<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-24573
Registration No. 333-24573-01
ADVANTA CAPITAL TRUST I
OFFER TO EXCHANGE ITS
8.99% SERIES B CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8.99% SERIES A CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED, TO THE EXTENT SET FORTH HEREIN, BY
[ADVANTA LOGO]
Corp.
------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JULY 17, 1997, UNLESS EXTENDED.
------------------------
Advanta Capital Trust I, a trust formed under the laws of the State of
Delaware (the "Trust"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange up
to $100,000,000 aggregate Liquidation Amount of its 8.99% Series B Capital
Securities (the "New Capital Securities") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for a like Liquidation Amount of its outstanding 8.99% Series A Capital
Securities (the "Old Capital Securities"), of which $100,000,000 aggregate
Liquidation Amount is outstanding. Pursuant to the Exchange Offer, Advanta
Corp., a Delaware corporation ("Advanta" or the "Corporation"), is also offering
to exchange (i) its guarantee of payments of cash distributions and payments on
liquidation of the Trust or redemption of the Old Capital Securities (the "Old
Guarantee") for a like guarantee in respect of the New Capital Securities (the
"New Guarantee") and (ii) all of its 8.99% Series A Junior Subordinated
Deferrable Interest Debentures due December 17, 2026 (the "Old Junior
Subordinated Debentures") for a like aggregate principal amount of its 8.99%
Series B Junior Subordinated Deferrable Interest Debentures due December 17,
2026 (the "New Junior Subordinated Debentures"), which New Guarantee and New
Junior Subordinated Debentures also have been registered under the Securities
Act. The Old Capital Securities, the Old Guarantee and the Old Junior
Subordinated Debentures are collectively referred to herein as the "Old
Securities" and the New Capital Securities, the New Guarantee and the New Junior
Subordinated Debentures are collectively referred to herein as the "New
Securities."
The New Securities are substantially identical to the Old Securities except
that (i) the New Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Old Securities, (ii) the New Capital Securities will not contain the
$100,000 minimum Liquidation Amount transfer restriction, (iii) the New Capital
Securities will not provide for any increase in the Distribution Rate (as
defined herein) thereon, (iv) the New Junior Subordinated Debentures will not
contain the $100,000 minimum principal amount transfer restriction and (v) the
New Junior Subordinated Debentures will not provide for any increase in the
interest rate thereon. See "Description of New Securities" and "Description of
Old Securities." The New Capital Securities are being offered for exchange in
order to satisfy certain obligations of the Corporation and the Trust under the
Registration Rights Agreement dated as of December 11, 1996 (the "Registration
Rights Agreement") among the Corporation, the Trust and the Initial Purchasers
(as defined in the Registration Rights Agreement). In the event that the
Exchange Offer is consummated, any Old Capital Securities
(Continued on the following page)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Old Capital Securities on June 16, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 13, 1997.
<PAGE> 2
(continued from the previous page)
which remain outstanding after consummation of the Exchange Offer and the New
Capital Securities issued in the Exchange Offer will vote together as a single
class for purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Declaration (as defined herein).
The New Capital Securities and the Old Capital Securities (collectively,
the "Capital Securities") represent beneficial interests in the assets of the
Trust. The Corporation is the owner of all of the beneficial interests
represented by common securities of the Trust (the "Common Securities," and
together with the Capital Securities, the "Trust Securities"). The Chase
Manhattan Bank is the Property Trustee of the Trust. The Trust exists for the
sole purpose of issuing the Trust Securities and investing the proceeds thereof
in the Junior Subordinated Debentures (as defined herein). The Junior
Subordinated Debentures will mature on December 17, 2026 (the "Stated Maturity
Date"). The Capital Securities will have a preference over the Common Securities
under certain circumstances with respect to cash distributions and amounts
payable on liquidation, redemption or otherwise. See "Description of New
Securities -- Description of New Capital Securities -- Subordination of Common
Securities."
As used herein, (i) the "Indenture" means the Indenture, dated as of
December 17, 1996, as amended and supplemented from time to time, between the
Corporation and The Chase Manhattan Bank, as Debenture Trustee (the "Debenture
Trustee"), (ii) the "Declaration" means the Amended and Restated Declaration of
Trust relating to the Trust among the Corporation, as Sponsor, The Chase
Manhattan Bank, as Property Trustee (the "Property Trustee"), Chase Manhattan
Bank Delaware, as Delaware Trustee, (the "Delaware Trustee"), and the
Administrative Trustees named therein (collectively, with the Property Trustee
and Delaware Trustee, the "Issuer Trustees"). In addition, as the context may
require, unless otherwise expressly stated, (i) the term "Junior Subordinated
Debentures" includes the Old Junior Subordinated Debentures and the New Junior
Subordinated Debentures and (ii) the term "Guarantee" includes the Old Guarantee
and the New Guarantee.
Holders of the New Capital Securities will be entitled to receive
preferential cumulative cash distributions arising from the payment of interest
on the Junior Subordinated Debentures, accruing from December 17, 1996, and
payable semi-annually in arrears on June 17 and December 17 of each year, at the
annual rate of 8.99% of the Liquidation Amount of $1,000 per New Capital
Security ("Distributions"). Holders of record of Old Capital Securities on June
1, 1997 will be entitled to receive Distributions on the Old Capital Securities
on June 17, 1997. Holders of Old Capital Securities whose Old Capital Securities
are accepted for exchange will not thereafter receive Distributions on such Old
Capital Securities and will be deemed to have waived the right to receive any
Distribution from the Trust on such Old Capital Securities. See "The Exchange
Offer -- Distributions on New Capital Securities." The Corporation will have the
right to defer payments of interest on the Junior Subordinated Debentures at any
time and from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each deferral period (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity Date.
Upon the termination of any such Extension Period and the payment of all amounts
then due, the Corporation may elect to begin a new Extension Period, subject to
the requirements set forth in the Indenture. If and for so long as interest
payments on the Junior Subordinated Debentures are so deferred, Distributions on
the Trust Securities will also be deferred and the Corporation will not be
permitted, subject to certain exceptions described herein, to declare or pay any
cash distributions with respect to the Corporation's capital stock (which
includes common and preferred stock) or to make any payment with respect to debt
securities of the Corporation that rank pari passu with or junior to the Junior
Subordinated Debentures. During an Extension Period, interest on the Junior
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of the Trust Securities are entitled will accumulate) at the
rate of 8.99% per annum, compounded semiannually, and holders of Trust
Securities will be required to accrue interest income for United States federal
income tax purposes. See "Description of New Securities -- Description of New
Junior Subordinated Debentures -- Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Consequences -- Interest Income and Original Issue
Discount."
2
<PAGE> 3
Through the Guarantee, the guarantee agreement of the Corporation relating
to the Common Securities (the "Common Guarantee"), the Declaration, the Junior
Subordinated Debentures and the Indenture, taken together, the Corporation has
guaranteed or will guarantee, as the case may be, fully, irrevocably and
unconditionally, all of the Trust's obligations under the Trust Securities. See
"Relationship Among the New Capital Securities, the New Junior Subordinated
Debentures and the New Guarantee -- Full and Unconditional Guarantee." The Old
Guarantee and the Common Guarantee collectively guarantee, and the New Guarantee
and the Common Guarantee collectively will guarantee, payments of Distributions
and payments on liquidation of the Trust or redemption of the Trust Securities,
but in each case only to the extent that the Trust holds funds on hand legally
available therefor and has failed to make such payments, as described herein.
See "Description of New Securities -- Description of New Guarantee." If the
Corporation fails to make a required payment on the Junior Subordinated
Debentures, the Trust will not have sufficient funds to make the related
payments, including Distributions, on the Trust Securities. The Guarantee and
the Common Guarantee will not cover any such payment when the Trust does not
have sufficient funds on hand legally available therefor. In such event, a
holder of Capital Securities may institute a legal proceeding directly against
the Corporation to enforce its rights in respect of such payment. See
"Description of New Securities -- Description of New Junior Subordinated
Debentures -- Enforcement of Certain Rights By Holders of New Capital
Securities." The obligations of the Corporation under the Guarantee, the Common
Guarantee and the Junior Subordinated Debentures will be subordinate and junior
in right of payment to all Senior Indebtedness of the Corporation (as defined in
"Description of New Securities -- Description of New Junior Subordinated
Debentures -- Subordination") the outstanding principal amount of which was
approximately $1.3 billion at March 31, 1997.
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein), (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures at a redemption price
equal to the principal amount of, plus accrued interest on, the Junior
Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole but not
in part, contemporaneously with the optional prepayment of the Junior
Subordinated Debentures, upon the occurrence and continuation of a Special Event
(as defined herein) prior to December 17, 2006 (the "Initial Optional Prepayment
Date") at a redemption price equal to the Special Event Prepayment Price (as
defined below) (the "Special Event Redemption Price"), and (iii) in whole or in
part, on or after the Initial Optional Prepayment Date, contemporaneously with
the optional prepayment by the Corporation of the Junior Subordinated
Debentures, at a redemption price equal to the Optional Prepayment Price (as
defined below) (the "Optional Redemption Price"). Any of the Maturity Redemption
Price, the Special Event Redemption Price and the Optional Redemption Price may
be referred to herein as the "Redemption Price." See "Description of New
Securities -- Description of New Capital Securities -- Redemption." The Junior
Subordinated Debentures will be prepayable prior to the Stated Maturity Date at
the option of the Corporation (i) on or after the Initial Optional Prepayment
Date, in whole or in part, at a prepayment price (the "Optional Prepayment
Price") equal to 104.4950% of the principal amount thereof on the Initial
Optional Prepayment Date, declining ratably on each December 17 thereafter to
100% on or after December 17, 2016, plus accrued interest thereon to the date of
prepayment, or (ii) prior to the Initial Optional Prepayment Date, in whole but
not in part, upon the occurrence and continuation of a Special Event, at a
prepayment price (the "Special Event Prepayment Price") equal to the greater of
(a) 100% of the principal amount thereof or (b) the sum, as determined by a
Quotation Agent (as defined herein), of the present values of the principal
amount and premium payable with respect to an optional redemption of Junior
Subordinated Debentures on the Initial Optional Prepayment Date, together with
scheduled payments of interest on the Junior Subordinated Debentures from the
prepayment date to and including the Initial Optional Prepayment Date,
discounted to the prepayment date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined herein) plus, in either case, accrued interest thereon to the date of
prepayment. Either of the Optional Prepayment Price or the Special Event
Prepayment Price may be referred to herein as the "Prepayment Price." See
"Description of New Securities -- Description of New Junior Subordinated
Debentures -- Optional Prepayment" and "-- Special Event Prepayment."
3
<PAGE> 4
The Corporation will have the right at any time to terminate the Trust and
cause a Like Amount of the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust, subject to the
Corporation having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Capital Securities.
Unless the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities, in the event of a liquidation of the Trust as described
herein, after satisfaction of liabilities to creditors of the Trust as required
by applicable law, the holders of the Capital Securities generally will be
entitled to receive a Liquidation Amount of $1,000 per Capital Security plus
accumulated and unpaid Distributions thereon to the date of payment. See
"Description of New Securities -- Description of New Capital Securities --
Liquidation of the Trust and Distribution of Junior Subordinated Debentures."
------------------------
The Trust is making the Exchange Offer of the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, neither the Corporation nor the Trust has sought its own interpretive
letter and there can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff of the Division of
Corporation Finance of the Commission, and subject to the two immediately
following sentences, the Corporation and the Trust believe that New Capital
Securities issued pursuant to this Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Capital Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an "affiliate", as such term is defined in Rule 405 under the Securities Act
(an "Affiliate"), of the Corporation or the Trust or who intends to participate
in the Exchange Offer for the purpose of distributing New Capital Securities, or
any broker-dealer who purchased Old Capital Securities from the Trust for resale
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Capital Securities in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate of the Corporation or the Trust, (ii)
any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Corporation and the Trust may require such holder,
as a condition to such holder's eligibility to participate in the Exchange
Offer, to furnish to the Corporation and the Trust (or an agent thereof) in
writing information as to the number of "beneficial owners" (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) on behalf of whom such holder holds the Capital Securities to
be exchanged in the Exchange Offer. Each broker-dealer that receives New Capital
Securities for its own account pursuant to the Exchange Offer must acknowledge
that it acquired the Old Capital Securities for its own account as the result of
market-making activities or other trading activities and must agree that it will
deliver a prospectus
4
<PAGE> 5
meeting the requirements of the Securities Act in connection with any resale of
such New Capital Securities. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, the Corporation
and the Trust believe that broker-dealers who acquired Old Capital Securities
for their own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the
Corporation and the Trust have agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such New Capital Securities for a period ending
90-days after the Expiration Date (as defined herein) (subject to extension
under certain limited circumstances described below) or, if earlier, when all
such New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Capital Securities received in exchange for Old Capital Securities
pursuant to the Exchange Offer must notify the Corporation or the Trust, or
cause the Corporation or the Trust to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be delivered
to the Exchange Agent at one of the addresses set forth herein under "The
Exchange Offer -- Exchange Agent." Any Participating Broker-Dealer who is an
Affiliate of the Corporation or the Trust may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
See "The Exchange Offer -- Resales of New Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Corporation or the Trust of the occurrence of any event or the discovery of any
fact which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Corporation or the Trust has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Corporation or the Trust has given notice that the sale of
the New Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be. If the
Corporation or the Trust gives such notice to suspend the sale of the New
Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable), it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Capital Securities by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales of
the New Capital Securities or to and including the date on which the Corporation
or the Trust has given notice that the sale of New Capital Securities (or the
New Guarantee or the New Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be.
5
<PAGE> 6
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital Securities
will be a new issue of securities for which there currently is no market.
Although the Initial Purchasers have informed the Corporation and the Trust that
they each currently intend to make a market in the New Capital Securities, they
are not obligated to do so, and any such market making may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Capital Securities. The
Corporation and the Trust currently do not intend to apply for listing of the
New Capital Securities on any securities exchange or for inclusion in the Nasdaq
Stock Market, the electronic securities market operated by the National
Association of Securities Dealers, Inc. ("Nasdaq").
