents
by Reference...................... 2
Forward-Looking Statements.......... 3
Summary............................. 4
Selected Consolidated Financial
Data.............................. 11
Risk Factors........................ 14
Hamilton Bancorp Inc................ 26
Hamilton Capital Trust I............ 31
Use of Proceeds..................... 32
Capitalization...................... 33
Accounting Treatment................ 34
Description of Series A Capital
Securities........................ 35
Description of Series A Subordinated
Debentures........................ 50
Description of Series A Guarantee... 64
Relationship Among the Series A
Capital Securities, the Series A
Subordinated Debentures and the
Series A Guarantee................ 68
Certain Federal Income Tax
Consequences...................... 70
ERISA Considerations................ 75
Underwriting........................ 78
Validity of Securities.............. 80
Experts............................. 80
Index of Significant Definitions.... 81
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
HAMILTON CAPITAL TRUST I
$11,000,000
BLUS(SM)
9.75% BENEFICIAL UNSECURED SECURITIES, SERIES A
(LIQUIDATION AMOUNT $10 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT
DESCRIBED HEREIN, BY
HAMILTON BANCORP INC.
(LOGO)
-------------------------
PROSPECTUS
-------------------------
CIBC OPPENHEIMER
RAYMOND JAMES &
ASSOCIATES, INC.
DECEMBER 22, 1998
- ------------------------------------------------------
- ------------------------------------------------------