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Declaration (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Old Capital
Securities will continue to be subject to all of the existing restrictions upon
transfer thereof and neither the Corporation nor the Trust will have any further
obligation to such holders (other than under certain limited circumstances) to
provide for registration under the Securities Act of the Old Capital Securities
held by them. To the extent that Old Capital Securities are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old
Capital Securities could be adversely affected. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on July 17, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Corporation or the Trust (in which case the term "Expiration Date" shall
mean the latest date and time to which the Exchange Offer is extended). Tenders
of Old Capital Securities may be withdrawn at any time on or prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Corporation or the Trust and to the terms and provisions of
the Registration Rights Agreement. Old Capital Securities may be tendered in
whole or in part having an aggregate Liquidation Amount of not less than
$100,000 (100 Capital Securities) or any integral multiple of $1,000 Liquidation
Amount (one Capital Security) in excess thereof. The Corporation has agreed to
pay all expenses of the Exchange Offer. See "The Exchange Offer -- Fees and
Expenses."
Neither the Corporation nor the Trust will receive any cash proceeds from
the issuance of the New Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
------------------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
ADVANTA CORP., INVESTOR RELATIONS DEPARTMENT, WELSH & MCKEAN ROADS, P.O. BOX
844, SPRING HOUSE, PA 19477-0844; TELEPHONE: (215) 444-5335. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 10, 1997.
6
<PAGE> 7
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Exchange Act, and in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center,
14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Such information may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov).
No separate financial statements of the Trust have been included herein.
The Corporation and the Trust do not consider that such financial statements
would be material to holders of the New Capital Securities because the Trust is
a newly formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Junior Subordinated Debentures and
issuing the Trust Securities. See "Advanta Capital Trust I" and "Description of
New Securities." In addition, the Corporation does not expect that the Trust
will file reports under the Exchange Act with the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Corporation and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Corporation, the
Trust and the New Securities. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
7
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Corporation
pursuant to Section 13 of the Exchange Act are incorporated by reference in this
Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996;
(b) Current Reports on Form 8-K dated January 22, 1997, March 17, 1997
and April 16, 1997; and
(c) Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
All documents filed by the Corporation pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the later of the termination of the Exchange Offer and the expiration
of the period permitted for resales by Participating Broker-Dealers (as
described in "Plan of Distribution") shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in this Prospectus or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus or any supplement
thereto to the extent that a statement contained herein or therein (or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein or therein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document. The Corporation will provide
without charge to each person to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or all
of the documents referred to above which have been or may be incorporated by
reference herein (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to: Investor Relations, Advanta Corp., Welsh and
McKean Roads, P.O. Box 844, Spring House, Pennsylvania 19477-0844; telephone:
(215) 444-5335.
8
<PAGE> 9
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
ADVANTA CORP.
The Corporation serves consumers and small businesses through innovative
products and services primarily via direct, cost-effective delivery systems. The
Corporation primarily originates and services credit cards and mortgage loans.
Other products include commercial small-ticket equipment leasing, business
credit cards, automobile loans, insurance and deposit products. The Corporation
utilizes consumer information attributes, including credit assessments, usage
patterns and other characteristics, enhanced by proprietary information to match
prospect profiles with appropriate products. At March 31, 1997, assets under
management totaled $20 billion.
Approximately 61% of total revenues at March 31, 1997 were derived from
credit cards marketed through targeted direct mail campaigns. For the past
several years, the Corporation's strategy has been to market this product in the
form of a no annual fee, low variable-rate gold card. The Corporation has
successfully grown to one of the ten largest issuers of gold cards in the United
States and ranks among the top 15 bankcard issuers worldwide. Personal finance
loans, which include mortgage, home equity and automobile loans, contribute
approximately 20% of total revenues with a managed loan portfolio of $3.3
billion. Mortgage loans are originated directly with consumers, as well as
through conduit relationships and wholesale purchases from brokers and other
financial institutions.
ADVANTA CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust executed by the Corporation, as Sponsor, and Chase
Manhattan Bank Delaware, as Delaware Trustee, and the three individual trustees
named therein (the "Initial Individual Trustees"), and (ii) the filing of a
certificate of trust with the Delaware Secretary of State on December 5, 1996.
The Trust's business and affairs are conducted pursuant to the Declaration (as
defined herein) by the Issuer Trustees: The Chase Manhattan Bank, as Property
Trustee; Chase Manhattan Bank Delaware, as Delaware Trustee; and the three
individual Administrative Trustees who are employees or officers of or
affiliated with the Corporation. The Trust exists for the exclusive purposes of
(i) issuing and selling the Trust Securities, (ii) using the proceeds from the
sale of the Trust Securities to acquire the Junior Subordinated Debentures
issued by the Corporation and (iii) engaging in only those other activities
necessary, advisable or incidental thereto (such as registering the transfer of
the Trust Securities). Accordingly, the Junior Subordinated Debentures are and
will be the sole assets of the Trust, and payments under the Junior Subordinated
Debentures will be the sole revenue of the Trust. All of the Common Securities
are owned by the Corporation.
THE EXCHANGE OFFER
The Exchange Offer......... Up to $100,000,000 aggregate Liquidation Amount of
New Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount of
Old Capital Securities. Old Capital Securities may
be tendered for exchange in whole or in part in a
Liquidation Amount of $100,000 (100 Capital
Securities) or any integral multiple of $1,000 (one
Capital Security) in excess thereof. The
Corporation and the Trust
9
<PAGE> 10
are making the Exchange Offer in order to satisfy
their obligations under the Registration Rights
Agreement relating to the Old Capital Securities.
For a description of the procedures for tendering
Old Capital Securities, see "The Exchange
Offer -- Procedures for Tendering Old Capital
Securities."
Expiration Date............ 5:00 p.m., New York City time, on July 17, 1997,
unless the Exchange Offer is extended by the
Corporation or the Trust (in which case the
Expiration Date will be the latest date and time to
which the Exchange Offer is extended). See "The
Exchange Offer -- Terms of the Exchange Offer."
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain
conditions, which may be waived by the Corporation
and the Trust in their sole discretion. The
Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being
tendered. See "The Exchange Offer -- Conditions to
the Exchange Offer."
Offer...................... The Corporation and the Trust reserve the right in
their sole and absolute discretion, subject to
applicable law, at any time and from time to time,
to (i) delay the acceptance of the Old Capital
Securities for exchange, (ii) terminate the
Exchange Offer if certain specified conditions have
not been satisfied, (iii) extend the Expiration
Date of the Exchange Offer and retain all Old
Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of
holders of Old Capital Securities to withdraw their
tendered Old Capital Securities, or (iv) waive any
condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Terms of the Exchange Offer."
Withdrawal Rights.......... Tenders of Old Capital Securities may be withdrawn
at any time on or prior to the Expiration Date by
delivering a written notice of such withdrawal to
the Exchange Agent in conformity with certain
procedures set forth below under "The Exchange
Offer -- Withdrawal Rights."
Procedures for Tendering
Old Capital Securities..... Tendering holders of Old Capital Securities must
complete and sign a Letter of Transmittal in
accordance with the instructions contained therein
and forward the same by mail, facsimile or hand
delivery, together with any other required
documents, to the Exchange Agent, either with the
Old Capital Securities to be tendered or in
compliance with the specified procedures for
guaranteed delivery of Old Capital Securities.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Old
Capital Securities registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee are urged to contact such person
promptly if they wish to tender Old Capital
Securities pursuant to the Exchange Offer. See "The
Exchange Offer -- Procedures for Tendering Old
Capital Securities."
10
<PAGE> 11
Letters of Transmittal and certificates
representing Old Capital Securities should not be
sent to the Corporation or the Trust. Such
documents should only be sent to the Exchange
Agent.
Resales of New Capital
Securities............... The Corporation and the Trust are making the
Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the
Commission as set forth in certain interpretive
letters addressed to third parties in other
transactions. However, neither the
Corporation nor the Trust has sought its own
interpretive letter and there can be no assurance
that the staff of the Division of Corporation
Finance of the Commission would make a similar
determination with respect to the Exchange Offer as
it has in such interpretive letters to third
parties. Based on these interpretations by the
staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately
following sentences, the Corporation and the Trust
believe that New Capital Securities issued pursuant
to this Exchange Offer in exchange for Old Capital
Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other
than a holder who is a broker-dealer) without
further compliance with the registration and
prospectus delivery requirements of the Securities
Act, provided that such New Capital Securities are
acquired in the ordinary course of such holder's
business and that such holder is not participating,
and has no arrangement or understanding with any
person to participate, in a distribution (within
the meaning of the Securities Act) of such New
Capital Securities. However, any holder of Old
Capital Securities who is an Affiliate of the
Corporation or the Trust or who intends to
participate in the Exchange Offer for the purpose
of distributing the New Capital Securities, or any
broker-dealer who purchased the Old Capital
Securities from the Trust for resale pursuant to
Rule 144A or any other available exemption under
the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will
not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c)
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any sale or other transfer of such
Old Capital Securities unless such sale is made
pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own
account as a result of market-making or other
trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such
broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to
exchange Old Capital Securities for New Capital
Securities in the Exchange Offer will be required
to represent that (i) it is not an Affiliate of the
Corporation or the Trust, (ii) any New Capital
Securities to be received by it are
11
<PAGE> 12
being acquired in the ordinary course of its
business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such New Capital Securities, and (iv) if
such holder is not a broker-dealer, such holder is
not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities
Act) of such New Capital Securities. Each
broker-dealer that receives New Capital Securities
for its own account pursuant to the Exchange Offer
must acknowledge that it acquired the Old Capital
Securities for its own account as the result of
market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such New Capital Securities. The Letter of
Transmittal states that, by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on
the position taken by the staff of the Division of
Corporation Finance of the Commission in the
interpretive letters referred to above, the
Corporation and the Trust believe that
Participating Broker-Dealers who acquired Old
Capital Securities for their own accounts as a
result of market-making activities or other trading
activities may fulfill their prospectus delivery
requirements with respect to the New Capital
Securities received upon exchange of such Old
Capital Securities (other than Old Capital
Securities which represent an unsold allotment from
the original sale of the Old Capital Securities)
with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus
prepared for an exchange offer so long as it
contains a description of the plan of distribution
with respect to the resale of such New Capital
Securities. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of New Capital Securities
received in exchange for Old Capital Securities
where such Old Capital Securities were acquired by
such Participating Broker-Dealer for its own
account as a result of market-making or other
trading activities. Subject to certain provisions
set forth in the Registration Rights Agreement and
to the limitations described below under "The
Exchange Offer -- Resales of New Capital
Securities," the Corporation and the Trust have
agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of such New Capital Securities for a period
ending 90-days after the Expiration Date (subject
to extension under certain limited circumstances)
or, if earlier, when all such New Capital
Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer who
is an Affiliate of the Corporation or the Trust may
not rely on such interpretive letters and must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. See "The
Exchange Offer -- Resales of New Capital
Securities."
12
<PAGE> 13
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is The Chase Manhattan Bank (the "Exchange
Agent"). The applicable addresses, and telephone
and facsimile numbers, of the Exchange Agent are
set forth in "The Exchange Offer -- Exchange Agent"
and in the Letter of Transmittal.
Use of Proceeds............ Neither the Corporation nor the Trust will receive
any cash proceeds from the issuance of the New
Capital Securities offered hereby. See "Use of
Proceeds."
Certain Federal Income Tax
Consequences; ERISA
Considerations........... Holders of Old Capital Securities should review the
information set forth under "Certain Federal Income
Tax Consequences" and "ERISA Considerations" prior
to tendering Old Capital Securities in the Exchange
Offer.
THE NEW CAPITAL SECURITIES
Securities Offered......... Up to $100,000,000 aggregate Liquidation Amount of
the New Capital Securities which have been
registered under the Securities Act (Liquidation
amount of $1,000 per New Capital Security). The New
Capital Securities will be issued, and the Old
Capital Securities were issued, under the
Declaration. The New Capital Securities and any Old
Capital Securities which remain outstanding after
consummation of the Exchange Offer will vote
together as a single class for purposes of
determining whether holders of the requisite
percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised
certain rights under the Declaration. See
"Description of New Securities -- Description of
New Capital Securities -- Voting Rights; Amendment
of the Declaration." The terms of the New Capital
Securities are identical in all material respects
to the terms of the Old Capital Securities, except
that the New Capital Securities have been
registered under the Securities Act and will not be
subject to the $100,000 minimum Liquidation Amount
transfer restriction and certain other transfer
restrictions applicable to the Old Capital
Securities and will not provide for any increase in
the Distribution Rate thereon. See "The Exchange
Offer -- Purpose of the Exchange Offer,"
"Description of New Securities" and "Description of
Old Securities."
Distribution Dates......... June 17 and December 17 of each year, commencing
June 17, 1997 to holders of record on the first day
of the month in which the relevant distribution
date falls.
Extension Periods.......... Distributions on the Capital Securities will be
deferred for the duration of any Extension Period
elected by the Corporation with respect to the
payment of interest on the Junior Subordinated
Debentures. No Extension Period will exceed 10
consecutive semi-annual periods or extend beyond
the Stated Maturity Date. See "Description of New
Securities -- Description of New Junior
Subordinated Debentures -- Option to Extend
Interest Payment Date" and "Certain Federal Income
Tax Consequences -- Interest Income and Original
Issue Discount."
13
<PAGE> 14
Ranking.................... The New Capital Securities will rank pari passu,
and payments thereon will be made pro rata, with
the Old Capital Securities and the Common
Securities except with respect to the Common
Securities, in certain circumstances described
under "Description of New Securities -- Description
of New Capital Securities -- Subordination of
Common Securities." The New Junior Subordinated
Debentures will rank pari passu with the Old Junior
Subordinated Debentures and all other junior
subordinated debentures to be issued by the
Corporation ("Other Debentures"), which will be
issued and sold (if at all) to other trusts to be
established by the Corporation (if any), in each
case similar to the Trust ("Other Trusts"), and
will be unsecured and subordinate and rank junior
in right of payment to all Senior Indebtedness (as
defined herein) to the extent and in the manner set
forth in the Indenture. See "Description of New
Securities -- Description of New Junior
Subordinated Debentures." The New Guarantee will
rank pari passu with the Old Guarantee and all
other guarantees (if any) to be issued by the
Corporation with respect to capital securities (if
any) issued by Other Trusts ("Other Guarantees")
and will constitute an unsecured obligation of the
Corporation and will be subordinate and rank junior
in right of payment to all Senior Indebtedness to
the extent and in the manner set forth in the
Guarantee Agreement. See "Description of New
Securities -- Description of the New Guarantee."
Redemption................. The Trust Securities will be subject to mandatory
redemption in a Like Amount, (i) in whole but not
in part, on the Stated Maturity Date upon repayment
of the Junior Subordinated Debentures, (ii) in
whole but not in part, contemporaneously with the
optional prepayment of the Junior Subordinated
Debentures by the Corporation upon the occurrence
and continuation of a Special Event prior to the
Initial Optional Prepayment Date and (iii) in whole
or in part, on or after the Initial Optional
Prepayment Date contemporaneously with the optional
prepayment by the Corporation of the Junior
Subordinated Debentures, in each case at the
applicable Redemption Price. See "Description of
New Securities -- Description of New Capital
Securities -- Redemption."
Absence of Market for the
New Capital Securities... The New Capital Securities will be a new issue of
securities for which there currently is no market.
Although the Initial Purchasers have informed the
Trust and the Corporation that they each currently
intend to make a market in the New Capital
Securities, the Initial Purchasers are not
obligated to do so, and any such market making may
be discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Capital Securities. The Trust and the Corporation
do not intend to apply for listing of the New
Capital Securities on any securities exchange or
for inclusion in Nasdaq. See "Plan of
Distribution."
14
<PAGE> 15
RISK FACTORS
Prospective investors should carefully review the information contained
elsewhere in this Prospectus and should particularly consider the following
matters in connection with the Exchange Offer and the New Capital Securities
offered hereby.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND JUNIOR SUBORDINATED
DEBENTURES
The obligations of the Corporation under the Guarantee issued by it for the
benefit of holders of Capital Securities, as well as under the Junior
Subordinated Debentures, will be unsecured, will rank subordinate and junior in
right of payment to all present and future Senior Indebtedness of the
Corporation and will rank pari passu with obligations to or rights of the
Corporation's other general unsecured creditors, except that, in the case of a
bankruptcy or insolvency proceeding, the Corporation's obligations under the
Guarantee will rank subordinate and junior in right of payment to all
liabilities (other than Other Guarantees) of the Corporation. At March 31, 1997,
the aggregate principal amount of outstanding Senior Indebtedness of the
Corporation was approximately $1.3 billion. The Corporation's operations are
largely conducted by its subsidiaries. Because the Corporation's subsidiaries
include banks and insurance companies that are subject to significant state and
federal regulation, the Corporation's ability to receive dividends and loans
from its subsidiaries is restricted. Further, the right of the Corporation to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution)
is subject to the prior claims of creditors of that subsidiary, except to the
extent that the Corporation may itself be recognized as a creditor of that
subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries. At March 31, 1997, the subsidiaries of the Corporation had total
liabilities (excluding liabilities owed to the Corporation) of approximately
$3.9 billion. None of the Indenture, the Guarantee, the Common Guarantee or the
Declaration places any limitation on the amount of secured or unsecured debt,
including Senior Indebtedness, that may be incurred by the Corporation or any of
its subsidiaries. See "Description of New Securities -- Description of the New
Guarantee -- Status of the New Guarantee" and "Description of New
Securities -- Description of New Junior Subordinated Debentures --
Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
dependent upon the Corporation making payments on the Junior Subordinated
Debentures as and when required. For a description of certain recent
developments that have adversely affected the Company's results of operations,
see "Recent Developments."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default shall have occurred and be
continuing, the Corporation will have the right under the Indenture to defer
payments of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity Date. Upon any such deferral, semi-annual
Distributions on the Capital Securities by the Trust will be deferred (and the
amount of Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the rate of 8.99% per annum,
compounded semi-annually, but not exceeding the interest rate then accruing on
the Junior Subordinated Debentures) from the relevant payment date for such
Distributions during any such Extension Period.
The Corporation may extend any existing Extension Period, provided that
such extension does not cause such Extension Period to exceed 10 consecutive
semi-annual periods or to extend beyond the Stated Maturity Date. Upon the
termination of any Extension Period and the payment of all interest then accrued
and unpaid on the Junior Subordinated Debentures (together with interest thereon
at the annual rate of 8.99%, compounded semi-annually, to the extent permitted
by applicable law), the Corporation may elect to begin a new Extension Period,
subject to the above requirements. There is no limitation on the number of times
that the Corporation may elect to begin an Extension Period. See "Description of
New Securities -- Description of New Capital Securities -- Distributions" and
"Description of New Securities -- Description of New Junior Subordinated
Debentures -- Option to Extend Interest Payment Date."
15
<PAGE> 16
Should the Corporation exercise its right to defer payments of interest on
the Junior Subordinated Debentures, each holder of Capital Securities will be
required to accrue income (as original issue discount ("OID")) in respect of the
deferred stated interest allocable to its Capital Securities for United States
federal income tax purposes, which will be allocated but not distributed to
holders of Capital Securities. As a result, during an Extension Period, each
holder of Capital Securities will recognize income for United States federal
income tax purposes in advance of the receipt of cash and will not receive the
cash related to such income from the Trust if the holder disposes of the Capital
Securities prior to the record date for the payment of Distributions thereafter.
See "Certain Federal Income Tax Consequences -- Interest Income and Original
Issue Discount" and "-- Sales of Capital Securities."
Should the Corporation elect to exercise its right to defer payments of
interest on the Junior Subordinated Debentures, the market price of the Capital
Securities is likely to be affected. A holder that disposes of its Capital
Securities during an Extension Period, therefore, might not receive the same
return on its investment as a holder that continues to hold its Capital
Securities. In addition, the mere existence of the Corporation's right to defer
payments of interest on the Junior Subordinated Debentures may cause the market
price of the Capital Securities to be more volatile than the market prices of
other securities on which OID accrues that are not subject to such deferrals.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION; POSSIBLE TAX LAW CHANGES AFFECTING THE
CAPITAL SECURITIES
Upon the occurrence and continuation of a Special Event (as defined under
"Description of New Securities -- Description of New Junior Subordinated
Debentures -- Special Event Prepayment") prior to the Initial Optional
Prepayment Date, the Corporation will have the right to prepay the Junior
Subordinated Debentures in whole (but not in part) at the Special Event
Prepayment Price within 90 days following the occurrence of such Special Event
and therefore cause a mandatory redemption of the Capital Securities at the
Special Event Redemption Price. The Corporation also will have the right at any
time to terminate the Trust and, after satisfaction of claims of creditors as
provided by applicable law, to cause the Junior Subordinated Debentures to be
distributed to the holders of the Trust Securities. See "Description of New
Securities -- Description of New Capital Securities -- Redemption" and
"Description of New Securities -- Description of New Capital Securities --
Liquidation of the Trust and Distribution of New Junior Subordinated
Debentures."
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which would, among other things, generally deny corporate issuers
a deduction for interest in respect of certain debt obligations, such as the
Junior Subordinated Debentures, issued on or after the "date of first committee
action" if such debt obligations have a maximum term in excess of 15 years and
are not shown as indebtedness on the issuer's applicable consolidated balance
sheet. Neither of the tax-writing committees of Congress has considered or acted
upon the Proposed Legislation and the New Junior Subordinated Debentures should
be considered as having been issued on December 17, 1996. If the Proposed
Legislation were enacted with the effective date proposed by the Treasury
Department, such legislation would not apply to the Junior Subordinated
Debentures. There can be no assurance, however, that such effective date will be
incorporated into the Proposed Legislation, if enacted, or that other
legislation enacted after the date hereof will not otherwise adversely affect
the ability of the Corporation to deduct the interest payable on the Junior
Subordinated Debentures. Such a change could give rise to a Special Event, which
may permit the Corporation to cause a redemption of the Trust Securities at the
Special Event Redemption Price by electing to prepay the Junior Subordinated
Debentures at the Special Event Prepayment Price. See "Description of New
Securities -- Description of New Capital Securities -- Redemption," "Description
of New Securities -- Description of New Junior Subordinated Debentures --
Special Event Prepayment" and "Certain Federal Income Tax Consequences --
Proposed Tax Legislation."
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for New Capital
Securities or New Junior Subordinated Debentures distributed to the holders of
New Capital Securities if a termination of the Trust
16
<PAGE> 17
were to occur. Accordingly, the New Capital Securities or the New Junior
Subordinated Debentures may trade at a discount from the price that the investor
paid to purchase the New Capital Securities. Because holders of Capital
Securities may receive Junior Subordinated Debentures in liquidation of the
Trust and because Distributions are otherwise limited to payments on the Junior
Subordinated Debentures, prospective purchasers of New Capital Securities are
also making an investment decision with regard to the New Junior Subordinated
Debentures and should carefully review all the information regarding the New
Junior Subordinated Debentures contained herein. See "Description of New
Securities -- Description of New Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Chase Manhattan Bank will act as Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of the Capital Securities. The Chase
Manhattan Bank will also act as Property Trustee and as Debenture Trustee under
the Indenture. Chase Manhattan Bank Delaware will act as Delaware Trustee under
the Declaration. The Old Guarantee guarantees and the New Guarantee will
guarantee, as the case may be, to the holders of the Capital Securities the
following payments, to the extent not paid by the Trust: (i) any accumulated and
unpaid Distributions required to be paid on the Capital Securities, to the
extent that the Trust has funds on hand legally available therefor; (ii) the
applicable Redemption Price with respect to any Capital Securities called for
redemption, to the extent that the Trust has funds on hand legally available
therefor; and (iii) upon a voluntary or involuntary termination and liquidation
of the Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that the Trust has funds on hand legally available
therefor on such date and (b) the amount of assets of the Trust remaining
available for distribution to holders of the Capital Securities on such date.
The holders of a majority in Liquidation Amount of the Capital Securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust power conferred upon the Guarantee Trustee.
Any holder of the Capital Securities may institute a legal proceeding directly
against the Corporation to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If the Corporation defaults on its obligation to pay
amounts payable under the Junior Subordinated Debentures, the Trust will not
have sufficient funds for the payment of Distributions or amounts payable on
redemption of the Capital Securities or otherwise, and, in such event, holders
of the Capital Securities will not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event a Debenture Event of Default
shall have occurred and be continuing and such event is attributable to the
failure of the Corporation to pay principal of or premium, if any, or interest
on the Junior Subordinated Debentures on the payment date on which such payment
is due and payable, then a holder of Capital Securities may institute a legal
proceeding directly against the Corporation for enforcement of payment to such
holder of the principal of or premium, if any, or interest on such Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Capital Securities of such holder (a "Direct Action").
Notwithstanding any payments made to a holder of Capital Securities by the
Corporation in connection with a Direct Action, the Corporation shall remain
obligated to pay the principal of and premium, if any, and interest on the
Junior Subordinated Debentures, and the Corporation shall be subrogated to the
rights of the holder of such Capital Securities with respect to payments on the
Capital Securities to the extent of any payments made by the Corporation to such
holder in any Direct Action. Except as described herein, holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or to assert directly any
other rights in respect of the Junior Subordinated Debentures. See "Description
of New Securities -- Description of New Junior Subordinated Debentures --
Enforcement of Certain Rights by Holders of Capital Securities" and "Description
of New Securities -- Description of New Junior Subordinated Debentures --
Debenture Events of Default" and "Description of New Securities -- Description
of the New Guarantee." The Declaration will provide that each holder of
Capital Securities by acceptance thereof agrees to the provisions of the
Indenture.
17
<PAGE> 18
LIMITED VOTING RIGHTS
Holders of Capital Securities generally will have voting rights relating
only to the modification of the terms of the Capital Securities, the termination
or liquidation of the Trust, and the exercise of the Trust's rights as holder of
the Junior Subordinated Debentures. Holders of Capital Securities will not be
entitled to vote to appoint, remove or replace, or to increase or decrease the
number of, the Issuer Trustees, which voting rights are vested exclusively in
the holder of the Common Securities, except as described under "Description of
New Securities -- Description of New Capital Securities -- Removal of Issuer
Trustees." The Property Trustee, the Administrative Trustees and the Corporation
may amend the Declaration without the consent of holders of Capital Securities
to ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust even if such action adversely affects the interests
of such holders. See "Description of New Securities -- Description of New
Capital Securities -- Voting Rights; Amendment of the Declaration."
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Corporation and the Trust do not intend to register
under the Securities Act any Old Capital Securities which remain outstanding
after consummation of the Exchange Offer (subject to such limited exceptions, if
applicable). To the extent that Old Capital Securities are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old Capital
Securities could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain actions
or exercised certain rights under the Declaration. See "Description of New
Securities -- Description of New Capital Securities -- Voting Rights; Amendment
of the Declaration."
The Old Capital Securities provide, among other things, that, if a
registration statement relating to the Exchange Offer has not been filed within
150 days after December 17, 1996 and declared effective on or prior to the 30th
day after such required filing date, the rate of Distributions (the
"Distribution Rate") borne by the Old Capital Securities, currently 8.99% per
annum, commencing on the 31st day after such required filing date will increase
by 0.25% per annum until the Exchange Offer is consummated. Upon consummation of
the Exchange Offer, holders of Old Capital Securities will not be entitled to
any increase in the Distribution Rate thereon or any further registration rights
under the Registration Rights Agreement, except under limited circumstances. See
"Description of Old Capital Securities."
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Corporation believes the
Old Capital Securities are currently owned by, a relatively small number of
beneficial owners. The Old Capital Securities have not been registered under the
Securities Act and will be subject to restrictions on transferability if they
are not exchanged for the New Capital Securities. Although the New Capital
Securities generally may be resold or otherwise transferred by the holders (who
are not Affiliates of the Corporation or the Trust) without compliance with the
registration requirements under the Securities Act, they will constitute a new
issue of securities with no established trading market. Old Capital Securities
may be transferred by the holders thereof only in blocks having a Liquidation
Amount of not less than $100,000 (100 Old Capital Securities). New
18
<PAGE> 19
Capital Securities may be transferred by the holders thereof in blocks having a
Liquidation Amount of $1,000 (one New Capital Security) or integral multiples
thereof. The Corporation and the Trust have been advised by the Initial
Purchasers that the Initial Purchasers presently intend to make a market in the
New Capital Securities. However, the Initial Purchasers are not obligated to do
so and any market-making activity with respect to the New Capital Securities may
be discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Capital Securities or the Old Capital Securities or as to the liquidity
of or the trading market for the New Capital Securities or the Old Capital
Securities. If an active public market does not develop, the market price and
liquidity of the New Capital Securities may be adversely affected.
If a public trading market develops for the New Capital Securities, future
trading prices will depend on many factors, including, among other things,
prevailing interest rates, the Corporation's results and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the
Corporation, the New Capital Securities may trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are Affiliates of the Corporation or the Trust may
publicly offer for sale or resell the New Capital Securities only in compliance
with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives New Capital Securities for its own account
in exchange for Old Capital Securities, where such Old Capital Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Capital Securities. See "Plan of
Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Trust of such Old Capital Securities, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of the Old Capital Securities desiring to tender such Old Capital
Securities in exchange for New Capital Securities should allow sufficient time
to ensure timely delivery. Neither the Corporation nor the Trust is under any
duty to give notification of defects or irregularities with respect to the
tenders of Old Capital Securities for exchange.
RECENT OPERATING LOSS
On March 17, 1997, the Corporation announced that it expects to report 1997
results well below previous expectations. On April 16, 1997, the Corporation
reported a loss of $19.8 million, or $0.43 cents per share, for the first
quarter. See "Recent Developments." There can be no assurance that the
Corporation will not incur operating losses in future periods.
19
<PAGE> 20
AVAILABILITY OF FINANCING; RATINGS OF THE CORPORATION'S DEBT SECURITIES AND THE
CAPITAL SECURITIES
Beginning March 1997, in connection with the March 17, 1997 announcement
described above under "-- Recent Operating Loss," the various rating agencies
lowered their ratings of the Corporation's debt securities and the Capital
Securities. As of the date of this Prospectus, debt of the Corporation
maintained investment grade ratings (at or above the lowest investment grade
level) from three of the rating agencies, but was rated two levels below
investment grade by Standard & Poor's Ratings Services and by Moody's Investors
Service. As of the date of this Prospectus the Capital Securities were rated
"b1" by Moody's Investors Service, Inc., "B+r" by Standard & Poor's Ratings
Services, "BB" by Duff & Phelps Credit Rating Co., "BB+" by Fitch Investors
Services, LP and "BB+" by Thompson Bankwatch, Inc. While the Corporation
believes that the Corporation's current cash position and anticipated cash flow
from future business will provide the Corporation with adequate funds for its
current needs, there can be no assurance that the Corporation will be able to
obtain adequate financing for its business needs in the future.
This Prospectus contains forward-looking statements, including but not
limited to projections of future earnings, that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Significant risks and uncertainties include: the Corporation's
managed net interest margin, which in turn is affected by the Corporation's
success in originating new credit card accounts, the receivables volume and
initial pricing of new accounts, the impact of repricing existing accounts and
account attrition, the mix of account types and interest rate fluctuations, the
level of delinquencies, customer bankruptcies, and charge-offs, and the amount
and rate of growth in the Corporation's expenses. The Corporation's earnings
also may be significantly affected by factors that affect consumer debt,
competitive pressures from other providers of financial services, the effects of
governmental regulation, the amount and cost of financing available to the
Corporation and its subsidiaries, the difficulty or inability to securitize the
Corporation's receivables and the impact of the ratings on debt of the
Corporation and its subsidiaries. Additional risks that may affect the
Corporation's future performance are set forth elsewhere in this Prospectus and
in the Corporation's other filings with the Commission.
20
<PAGE> 21
ADVANTA CORP.
The Corporation serves consumers and small businesses through innovative
products and services primarily via direct, cost-effective delivery systems. The
Corporation primarily originates and services credit cards and mortgage loans.
Other products include commercial small-ticket equipment leasing, business
credit cards, automobile loans, insurance and deposit products. The Corporation
utilizes consumer information attributes, including credit assessments, usage
patterns and other characteristics, enhanced by proprietary information to match
prospect profiles with appropriate products. At March 31, 1997, assets under
management totaled $20 billion.
Approximately 61% of total revenues for the year ended March 31, 1997 were
derived from credit cards marketed through targeted direct mail campaigns. For
the past several years, the Corporation's strategy has been to market this
product in the form of a no annual fee, low variable-rate gold card. The
Corporation has successfully grown to one of the ten largest issuers of gold
cards in the United States and ranks among the top 15 bankcard issuers
worldwide. Personal finance loans, which include mortgage, home equity and
automobile loans, contribute 20% of total revenues with a managed loan portfolio
of $3.3 billion. Mortgage loans are originated directly with consumers, as well
as through conduit relationships and wholesale purchases from brokers and other
financial institutions.
The Corporation was incorporated in Delaware in 1974 as Teachers Service
Organization, Inc., the successor to a business originally founded in 1951. In
January 1988, the Corporation's name was changed from TSO Financial Corp. to
Advanta Corp. The Corporation's principal executive office is located at Welsh &
McKean Roads, P.O. Box 844, Spring House, Pennsylvania 19477-0844. The
Corporation's telephone number at its principal executive office is (215)
657-4000.
USE OF PROCEEDS
Neither the Corporation nor the Trust will receive any cash proceeds from
the issuance of the New Capital Securities. In consideration for issuing the New
Capital Securities in exchange for the Old Capital Securities as described in
this Prospectus, the Trust will receive Old Capital Securities in like
Liquidation Amount. The Old Capital Securities surrendered in exchange for the
New Capital Securities will be retired and canceled.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
the Corporation for the respective periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(A)........................... (B) 2.10x 1.97x 2.26x 2.71x 2.52x 1.81x
</TABLE>
- ---------------
(A) For purposes of computing these ratios, "earnings" represent income before
income taxes plus fixed charges, and "fixed charges" consist of interest
expense, one-third (the proportion deemed representative of the interest
factor) of rental expenses on operating leases and preferred stock dividends
of subsidiary trust.
(B) For the three months ended March 31, 1997, earnings were inadequate to cover
fixed charges. The deficiency was approximately $26.7 million.
21
<PAGE> 22
CAPITALIZATION
The following table sets forth the actual unaudited capitalization of the
Corporation and its consolidated subsidiaries at March 31, 1997. The table
should be read in conjunction with the Consolidated Financial Statements of the
Corporation and the related Notes thereto included in the documents incorporated
by reference herein. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Long-Term Debt................................................................. $1,467,198
----------
Corporation-obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely Subordinated Debentures of the Corporation.............. 100,000
----------
Stockholders' Equity:
Class A Preferred Stock, $1,000 par value; 1,010 shares authorized, issued
and outstanding.......................................................... 1,010
Class B Preferred Stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 25,000 shares..................................... 0
Class A Common Stock, $.01 par value; authorized 200,000,000 shares;
issued and outstanding 18,157,262 shares................................. 182
Class B Common Stock, $.01 par value; authorized 200,000,000 shares;
issued and outstanding 26,045,299 shares................................. 260
Additional paid in capital, net........................................... 320,123
Retained earnings, net.................................................... 515,236
----------
Total stockholders' equity........................................... 836,811
----------
Total Capitalization........................................................... $2,404,009
==========
</TABLE>
22
<PAGE> 23
SUMMARY FINANCIAL DATA
The following table contains selected consolidated financial data for the
Corporation and its subsidiaries for the five years ended December 31, 1996 and
the three month periods ended March 31, 1997 and 1996. The financial data for
each of the years ended December 31, 1992 through 1996 have been derived from
audited financial statements. The financial data for the three months ended
March 31, 1997 and March 31, 1996 have been derived from unaudited financial
statements and reflect, in the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
information for such interim periods. Results for the interim periods are not
necessarily indicative of results to be expected for the full year. The summary
below should be read in conjunction with the Consolidated Financial Statements
of the Corporation and the related Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations which are contained in
each of the Corporation's Annual Reports on Form 10-K for the years ended
December 31, 1992 through 1996 and the Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ---------- ---------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income................... $ 25,612 $ 16,711 $ 78,265 $ 72,900 $ 70,381 $ 78,644 $ 73,176
Noninterest income.................... 156,854 171,029 806,532 543,014 395,808 255,580 193,144
Net operating revenues(1)............. 182,466 187,740 850,977 615,914 447,837 334,224 266,320
Provision for credit losses........... 60,364 15,082 96,862 53,326 34,198 29,802 47,138
Operating expenses.................... 148,811 110,495 523,174 350,685 266,784 181,167 142,082
Income (loss) before income taxes and
extraordinary item.................. (26,709) 62,163 264,761 211,903 165,207 123,255 77,100
Income (loss) before extraordinary
item................................ (26,709) 62,163 175,657 136,677 106,063 77,920 48,037
Net income (loss)..................... (19,818) 41,030 175,657 136,677 106,063 76,647 48,037
PER COMMON SHARE DATA
Income (loss) before extraordinary
item................................ $ (.43) $ .91 $ 3.89 $ 3.20 $ 2.58 $ 1.95 $ 1.38
Net income (loss)..................... (.43) .91 3.89 3.20 2.58 1.92 1.38
FINANCIAL CONDITION -- PERIOD END
Investments and money market
instruments......................... $ 2,472,917 $ 1,054,326 $ 1,671,309 $ 1,090,047 $ 671,661 $ 542,222 $ 521,567
Gross receivables
Owned............................... 2,535,217 3,011,843 2,656,641 2,762,927 1,964,444 1,277,305 998,244
Securitized......................... 13,915,828 11,079,286 13,632,552 9,452,428 6,190,793 3,968,856 2,721,726
Managed............................. 16,451,045 14,091,129 16,289,193 12,215,355 8,155,237 5,246,161 3,719,970
Total assets
Owned............................... 6,244,266 4,984,916 5,583,959 4,524,259 3,113,048 2,140,195 1,775,067
Managed............................. 20,160,094 16,064,202 19,216,511 13,976,687 9,303,841 6,109,051 4,496,793
Deposits.............................. 1,958,791 2,043,303 1,860,058 1,906,601 1,159,358 1,254,881 1,204,486
Long-term debt........................ 1,467,198 836,260 1,393,095 587,877 666,033 368,372 173,668
Capital Securities.................... 100,000 0 100,000 0 0 0 0
Stockholders' equity.................. 836,811 710,494 852,036 672,964 441,690 342,741 174,870
Stockholders' equity, Capital
Securities and long-term debt....... 2,404,009 1,546,754 2,345,131 1,260,841 1,107,723 711,113 348,538
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ----- ----- ----- ----- ----- -----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
Return on average assets............................ (1.29)% 3.38% 3.16% 4.06% 4.47% 3.91% 2.82%
Return on average common equity..................... (11.39) 25.79 25.31 26.15 26.97 27.50 33.32
Return on average total equity(4)................... (9.10) 22.48 22.07 24.75 26.97 27.50 33.32
Equity/Owned assets(4).............................. 15.00 14.25 17.05 14.87 14.19 16.01 9.85
Dividend payout..................................... -- 10.88 10.75 9.97 9.24 9.56 7.69
Managed net interest margin(2)...................... 7.05 6.24 6.32 5.87 6.72 7.77 8.05
Allowance for credit losses at period end as a
percentage of gross owned receivables............. 4.2 1.9 3.4 1.9 2.1 2.4 4.0
Impaired assets at period end as a percentage of
gross managed receivables......................... 2.9 1.4 2.6 1.4 1.3 1.8 2.5
Managed net charge-offs as a percentage of average
gross receivables................................. 5.3 2.8(3) 3.2(3) 2.2 2.3 2.9 3.4
Risk-based capital ratios
Advanta National Bank USA
Tier I.......................................... 10.02 9.37 10.15 7.30 7.95 7.19 9.84
Tier I and II................................... 12.74 15.35 15.84 11.56 12.04 12.06 11.12
Leverage ratio.................................. 15.95 5.71 7.35 6.79 8.15 6.03 7.57
Advanta National Bank
Tier I.......................................... 19.61 8.19 11.13 8.04 -- -- --
Tier I and II................................... 27.20 12.15 17.20 12.28 -- -- --
Leverage ratio.................................. 10.39 9.79 7.15 7.87 -- -- --
</TABLE>
- ---------------
(1) Excludes gains on sales of credit card relationships in 1994 and 1996.
(2) Combination of owned interest earning assets/interest-bearing liabilities
and securitized credit card assets/liabilities.
(3) In the third quarter of 1996, the Company adopted a new charge-off
methodology related to bankrupt credit card accounts, providing for up to a
90-day (rather than up to a 30-day) investigative period following
notification of the bankruptcy petition, prior to charge-off. Under the
prior methodology, the charge-off rate was 3.5%
(4) Beginning with the year ended December 31, 1996, return on average total
equity and equity/owned assets includes capital securities as equity.
RECENT DEVELOPMENTS
On March 17, 1997, the Corporation announced that it expects to report 1997
results well below previous expectations. On April 16, 1997 the Corporation
reported a loss of $19.8 million, or $0.43 cents per share, for the first
quarter of 1997. The Corporation expects to report a net profit for full-year
1997 of approximately $1.50 per share. This interruption in the Corporation's
historical pattern of strong financial results reflects a number of factors,
including continuing increases in consumer bankruptcies and charge-offs and
lower receivables balances than originally anticipated in its credit card
business. The Corporation's mortgage financing, leasing and insurance businesses
continue to perform well.
The Corporation also announced that it has retained BT Wolfensohn, a
division of Bankers Trust New York Corporation, to explore all strategic
alternatives that build upon the historic strength and success of the
Corporation as a whole and of its business units with the aim of maximizing the
Corporation's value. The strategic alternatives that might be considered by the
Corporation include, but are not limited to, a strategic alliance with another
company, an alliance or initial public offering involving one or more of the
Corporation's operating units, or a merger or sale involving the Corporation as
a whole. There is no assurance that any such event will occur. In addition to
considering other strategic alternatives with its financial and other advisers,
the Corporation is pursuing a number of steps to return the Corporation to its
historical level of financial performance by increasing revenues and stemming
credit card losses.
24
<PAGE> 25
ADVANTA CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, dated as of December 5, 1996, executed by the
Corporation, as Sponsor, the Delaware Trustee and the Initial Individual
Trustees named therein (the "Initial Declaration"), and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
December 5, 1996. The Initial Declaration was replaced by an amended and
restated declaration of trust dated as of December 17, 1996 (the "Declaration")
executed by the Corporation, as Sponsor, the Initial Individual Trustees, who
contemporaneously withdrew as trustees, and the Issuer Trustees (as defined
herein). The Trust exists for the exclusive purposes of (i) issuing and selling
the Trust Securities, which represent undivided beneficial interests in the
assets of the Trust, (ii) using the proceeds of the sale of the Trust Securities
to acquire the Junior Subordinated Debentures and (iii) engaging in only those
other activities necessary, advisable or incidental thereto. Accordingly, the
Junior Subordinated Debentures will be the sole assets of the Trust and payments
under the Junior Subordinated Debentures will be the sole revenues of the Trust.
All of the Common Securities are owned directly or indirectly by the
Corporation. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Capital Securities, except that upon the
occurrence and during the continuance of an Event of Default under the
Declaration resulting from a Debenture Event of Default, the rights of the
Corporation as holder of the Common Securities to payments in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated and rank junior to the rights of the holders of the Capital
Securities. See "Description of New Capital Securities -- Subordination of
Common Securities." The Corporation has acquired Common Securities in a
Liquidation Amount equal to 3% of the total capital of the Trust. The Trust has
a term of 31 years but may terminate earlier as provided in the Declaration. The
Trust's business and affairs are conducted by its trustees, each appointed by
the Corporation as holder of the Common Securities. The trustees of the Trust
are The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank
Delaware, as Delaware Trustee, and three individual trustees (the
"Administrative Trustees") who are employees or officers of or affiliated with
the Corporation (collectively, the "Issuer Trustees"). The Chase Manhattan Bank,
as Property Trustee, will act as sole indenture trustee under the Declaration.
The Chase Manhattan Bank will also act as indenture trustee under the Guarantee
and the Indenture. See "Description of New Securities -- Description of the New
Guarantee" and "-- Description of New Junior Subordinated Debentures." The
holder of the Common Securities of the Trust or, if an Event of Default under
the Declaration has occurred and is continuing, the holders of a majority in
Liquidation Amount of the Capital Securities, will be entitled to appoint,
remove or replace the Property Trustee and/or the Delaware Trustee. In no event
will the holders of the Capital Securities have the right to vote to appoint,
remove or replace the Administrative Trustees; such voting rights will be vested
exclusively in the holder of the Common Securities. The duties and obligations
of each Issuer Trustee are governed by the Declaration. The Corporation will
pay, directly or indirectly, all fees, expenses, debts and obligations (other
than the Trust Securities) related to the Trust and the offering of the Capital
Securities, including all ongoing costs, expenses and liabilities of the Trust.
The principal executive office of the Trust is c/o Advanta Corp., 1 Righter
Parkway, Wilmington, Delaware 19803.
25
<PAGE> 26
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Corporation
and the Trust entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Corporation and the Trust agreed to file and
to use their best efforts to cause to become effective with the Commission a
registration statement with respect to the exchange of the Old Capital
Securities for the New Capital Securities. A copy of the Registration Rights
Agreement has been filed as an Exhibit to the Registration Statement of which
this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Corporation and the Trust under the Registration Rights Agreement. The form
and terms of the New Capital Securities are the same as the form and terms of
the Old Capital Securities except that the New Capital Securities have been
registered under the Securities Act and will not be subject to the $100,000
minimum Liquidation Amount transfer restriction and certain other transfer
restrictions applicable to the Old Capital Securities and will not provide for
any increase in the Distribution Rate thereon. In that regard, the Old Capital
Securities provide, among other things, that, if a registration statement
relating to the Exchange Offer has not been filed within 150 days after December
17, 1996 and declared effective on or prior to the 30th day after such required
filing date, the Distribution Rate borne by the Old Capital Securities,
currently 8.99% per annum, commencing on the 31st day after such required filing
date will increase by 0.25% per annum until the Exchange Offer is consummated.
Upon consummation of the Exchange Offer, holders of Old Capital Securities will
not be entitled to any increase in the Distribution Rate thereon or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors -- Consequences of a Failure to
Exchange Old Capital Securities" and "Description of Old Capital Securities."
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Old Capital Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Trust or any other person who has obtained a
properly completed bond power from such holder, or any person whose Old Capital
Securities are held of record by The Depository Trust Company ("DTC") who
desires to deliver such Old Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange promptly
after the Expiration Date (as defined herein) the Old Guarantee for the New
Guarantee and the Old Junior Subordinated Debentures, in an amount corresponding
to the Old Capital Securities accepted for exchange, for a like aggregate
principal amount of the New Junior Subordinated Debentures. The New Guarantee
and New Junior Subordinated Debentures have been registered under the Securities
Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $100,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date and not properly withdrawn
in accordance with the procedures described below. The Trust will issue,
promptly after the Expiration Date, an aggregate Liquidation Amount of up to
$100,000,000 of New Capital Securities in exchange for a like principal amount
of outstanding Old Capital Securities tendered and accepted in connection with
the Exchange Offer. Holders may tender their Old Capital Securities in whole or
in part in a Liquidation Amount of not less than $100,000 (100 Capital
Securities) or any integral multiple of $1,000 Liquidation Amount (one Capital
Security) in excess thereof.
26
<PAGE> 27
The Exchange Offer is not conditioned upon any minimum Liquidation Amount
of Old Capital Securities being tendered. As of the date of this Prospectus,
$100,000,000 aggregate Liquidation Amount of Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Declaration, but will not be entitled to any further registration rights under
the Registration Rights Agreement, except under limited circumstances. See "Risk
Factors -- Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Capital Securities
will be returned, without expense, to the tendering holder thereof promptly
after the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Corporation will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "-- Fees and
Expenses."
NEITHER THE CORPORATION, THE BOARD OF DIRECTORS OF THE CORPORATION NOR ANY
ISSUER TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL
SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION
OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL
SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO
TENDER BASED ON SUCH HOLDERS OWN FINANCIAL POSITION AND REQUIREMENTS.
The term "Expiration Date" means 5:00 p.m., New York City time, on July 17,
1997 unless the Exchange Offer is extended by the Corporation or the Trust (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Corporation and the Trust expressly reserve the right in their sole and
absolute discretion, subject to applicable law, at any time and from time to
time, to (i) delay the acceptance of the Old Capital Securities for exchange,
(ii) terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) if the Trust determines, in its
sole and absolute discretion, that any of the events or conditions referred to
under "-- Conditions to the Exchange Offer" have occurred or exist or have not
been satisfied, (iii) extend the Expiration Date of the Exchange Offer and
retain all Old Capital Securities tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Old Capital Securities to withdraw
their tendered Old Capital Securities as described under "-- Withdrawal Rights,"
and (iv) waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Corporation and the Trust to constitute a material change, or if the Corporation
and the Trust waive a material condition of the Exchange Offer, the Corporation
and the Trust will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the holders of the Old Capital
Securities, and the Corporation and the Trust will extend the Exchange Offer to
the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Corporation and the Trust may choose to make any public
announcement and subject to applicable law, the
27
<PAGE> 28
Corporation and the Trust shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn,
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old
Capital Securities tendered and accepted for exchange pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of Old
Capital Securities into the Exchange Agent's account at DTC, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and (iii) any other documents required by the
Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Capital Securities into the Exchange Agent's account
at DTC.
Subject to the terms and conditions of the Exchange Offer, the Trust will
be deemed to have accepted for exchange, and thereby exchanged, Old Capital
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral or written notice to the Exchange Agent of the Trust's acceptance of such
Old Capital Securities for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Trust for the purpose of receiving tenders of
Old Capital Securities, Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Capital Securities,
Letters of Transmittal and related documents and transmitting New Capital
Securities to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If for any reason whatsoever, acceptance for exchange
or the exchange of any Old Capital Securities tendered pursuant to the Exchange
Offer is delayed (whether before or after the Trust's acceptance for exchange of
Old Capital Securities) or the Trust extends the Exchange Offer or is unable to
accept for exchange or exchange Old Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to the Trust's rights set forth herein,
the Exchange Agent may, nevertheless, on behalf of the Trust and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Old Capital Securities and such
Old Capital Securities may not be withdrawn except to the extent tendering
holders are entitled to withdrawal rights as described under "-- Withdrawal
Rights."
Pursuant to the Letter of Transmittal, a holder of Old Capital Securities
will warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer Old Capital Securities,
that the Trust will acquire good, marketable and unencumbered title to the
tendered Old Capital Securities, free and clear of all liens, restrictions,
charges and encumbrances, and the Old Capital Securities tendered for exchange
are not subject to any adverse claims or proxies. The holder also will warrant
and agree that it will, upon request, execute and deliver any additional
documents deemed by the Trust or the Exchange Agent to be necessary or desirable
to complete the exchange, sale, assignment, and transfer of the Old Capital
Securities tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
Valid Tender. Except as set forth below, in order for Old Capital
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at its address set forth under "-- Exchange
Agent," and either (i) tendered Old Capital Securities must be received by the
Exchange Agent, or (ii) such Old Capital Securities must be tendered pursuant to
the procedures for book-entry transfer set forth below and a book-entry
confirmation must be received by the Exchange Agent, in each case on or prior to
the Expiration Date, or (iii) the guaranteed delivery procedures set forth below
must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in the
appropriate box on the Letter of Transmittal. The entire amount
28
<PAGE> 29
of Old Capital Securities delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange Offer
within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Old Capital Securities by causing DTC to
transfer such Old Capital Securities into the Exchange Agent's account at DTC in
accordance with DTC's procedures for transfers. However, although delivery of
Old Capital Securities may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the Exchange Agent at its address set forth under "-- Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure
set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the certificate
or (b) such holder completes the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the Letter of Transmittal. In the case of (a)
or (b) above, such certificates for Old Capital Securities must be duly endorsed
or accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined therein):
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association (each of the foregoing, an "Eligible Institution"), unless
surrendered on behalf of such Eligible Institution. See Instruction 1 to the
Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or prior to the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within three New York Stock Exchange trading days after the date of
execution of such Notice of Guaranteed Delivery.
29
<PAGE> 30
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a
book-entry confirmation with respect to such Old Capital Securities, and a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), together with any required signature guarantees and any other
documents required by the Letter of Transmittal. Accordingly, the delivery of
New Capital Securities might not be made to all tendering holders at the same
time, and will depend upon when Old Capital Securities, book-entry confirmations
with respect to Old Capital Securities and other required documents are received
by the Exchange Agent.
The Trust's acceptance for exchange of Old Capital Securities tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Trust upon the terms and subject
to the conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by the Corporation and
the Trust, in their sole discretion, whose determination shall be final and
binding on all parties. The Corporation and the Trust reserve the absolute
right, in their sole and absolute discretion, to reject any and all tenders
determined by them not to be in proper form or the acceptance of which, or
exchange for, may, in the opinion of counsel to the Corporation and the Trust,
be unlawful. The Corporation and the Trust also reserve the absolute right,
subject to applicable law, to waive any of the conditions of the Exchange Offer
as set forth under "-- Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Capital Securities of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders.
The interpretation by the Corporation and the Trust of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the Corporation,
the Trust, any affiliates or assigns of the Corporation or the Trust, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the
Corporation and the Trust, proper evidence satisfactory to the Corporation and
the Trust, in their sole discretion, of such person's authority to so act must
be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Trust is making the Exchange Offer for the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Corporation nor the Trust
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, the Corporation and the Trust believe that New
Capital Securities issued pursuant to this Exchange Offer in exchange for Old
Capital Securities may be offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder
30
<PAGE> 31
who is a broker-dealer) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Capital Securities are acquired in the ordinary course of such holder's business
and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Capital Securities. However, any
holder of Old Capital Securities who is an Affiliate of the Corporation or the
Trust or who intends to participate in the Exchange Offer for the purpose of
distributing New Capital Securities, or any broker-dealer who purchased Old
Capital Securities from the Trust for resale pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Capital Securities in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Capital Securities unless such sale is made pursuant to an exemption
from such requirements. In addition, as described below, if any broker-dealer
holds Old Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Capital
Securities for New Capital Securities, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required to
represent that (i) it is not an Affiliate of the Corporation or the Trust, (ii)
any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does not intend to engage in,
a distribution (within the meaning of the Securities Act) of such New Capital
Securities. In addition, the Corporation and the Trust may require such holder,
as a condition to such holder's eligibility to participate in the Exchange
Offer, to furnish to the Corporation and the Trust (or an agent thereof) in
writing information as to the number of "beneficial owners" (within the meaning
of Rule 13d-3 under the Exchange Act) on behalf of whom such holder holds the
Capital Securities to be exchanged in the Exchange Offer. Each broker-dealer
that receives New Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Capital Securities for
its own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Capital Securities. The Letter of Transmittal states that, by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Corporation and
the Trust believe that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities which
represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Capital Securities. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Capital
Securities received in exchange for Old Capital Securities where such Old
Capital Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the
Corporation and the Trust have agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such New Capital Securities for a period ending
90-days after the Expiration Date (subject to extension under certain limited
circumstances described below) or, if earlier, when all such New Capital
Securities have been disposed of by such Participating Broker-Dealer. See "Plan
of Distribution." However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of New Capital Securities received in
exchange for Old Capital Securities pursuant to the Exchange Offer must notify
the Corporation or the Trust, or cause the Corporation or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
31
<PAGE> 32
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at the
address set forth herein under "-- Exchange Agent." Any Participating
Broker-Dealer who is an Affiliate of the Corporation or the Trust may not rely
on such interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Corporation or the Trust of the occurrence of any event or the discovery of any
fact which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Capital Securities (or the New
Guarantee or the New Junior Subordinated Debentures, as applicable) pursuant to
this Prospectus until the Corporation or the Trust has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Corporation or the Trust has given notice that the sale of
the New Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable) may be resumed, as the case may be. If the
Corporation or the Trust gives such notice to suspend the sale of the New
Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable), it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Capital Securities by the number of days
during the period from and including the date of the giving of such notice to
and including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales of
the New Capital Securities or to and including the date on which the Corporation
or the Trust has given notice that the sale of New Capital Securities (or the
New Guarantee or the New Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "-- Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Capital Securities to be withdrawn, the
aggregate principal amount of Old Capital Securities to be withdrawn, and (if
certificates for such Old Capital Securities have been tendered) the name of the
registered holder of the Old Capital Securities as set forth on the Old Capital
Securities, if different from that of the person who tendered such Old Capital
Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such Old
Capital Securities, the tendering holder must submit the serial numbers shown on
the particular Old Capital Securities to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Capital Securities tendered for the account of an Eligible
Institution. If Old Capital Securities have been tendered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for Tendering Old
Capital Securities," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Old Capital
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Capital Securities may not be rescinded. Old
Capital Securities properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described
above under "-- Procedures for Tendering Old Capital Securities."
32
<PAGE> 33
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither the Corporation, the Trust, any affiliates or assigns of the Corporation
or the Trust, the Exchange Agent nor any other person shall be under any duty to
give any notification of any irregularities in any notice of withdrawal or incur
any liability for failure to give any such notification. Any Old Capital
Securities which have been tendered but which are withdrawn will be returned to
the holder thereof promptly after withdrawal.
DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Holders of record of Old Capital Securities on June 1, 1997 will be
entitled to the payment of Distributions thereon on June 17, 1997. Holders of
Old Capital Securities whose Old Capital Securities are accepted for exchange
will not thereafter receive Distributions on such Old Capital Securities and
will be deemed to have waived the right to receive any Distributions from the
Trust on such Old Capital Securities.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Corporation and the Trust will not be
required to accept for exchange, or to exchange, any Old Capital Securities for
any New Capital Securities, and, as described below, may terminate the Exchange
Offer (whether or not any Old Capital Securities have theretofore been accepted
for exchange) or may waive any conditions to or amend the Exchange Offer, if any
of the following conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is an Affiliate of the
Corporation or the Trust) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Capital Securities are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any
person to participate in the distribution of such New Capital Securities;
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Corporation or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer;
(c) the Corporation has determined in good faith that there is a
reasonable likelihood that, or a material uncertainty exists as to whether,
consummation of the Exchange Offer would result in a material adverse tax
consequence to the Corporation; or
(d) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Corporation or the Trust, threatened for that purpose any governmental
approval has not been obtained, which approval the Corporation or the Trust
shall, in its sole discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby.
If the Corporation or the Trust determines in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, it may, subject to applicable law, terminate the
Exchange Offer (whether or not any Old Capital Securities have theretofore been
accepted for exchange) or may waive any such condition or otherwise amend the
terms of the Exchange Offer in any respect. If such waiver or amendment
constitutes a material change to the Exchange Offer, the Corporation or the
Trust will promptly disclose such waiver or amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Old Capital
Securities and will extend the Exchange Offer to the extent required by Rule
14e-1 under the Exchange Act.
33
<PAGE> 34
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
By Registered or Certified Mail or By Hand or Overnight Delivery:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, NY 10001
Attention: Sheik Wiltshire, Second Vice President
Global Trust Services
Confirm By Telephone:
(212) 946-3082
Facsimile Transmissions:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 946-8161
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Capital Securities, and in
handling or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Neither the Corporation nor the Trust will make any payment to brokers,
dealers or other nominees soliciting acceptances of the Exchange Offer.
34
<PAGE> 35
DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF NEW CAPITAL SECURITIES
Pursuant to the terms of the Declaration, the Trust has issued the Old
Capital Securities and the Common Securities and will issue the New Capital
Securities pursuant to the Exchange Offer. The New Capital Securities will
represent preferred beneficial interests in the Trust and the holders thereof
will be entitled to a preference over the Common Securities in certain
circumstances with respect to Distributions and amounts payable on redemption of
the Trust Securities or liquidation of the Trust. See "-- Subordination of
Common Securities." Upon effectiveness of the Registration Statement, the
Declaration will be qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Declaration and the Trust Indenture Act. Certain capitalized terms used
herein are defined in the Declaration.
General. The Capital Securities (including the Old Capital Securities and
the New Capital Securities) are limited to $100,000,000 aggregate Liquidation
Amount at any one time outstanding. The New Capital Securities will rank pari
passu, and payments will be made thereon pro rata, with the Old Capital
Securities and the Common Securities except with respect to the Common
Securities, in certain circumstances described under "-- Subordination of Common
Securities" below. Legal title to the New Junior Subordinated Debentures will be
held by the Property Trustee in trust for the benefit of the holders of the New
Capital Securities. The New Guarantee will not guarantee payment of
Distributions or amounts payable on redemption of the New Capital Securities or
liquidation of the Trust when the Trust does not have funds on hand legally
available for such payments. See "-- Description of the New Guarantee."
Distributions. Distributions on the New Capital Securities will be
cumulative, will accumulate from December 17, 1996 and will be payable
semi-annually in arrears on June 17 and December 17 of each year, commencing
June 17, 1997, at the annual rate of 8.99% of the Liquidation Amount to the
holders of the New Capital Securities on the relevant record dates. The record
dates will be the first day of the month in which the relevant Distribution Date
(as defined herein) falls. The amount of Distributions payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months. In the
event that any date on which Distributions are payable on the New Capital
Securities is not a Business Day (as defined herein), payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect to any
such delay), in each case with the same force and effect as if made on such date
(each date on which Distributions are payable in accordance with the foregoing,
a "Distribution Date"). A "Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in New York, New
York or Wilmington, Delaware are authorized or required by law or executive
order to remain closed.
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 Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity Date. Upon any such election, semi-annual
Distributions on the Capital Securities will be deferred by the Trust during
such Extension Period. Distributions to which holders of the Capital Securities
are entitled during any such Extension Period will accumulate additional
Distributions thereon at the rate per annum of 8.99% thereof, compounded
semi-annually from the relevant Distribution Date, but not exceeding the
interest rate then accruing on the Junior Subordinated Debentures. The term
"Distributions," as used herein, shall include any such additional
Distributions.
During any Extension Period, the Corporation may extend such Extension
Period, provided that such extension does not cause such Extension Period to
exceed 10 consecutive semi-annual periods or to extend beyond the Stated
Maturity Date. Upon the termination of any such Extension Period and the payment
of all amounts then due, and subject to the foregoing limitations, the
Corporation may elect to begin a new Extension Period. The Corporation must give
the Property Trustee, the Administrative Trustees and the Debenture Trustee
notice of its election of any Extension Period or any extension thereof at least
five Business
35
<PAGE> 36
Days prior to the earlier of (i) the date the Distributions on the Capital
Securities would have been payable except for the election to begin or extend
such Extension Period and (ii) the date the Trust is required to give notice to
any securities exchange or to holders of the Capital Securities of the record
date or the date such Distributions are payable, but in any event not less than
five Business Days prior to such record date. There is no limitation on the
number of times that the Corporation may elect to begin an Extension Period. See
"-- Description of New Junior Subordinated Debentures -- Option to Extend
Interest Payment Date" and "Certain Federal Income Tax Consequences -- Interest
Income and Original Issue Discount."
During any Extension Period, the Corporation may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock) or (ii) make any payment of
principal of or premium, if any, or interest on or repay, repurchase or redeem
any debt securities of the Corporation (including Other Debentures) that rank
pari passu with or junior in right of payment to the Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Corporation of the debt securities of any subsidiary of the Corporation
(including Other Guarantees) if such guarantee ranks pari passu with or junior
in right of payment to the Junior Subordinated Debentures (other than (a)
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a result of a reclassification of the
Corporation's capital stock or the exchange or conversion of one class, or
series of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
and (f) purchases of common stock related to the issuance of common stock or
rights under any of the Corporation's benefit plans for its directors, officers
or employees or any of the Corporation's dividend reinvestment plans).
Although the Corporation may in the future exercise its option to defer
payments of interest on the Junior Subordinated Debentures, the Corporation has
no such current intention.
The revenue of the Trust available for distribution to holders of the New
Capital Securities will be limited to payments under the New Junior
Subordinated Debentures. See "-- Description of New Junior Subordinated
Debentures -- General." If the Corporation does not make interest payments on
the New Junior Subordinated Debentures, the Property Trustee will not have
funds available to pay Distributions on the New 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) will be guaranteed by the
Corporation on a limited basis as set forth herein under "-- Description of the
New Guarantee."
Redemption. Upon the repayment on the Stated Maturity Date or prepayment
prior to the Stated Maturity Date of the Junior Subordinated Debentures, the
proceeds from such repayment or prepayment shall be applied by the Property
Trustee to redeem a Like Amount (as defined below) of the Trust Securities, upon
not less than 30 nor more than 60 days' notice of a date of redemption (the
"Redemption Date") at the applicable Redemption Price, which shall be equal to
(i) in the case of the repayment of the Junior Subordinated Debentures on the
Stated Maturity Date, the Maturity Redemption Price (equal to the principal of
and accrued interest on the Junior Subordinated Debentures), (ii) in the case of
the optional prepayment of the Junior Subordinated Debentures upon the
occurrence and continuation of a Special Event prior to the Initial Optional
Prepayment Date, the Special Event Redemption Price (equal to the Special Event
Prepayment Price in respect of the Junior Subordinated Debentures) and (iii) in
the case of the optional prepayment of the Junior Subordinated Debentures on or
after the Initial Optional Prepayment Date, the Optional Redemption Price (equal
to the Optional Prepayment Price in respect of the Junior Subordinated
Debentures). See "-- Description of New Junior Subordinated Debentures --
Optional Prepayment" and "-- Special Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be paid in
36
<PAGE> 37
accordance with their terms and (ii) with respect to a distribution of Junior
Subordinated Debentures upon the liquidation of the Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
The Corporation will have the option to prepay the Junior Subordinated
Debentures, (i) in whole or in part, on or after the Initial Optional Prepayment
Date, at the applicable Optional Prepayment Price and (ii) in whole but not in
part, at any time, upon the occurrence of a Special Event prior to the Initial
Optional Prepayment Date, at the Special Event Prepayment Price.
Liquidation of the Trust and Distribution of Junior Subordinated
Debentures. The Corporation will have the right at any time to terminate the
Trust and cause the Junior Subordinated Debentures to be distributed to the
holders of the Trust Securities in liquidation of the Trust. Such right is
subject to the Corporation having received an opinion of counsel to the effect
that such distribution will not be a taxable event to holders of Capital
Securities.
The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the distribution of a Like Amount of the Junior Subordinated Debentures to
the holders of the Trust Securities, if the Corporation, as Sponsor, has given
written direction to the Property Trustee to terminate the Trust (which
direction is optional and, except as described above, wholly within the
discretion of the Corporation, as Sponsor); (iii) redemption of all of the Trust
Securities as described under "-- Redemption" above; (iv) expiration of the term
of the Trust; and (v) the entry of an order for the dissolution of the Trust by
a court of competent jurisdiction.
If a termination occurs as described in clause (i), (ii), (iv), or (v) of
the preceding paragraph, the Trust shall be liquidated by the Issuer Trustees as
expeditiously as the Issuer Trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, to the holders of the Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practicable, in which event such holders will be
entitled to receive out of the assets of the Trust legally available for
distribution to holders, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, an amount equal to the aggregate of the
Liquidation Amount plus accumulated and unpaid Distributions thereon to the date
of payment (such amount being the "Liquidation Distribution"). If the
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
Capital Securities and the Common Securities shall be paid on a pro rata basis,
except that if a Debenture Event of Default has occurred and is continuing, the
Capital Securities shall have a priority over the Common Securities. See
"-- Subordination of Common Securities." If an early termination occurs, the
Junior Subordinated Debentures will be subject to optional prepayment, in whole
or in part, on or after the Initial Optional Prepayment Date, except in the case
of an early termination described in clause (v) above, in which case the Junior
Subordinated Debentures will be subject to optional prepayment, in whole but not
in part, on or after the Initial Optional Prepayment Date.
If the Corporation elects not to prepay the Junior Subordinated Debentures
prior to maturity in accordance with their terms and either elects not to or is
unable to liquidate the Trust and distribute the Junior Subordinated Debentures
to holders of the Trust Securities, the Trust Securities will remain outstanding
until the repayment of the Junior Subordinated Debentures on the Stated Maturity
Date.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) each registered
global certificate, if any, representing Trust Securities and held by DTC or its
nominee will be exchanged for a registered global certificate representing the
Junior Subordinated Debentures to be delivered upon such distribution and (iii)
any certificates representing Trust Securities not held by DTC or its nominee
will be deemed to represent Junior Subordinated Debentures having a principal
amount equal to the Liquidation Amount of such Trust Securities, and bearing
accrued and unpaid interest in an amount equal to the accumulated and unpaid
Distributions on such Trust Securities until such certificates are presented to
the
37
<PAGE> 38
Administrative Trustees or their agent for cancellation, whereupon the
Corporation will issue to such holder, and the Debenture Trustee will
authenticate, a certificate representing such Junior Subordinated Debentures.
There can be no assurance as to the market prices for the New Capital
Securities or the New Junior Subordinated Debentures that may be distributed in
exchange for the New Capital Securities if a termination and liquidation of the
Trust were to occur. Accordingly, the New Capital Securities, or the New Junior
Subordinated Debentures that the investor may receive on termination and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the New Capital Securities.
Redemption Procedures. If applicable, Trust Securities shall be redeemed
at the applicable Redemption Price with the proceeds from the contemporaneous
repayment or prepayment of the Junior Subordinated Debentures. Any redemption of
Trust Securities shall be made and the applicable Redemption Price shall be
payable on the Redemption Date only to the extent that the Trust has funds
legally available for the payment of such applicable Redemption Price. See
"-- Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the Capital Securities
held by DTC or its nominees, the Property Trustee will deposit irrevocably with
DTC funds sufficient to pay the applicable Redemption Price. See "-- Form,
Denomination, Book-Entry Procedures and Transfer." With respect to the Capital
Securities held in certificated form, the Property Trustee, to the extent funds
are legally available, will irrevocably deposit with the paying agent for the
Capital Securities funds sufficient to pay the applicable Redemption Price and
will give such paying agent irrevocable instructions and authority to pay the
applicable Redemption Price to the holders thereof upon surrender of their
certificates evidencing the Capital Securities. See "-- Payment and Paying
Agency." Distributions payable on or prior to the Redemption Date shall be
payable to the holders of such Capital Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then upon the date of such deposit, all
rights of the holders of the Capital Securities will cease, except the right of
the holders of the Capital Securities to receive the applicable Redemption
Price, but without interest on such Redemption Price, and the Capital Securities
will cease to be outstanding. In the event that any Redemption Date of Capital
Securities is not a Business Day, then the applicable Redemption Price payable
on such date will be paid on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay). In the
event that payment of the applicable Redemption Price is improperly withheld or
refused and not paid either by the Trust or by the Corporation pursuant to the
Guarantee as described under "-- Description of the New Guarantee," (i)
Distributions on Capital Securities called for redemption will accumulate on the
Redemption Price at the then applicable rate, from the Redemption Date
originally established by the Trust to the date such applicable Redemption Price
is actually paid, and (ii) the actual payment date will be the Redemption Date
for purposes of calculating the applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Corporation or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Corporation defaults in payment of the applicable
Prepayment Price on, or in the repayment of, the Junior Subordinated Debentures,
Distributions will cease to accrue on the Trust Securities called for redemption
on and after the Redemption Date.
Subordination of Common Securities. Payment of Distributions on, and the
Redemption Price of, the Capital Securities and the Common Securities, as
applicable, shall be made pro rata based on the Liquidation Amount of the
Capital Securities and Common Securities; provided, however, that if on any
Distribution Date or Redemption Date a Debenture Event of Default shall have
occurred and be continuing, no payment of any Distribution on, or applicable
Redemption Price of, any of the Common Securities, and no other payment on
account of the redemption, liquidation or other acquisition of the Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all of the outstanding Capital
38
<PAGE> 39
Securities for all Distribution periods terminating on or prior thereto or, in
the case of Capital Securities called for redemption on a Redemption Date on or
prior thereto, the full amount of the Redemption Price therefor, shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the Capital Securities then due and payable.
In the case of any Event of Default, the Corporation as holder of the
Common Securities will be deemed to have waived any right to act with respect to
such Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Capital Securities and not on behalf of the
Corporation as holder of the Common Securities, and only the holders of the
Capital Securities will have the right to direct the Property Trustee to act on
their behalf.
Events of Default; Notice. The occurrence of a Debenture Event of Default
(see "-- Description of New Junior Subordinated Debentures -- Debenture Events
of Default") constitutes an "Event of Default" under the Declaration.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the 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 Declaration.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
"-- Liquidation of the Trust and Distribution of Junior Subordinated Debentures"
and "-- Subordination of Common Securities" above.
Removal of Issuer Trustees. Unless a Debenture Event of Default shall have
occurred and be continuing, any Issuer Trustee may be removed at any time by the
holder of the Common Securities. If a Debenture Event of Default has occurred
and is continuing, the Property Trustee and the Delaware Trustee may be removed
at such time by the holders of a majority in Liquidation Amount of the
outstanding Capital Securities. In no event will the holders of the Capital
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Corporation as the holder of the Common Securities. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor Trustee in accordance with
the provisions of the Declaration.
Merger or Consolidation of Issuer Trustees. Any corporation 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 corporation resulting from any merger, conversion or
consolidation to which such Issuer Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of such
Issuer Trustee, shall be the successor of such Issuer Trustee under the
Declaration, provided such corporation shall be otherwise qualified and
eligible.
Mergers, Conversions, Consolidations, Amalgamations or Replacements of the
Trust. The Trust may not merge or convert 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. The Trust may, at the request of the
Corporation, as Sponsor, with the consent of the Administrative Trustees but
without the consent of the holders of the Capital Securities, merge or convert
with or into, consolidate, amalgamate, or be replaced by or convey, transfer or
lease its properties and assets as an entirety or substantially as an entirety
to a trust organized as such under the laws of any State; provided, that (i)
such successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Capital Securities rank in priority with respect to
distributions and payments upon liquidation,
39
<PAGE> 40
redemption and otherwise, (ii) the Corporation expressly appoints a trustee of
such successor entity possessing the same powers and duties as the Property
Trustee with respect to the Junior Subordinated Debentures, (iii) the Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Capital Securities are then listed, if any, (iv) such
merger, conversion, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Capital Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities (including
any Successor Securities) in any material respect, (vi) such successor entity
has a purpose identical to that of the Trust, (vii) prior to such merger,
conversion, 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,
conversion, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, and (b) following such merger, conversion, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor
such successor entity will be required to register as an investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and (viii) the Corporation or any permitted successor or assignee owns
all of the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee. 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 or convert 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 or convert with or into, or replace it
if such consolidation, amalgamation, merger, conversion, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity not
to be classified as a grantor trust for United States federal income tax
purposes.
Voting Rights; Amendment of the Declaration. Except as provided below and
under "-- Mergers, Conversions, Consolidations, Amalgamations or Replacements of
the Trust" above and "-- Description of the New Guarantee -- Amendments and
Assignment" and as otherwise required by law and the Declaration, the holders of
the Capital Securities will have no voting rights.
The Declaration may be amended from time to time by the Corporation, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities (i) to cure any ambiguity, correct or supplement
any provisions in the Declaration that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Declaration, which shall not be inconsistent with the other
provisions of the Declaration, or (ii) to modify, eliminate or add to any
provisions of the Declaration to such extent as shall be necessary to ensure
that the Trust will be classified for United States federal income tax purposes
as a grantor trust at all times that any Trust Securities are outstanding or to
ensure that the Trust will not be required to register as an "investment
company" under the Investment Company Act; provided, however, that in the case
of clause (i), such action shall not adversely affect in any material respect
the interests of the holders of the Trust Securities, and any amendments of the
Declaration shall become effective when notice thereof is given to the holders
of the Trust Securities. The Declaration may be amended by the Issuer Trustees
and the Corporation (a) with the consent of holders representing a majority
(based upon Liquidation Amount) of the outstanding Trust Securities, and (b)
upon receipt by the Issuer Trustees of an opinion of counsel to the effect that
such amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for United States federal income tax purposes or the Trust's exemption
from status as an "investment company" under the Investment Company Act,
provided that, without the consent of each holder of Trust Securities, the
Declaration may not be amended to (x) change the amount or timing of any
Distribution or other payment on the Trust Securities or any redemption
provisions or otherwise adversely affect the amount of any Distribution or other
payment required to be made in respect of the Trust Securities as of a specified
date or (y) restrict the right of a holder of Trust Securities to institute suit
for the enforcement of any such payment on or after such date. The New Capital
Securities and any Old Capital
40
<PAGE> 41
Securities which remain outstanding after consummation of the Exchange Offer
will vote together as a single class for purposes of determining whether the
holders of the required percentage in outstanding Liquidation Amount thereof
have taken certain actions or exercised certain rights under the Declaration.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive certain past defaults under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Junior Subordinated
Debentures or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in Liquidation Amount of all outstanding Capital Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior approval
of each holder of the Capital Securities. The Issuer Trustees shall not revoke
any action previously authorized or approved by a vote of the holders of the
Capital Securities except by subsequent vote of such holders. The Property
Trustee shall notify each holder of Capital Securities of any notice of default
with respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of such holders of the Capital Securities, prior to taking
any of the foregoing actions, the Issuer Trustees shall obtain an opinion of
counsel experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
holder of record of Capital Securities in the manner set forth in the
Declaration.
No vote or consent of the holders of Capital Securities will be required
for the Trust to redeem and cancel the Capital Securities in accordance with the
Declaration.
Notwithstanding that holders of the Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Corporation, the Issuer Trustees or any
Affiliate of the Corporation or any Issuer Trustees shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
Form, Denomination, Book-Entry Procedures and Transfer. The New Capital
Securities may be represented by one or more New Capital Securities in
registered, global form (collectively, the "Global New Capital Securities" and,
together with the Old Capital Securities in registered, global form, the "Global
Capital Securities"). The Global New Capital Securities will be deposited upon
issuance with the Property Trustee as custodian for DTC in New York, New York,
and registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for Capital Securities in certificated form
except in the limited circumstances described under "-- Exchange of Book-Entry
Capital Securities for Certificated Capital Securities" below.
Depositary Procedures. DTC has advised the Trust and the Corporation that
DTC is a limited-purpose trust company 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. The Participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies, clearing corporations and
certain other organizations. 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
41
<PAGE> 42
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Trust and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants with portions of the Liquidation
Amount of the Global Capital Securities and (ii) ownership of such interests in
the Global Capital Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are Participants in such system, or indirectly
through organizations which are Participants in such system. 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.
Except as described below, owners of interests in the Global New Capital
Securities will not have New Capital Securities registered in their name, will
not receive physical delivery of New Capital Securities in certificated form and
will not be considered the registered owners or holders thereof under the
Declaration for any purpose.
Payments in respect of the Global New 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 Declaration. Under the terms of the
Declaration, the Property Trustee will treat the persons in whose names the New
Capital Securities, including the Global New Capital Securities, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global New 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 New Capital Securities or
(ii) any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Trust and the
Corporation that its current practice, upon receipt of any payment in respect of
securities such as the New Capital Securities, is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in Liquidation Amount of beneficial
interests in the relevant security as shown on the records of DTC unless DTC has
reason to believe it will not receive payment on such payment date. Payments by
the Participants and the Indirect Participants to the beneficial owners of
Global New Capital Securities will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Property
Trustee, the Trust or the Corporation. Neither the Trust nor the Corporation or
the Property Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the Global New Capital
Securities, and the Trust or 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.
Interests in the Global New Capital Securities will trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its Participants and Indirect Participants.
Transfers
42
<PAGE> 43
among Participants and Indirect Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled 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 New Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in the
Global New Capital Securities are credited and only in respect of such portion
of the Liquidation Amount of the New 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 Declaration, DTC reserves the right to exchange
the Global New Capital Securities for New Capital Securities in certificated
form and to distribute such New 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 interest in the Global New 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. Neither the Trust nor the
Corporation or the Property Trustee will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing DTC's
operations.
Exchange of Book-Entry Capital Securities for Certificated Capital
Securities. A Global New Capital Security is exchangeable for New Capital
Securities in registered certificated form if (i) DTC (x) notifies the Trust
that it is unwilling or unable to continue as depositary for the Global New
Capital Security (the "Depositary") and the Trust thereupon fails to appoint a
successor Depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Corporation in its sole discretion
elects to cause the issuance of the New Capital Securities in certificated form
or (iii) there shall have occurred and be continuing an Event of Default or any
event which after notice or lapse of time or both would be an Event of Default
under the Declaration. In addition, beneficial interests in a Global New Capital
Security may be exchanged for certificated New Capital Securities upon request
but only upon at least 20 days prior written notice given to the Property
Trustee by or on behalf of DTC in accordance with customary procedures. In all
cases, certificated New Capital Securities delivered in exchange for any Global
New 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) unless the Property
Trustee determines otherwise in compliance with applicable law.
Payment and Paying Agency. Payments in respect of the New Capital
Securities held in global form shall be made to the Depositary, which shall
credit the relevant accounts at the Depositary on the applicable Distribution
Dates or in respect of the New Capital Securities that are not held by the
Depositary, such payments shall be made by check mailed to the address of the
holder entitled thereto as such address shall appear on the register. The paying
agent (the "Paying Agent") is initially 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 is permitted to resign as Paying
Agent upon 30 days' written notice to the Property Trustee 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 New Capital Securities.
Registration of transfers of the New 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 New Capital Securities after they have been called for
redemption.
Information Concerning the Property Trustee. The Property Trustee, other
than during the occurrence and continuance of an Event of Default, undertakes to
perform only such duties as are specifically set forth in
43
<PAGE> 44
the Declaration and, after such Event of Default, must exercise the same degree
of care and skill as a prudent person would exercise or use in the conduct of
his or her own affairs. Subject to this provision, the Property Trustee is under
no obligation to exercise any of the powers vested in it by the Declaration at
the request of any holder of Trust Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby. If no Event of Default has occurred and is continuing and the Property
Trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the Declaration or is unsure of the application of any
provision of the Declaration, and the matter is not one on which holders of the
Capital Securities or the Common Securities are entitled under the Declaration
to vote, then the Property Trustee shall take such action as is directed by the
Corporation and if not so directed, shall take such action as it deems advisable
and in the best interests of the holders of the Trust Securities and will have
no liability except for its own bad faith, negligence or willful misconduct.
Miscellaneous. The Administrative Trustees are authorized and directed to
conduct the affairs of and to operate the Trust in such a way that the Trust
will not be deemed to be an "investment company" required to be registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act") or
classified as an association taxable as a corporation for United States federal
income tax purposes and so that the Junior Subordinated Debentures will be
treated as indebtedness of the Corporation for United States federal income tax
purposes. In this connection, the Corporation and the Administrative Trustees
are authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the Declaration, that the Corporation and
the Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued, and the New Junior
Subordinated Debentures will be issued, as a separate series under the
Indenture. Upon effectiveness of the Registration Statement, the Indenture will
be qualified under the Trust Indenture Act. This summary of certain terms and
provisions of the New Junior Subordinated Debentures and the Indenture does not
purport to be complete and, where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and those terms made a part
of the Indenture by the Trust Indenture Act.
General. Concurrently with the issuance of the Old Capital Securities, the
Trust invested the proceeds thereof, together with the consideration paid by the
Corporation for the Common Securities, in the Old Junior Subordinated Debentures
issued by the Corporation. Pursuant to the Exchange Offer the Corporation will
exchange the Old Junior Subordinated Debentures, in an amount corresponding to
the Old Capital Securities accepted for exchange, for a like aggregate principal
amount of the New Junior Subordinated Debentures promptly after the Expiration
Date.
The New Junior Subordinated Debentures will bear interest at the annual
rate of 8.99% of the principal amount thereof, payable semi-annually in arrears
on June 17 and December 17 of each year (each, an "Interest Payment Date"),
commencing June 17, 1997, to the person in whose name each New Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the first day of the month in which the relevant payment
date falls. It is anticipated that, until the liquidation, if any, of the Trust,
each Junior Subordinated Debenture will be held in the name of the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
amount of interest payable for any period will be computed on the basis of a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the New Junior Subordinated Debentures is not a Business
Day, then payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay). Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per
44
<PAGE> 45
annum of 8.99% thereof, compounded semi-annually. The term "interest," as used
herein, shall include semi-annual interest payments, interest on semi-annual
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined herein), as applicable.
The New Junior Subordinated Debentures will mature on the Stated Maturity
Date. The New Junior Subordinated Debentures will rank pari passu with the Old
Junior Subordinated Debentures and all Other Debentures and will be unsecured
and subordinate and rank junior in right of payment, to the extent and in the
manner set forth in the Indenture, to all Senior Indebtedness. See
"-- Subordination." The Corporation is largely a non-operating holding company
and almost all of the operating assets of the Corporation and its consolidated
subsidiaries are owned by such subsidiaries. The Corporation relies primarily on
the issuance of its debt securities to meet its obligations. The Corporation is
a legal entity separate and distinct from its banking, insurance and other
subsidiaries. The Corporation's subsidiaries include, among others, Advanta
National Bank USA and Advanta National Bank, each national banking associations,
and Advanta Financial Corp., an industrial loan corporation organized under the
laws of the State of Utah (collectively, the "FDIC-insured Subsidiaries"). The
FDIC-insured Subsidiaries are subject to certain restrictions on the transfer of
funds by each of such depository institutions to the Corporation and certain
other affiliates, in the form of loans, extensions of credit, investments or
purchases of assets. Transfers by any one of such FDIC-insured Subsidiaries to
the Corporation or any single affiliate are generally limited in amount as to
the Corporation and as to each of such other affiliates to 10% of such
FDIC-insured Subsidiary's capital and surplus and transfers to all affiliates
are limited in the aggregate to 20% of such FDIC-insured Subsidiary's capital
and surplus. Furthermore, such loans and extensions of credit are also subject
to various collateral requirements. In addition, payment of dividends to the
Corporation by the FDIC-insured Subsidiaries is subject to various limitations
and in certain circumstances requires approval by banking regulatory
authorities. The insurance subsidiaries of the Corporation (the "Insurance
Subsidiaries") also are subject to the laws and regulations of, and supervision
by, the states in which they are domiciled or have obtained the authority to
transact business, including limitations on the amount of dividends that may be
paid by the Insurance Subsidiaries to the Corporation. 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 the
subsidiary, except to the extent the Corporation may itself be recognized as a
creditor of that subsidiary. Accordingly, the New Junior Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries. The Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of the Corporation, including Senior
Indebtedness, or of the Corporation's subsidiaries. See "-- Subordination."
Form, Registration and Transfer. If the New Junior Subordinated Debentures
are distributed to the holders of the New Capital Securities, the New Junior
Subordinated Debentures so distributed 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 the New Junior Subordinated Debentures are expected
to be substantially similar to those in effect for the New Capital Securities.
For a description of DTC and the terms of the depositary arrangements relating
to payments, transfers, voting rights, prepayments and other notices and other
matters, see "-- Description of New Capital Securities -- Form, Denomination,
Book-Entry Procedures and Transfer."
Payment and Paying Agents. Payment of principal of and premium, if any,
and any interest on New Junior Subordinated Debentures will be made at the
office of the Debenture Trustee in New York, New York or at the office of such
Paying Agent or Paying Agents as the 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 New Junior Subordinated Debentures in global
form, by (i) check mailed to the address of the person entitled thereto as such
address shall appear in the register for New Junior Subordinated Debentures or
(ii) transfer to an account maintained by the person entitled thereto, provided
that proper transfer instructions have been received by the relevant record
date. Payment of any interest on any New Junior Subordinated Debenture will be
made to the person in whose name such New Junior Subordinated Debenture is
registered at the close of business on the record date for such interest, except
in the case of defaulted interest. The Corporation may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent; however
the
45
<PAGE> 46
Corporation will at all times be required to maintain a Paying Agent in each
place of payment for the New Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Corporation in trust, for the payment of the principal of and
premium, if any, or interest on any New Junior Subordinated Debenture and
remaining unclaimed for two years after such principal and premium, if any, or
interest has become due and payable shall, at the request of the Corporation, be
repaid to the Corporation and the holder of such New Junior Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Corporation for payment thereof.
Option to Extend Interest Payment Date. So long as no Debenture Event of
Default has occurred and is continuing, the Corporation will have the right
under the Indenture at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 10 consecutive, semi-annual periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity Date. At the end of an Extension Period, the Corporation must pay all
interest then accrued and unpaid (together with interest then accrued at the
annual rate of 8.99%, compounded semi-annually, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Junior Subordinated Debentures (and holders of the Trust
Securities while Trust Securities are outstanding) will be required to accrue
interest income for United States federal income tax purposes prior to the
receipt of cash attributable to such income. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any Extension Period, the Corporation may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock
(which includes common and preferred stock), (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Corporation (including any Other Debentures) that rank pari
passu with or junior in right of payment to the Junior Subordinated Debentures
or (iii) make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsidiary of the Corporation
(including any Other Guarantees) if such guarantee ranks pari passu with or
junior in right of payment to the Junior Subordinated Debentures (other than (a)
dividends or distributions in shares of or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a result of a reclassification of the
Corporation's capital stock or the exchange or conversion of one class or series
of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
and (f) purchases of common stock related to the issuance of common stock or
rights under any of the Corporation's benefit plans for its directors, officers
or employees or any of the Corporation's dividend reinvestment plans).
Prior to the termination of any Extension Period, the Corporation may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Corporation may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Corporation must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of any Extension Period (or an extension thereof) at least five
Business Days prior to the earlier of (i) the date the Distributions on the
Trust Securities would have been payable except for the election to begin or
extend such Extension Period or (ii) the date the Administrative Trustees are
required to give notice to any securities exchange or to holders of Capital
Securities of the record date or the date such Distributions are payable, but in
any event not less than five Business Days prior to such record date. The
Debenture Trustee shall give notice of the Corporation's election to begin or
extend a new Extension Period to the holders of the Capital Securities. There is
no limitation on the number of times that the Corporation may elect to begin an
Extension Period.
46
<PAGE> 47
Optional Prepayment. The Junior Subordinated Debentures will be
prepayable, in whole or in part, at the option of the Corporation on or after
the Initial Optional Prepayment Date, at a price (the "Optional Prepayment
Price") that is equal to the percentage of the outstanding principal amount of
the Junior Subordinated Debentures specified below, plus, in each case, accrued
interest thereon to the date of prepayment if redeemed during the 12-month
period beginning December 17 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2006.............................................. 104.4950%
2007.............................................. 104.0455%
2008.............................................. 103.5960%
2009.............................................. 103.1465%
2010.............................................. 102.6970%
2011.............................................. 102.2475%
2012.............................................. 101.7980%
2013.............................................. 101.3485%
2014.............................................. 100.8990%
2015.............................................. 100.4495%
2016 and thereafter............................... 100.0000%
</TABLE>
Special Event Prepayment. If a Special Event occurs and is continuing
prior to the Initial Optional Prepayment Date, the Corporation may, at its
option, prepay the Junior Subordinated Debentures in whole (but not in part) at
any time within 90 days of the occurrence of such Special Event, at a prepayment
price (the "Special Event Prepayment Price") equal to the greater of (i) 100% of
the principal amount of such Junior Subordinated Debentures or (ii) the sum, as
determined by a Quotation Agent, of the present values of the principal amount
and premium payable with respect to an optional redemption of Junior
Subordinated Debentures on the Initial Optional Prepayment Date, together with
scheduled payments of interest on the Junior Subordinated Debentures from the
prepayment date to and including the Initial Optional Prepayment Date (the
"Remaining Life"), discounted to the prepayment date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate, plus, in each case, accrued interest thereon to the date of
prepayment.
A "Special Event" means the receipt by the Corporation and the Trust of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after December 17, 1996,
there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date of such opinion, subject to United States federal
income tax with respect to income received or accrued on the Junior Subordinated
Debentures, (ii) interest payable by the Corporation on the Junior Subordinated
Debentures is not, or within 90 days of the date of such opinion will not be,
deductible by the Corporation, in whole or in part, for United States federal
income tax purposes, or (iii) the Trust is, or will be within 90 days of the
date of such opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15 (519)" or any successor publication which
is published weekly by the Federal Reserve Board and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Remaining Life (if no maturity is within three months before or after the
maturity corresponding to the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be
interpolated, and the Adjusted Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the nearest
month) or (ii) if
47
<PAGE> 48
such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, calculated using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such prepayment date, in each case calculated on the third
Business Day preceding the prepayment date, plus in each case (a) 1.25% if such
prepayment date occurs on or prior to December 31, 1997 and (b) 0.50% in all
other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the Remaining
Life of the Junior Subordinated Debentures that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining Life
of the Junior Subordinated Debentures. If no United States Treasury security has
a maturity which is within a period from three months before to three months
after the Initial Optional Prepayment Date, the two most closely corresponding
United States Treasury securities shall be used as the Comparable Treasury
Issue, and the Adjusted Treasury Rate shall be interpolated or extrapolated on a
straight-line basis, rounding to the nearest month, using such securities.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Corporation. "Reference Treasury Dealer" means: (i) Merrill Lynch Government
Securities, Inc. and its respective successors; provided, however, that if the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), the Corporation shall substitute
therefor another Primary Treasury Dealer; and (ii) any other Primary Treasury
Dealer selected by the Corporation.
"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of five Reference Treasury Dealer Quotations for such prepayment date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
"Additional Sums" means such additional 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 Special Event.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Corporation
defaults in payment of the prepayment price, on and after the prepayment date
interest ceases to accrue on such Junior Subordinated Debentures called for
prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Special Event, the Corporation will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
Certain Covenants of the Corporation. The Corporation will also covenant
that it will not, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Corporation's capital stock (which includes common stock and preferred
stock) or (ii) make any payment of principal, interest or premium, if any, on or
repay or repurchase or redeem any debt
48
<PAGE> 49
securities of the Corporation (including Other Debentures) that rank pari passu
with or junior in right of payment to the New Junior Subordinated Debentures or
(iii) make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any subsidiary of the Corporation
(including under Other Guarantees) if such guarantee ranks pari passu or junior
in right of payment to the New Junior Subordinated Debentures (other than (a)
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, common stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
stockholder's rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Guarantee, (d) as a result of a reclassification of the
Corporation's capital stock or the exchange or conversion of one class or series
of the Corporation's capital stock for another class or series of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged
and (f) purchases of common stock related to the issuance of common stock or
rights under any of the Corporation's benefit plans for its directors, officers
or employees or any of the Corporation's dividend reinvestment plans) if at such
time (1) there shall have occurred any event of which the Corporation has actual
knowledge that (A) is, or with the giving of notice or the lapse of time, or
both, would be, a Debenture Event of Default (as defined herein) and (B) in
respect of which the Corporation shall not have taken reasonable steps to cure,
(2) if such Junior Subordinated Debentures are held by the Trust, the
Corporation shall be in default with respect to its payment of any obligations
under the Guarantee or (3) the Corporation shall have given notice of its
election of an Extension Period, or any extension thereof, as provided in the
Indenture and shall not have rescinded such notice, and such Extension Period,
or any extension thereof, shall have commenced.
Debenture Events of Default. The Indenture provides that any one or more
of the following described events with respect to the Junior Subordinated
Debentures constitutes a "Debenture Event of Default" (whatever the reason for
such Debenture Event of Default and whether it shall be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures or any Other Debentures, when due (subject to the deferral of
any due date in the case of an Extension Period): or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon redemption, by declaration of acceleration of maturity or
otherwise; or
(iii) failure to observe or perform certain other covenants contained
in the Indenture for 90 days after written notice to the Corporation from
the Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the nonpayment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default except a default
in the payment of principal of or premium, if any, on or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and premium, if any,
49
<PAGE> 50
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture.
The Indenture requires the annual filing by the Corporation with the
Debenture Trustee of a certificate as to the absence of certain defaults under
the Indenture.
Enforcement of Certain Rights by Holders of Capital Securities. If a
Debenture Event of Default shall have occurred and be continuing and shall be
attributable to the failure of the Corporation to pay interest or premium, if
any, on principal of the Junior Subordinated Debentures on the due date, a
holder of Capital Securities may institute a Direct Action. The Corporation may
not amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Capital
Securities. Notwithstanding any payments made to a holder of Capital Securities
by the Corporation in connection with a Direct Action, the Corporation shall
remain obligated to pay the principal of or premium, if any, or interest on the
Junior Subordinated Debentures, and the Corporation shall be subrogated to the
rights of the holder of such Capital Securities with respect to payments on the
Capital Securities to the extent of any payments made by the Corporation to such
holder in any Direct Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph, available
to the holders of the Junior Subordinated Debentures unless there shall have
been an Event of Default under the Declaration. See "-- Description of New
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 and assets 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 and assets as an entirety or substantially as an entirety to the
Corporation, unless: (i) in case the Corporation consolidates with or merges
into another person or conveys or transfers its properties and assets
substantially as an entirety to any person, the successor person is organized
under the laws of the United States or any State or the District of Columbia,
and such successor person expressly assumes the Corporation's obligations on the
Junior Subordinated Debentures; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Junior Subordinated Debentures.
Modification of the Indenture. From time to time the Corporation and the
Debenture Trustee may, without the consent of the holders of Junior Subordinated
Debentures, amend, waive or supplement the Indenture for specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies
(provided that any such action does not materially adversely affect the
interests of the holders of Junior Subordinated Debentures) and qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act.
The Indenture contains provisions permitting the Corporation and the Debenture
Trustee, with the consent of the holders of a majority in principal amount of
Junior Subordinated Debentures, to modify the Indenture in a manner affecting
the rights of the holders of Junior Subordinated Debentures; provided that no
such modification may, without the consent of the holders of each outstanding
Junior Subordinated Debenture so affected, (i) change the Stated Maturity or any
provisions governing redemption, or reduce the principal amount of the Junior
Subordinated Debentures or reduce the rate or extend the time of payment of
interest thereon or (ii) reduce the percentage of principal amount of Junior
Subordinated Debentures, the holders of which are required to consent to any
such modification of the Indenture.
Satisfaction and Discharge. The Indenture provides that when, among other
things, all Junior Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation (i) have become due and payable or (ii) will
become due and payable at maturity 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
50
<PAGE> 51
to pay and discharge the entire indebtedness on the Junior Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation,
for the principal and premium, if any, and interest to the date of the deposit
or to the Stated Maturity Date, as the case may be, then the Indenture will
cease to be of further effect (except as to the Corporation's obligations to pay
all other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Corporation
will be deemed to have satisfied and discharged the Indenture.
Subordination. In the Indenture, the Corporation has covenanted and agreed
that any Junior Subordinated Debentures issued thereunder will be subordinate
and junior in right of payment to all Senior Indebtedness to the extent provided
in the Indenture. Upon any payment or distribution of assets to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, the holders of Senior Indebtedness
will first be entitled to receive payment in full before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the Junior Subordinated Debentures.
No payments on account of principal or premium, if any, or interest, if
any, in respect of the Junior Subordinated Debentures may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Indebtedness, or an event of default with respect to any Senior Indebtedness
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"Senior Indebtedness" shall mean all Indebtedness for Money Borrowed,
whether outstanding on the date of execution of the Indenture or thereafter
created, assumed or incurred, unless the terms thereof specifically provide that
it is not superior in right of payment to the Junior Subordinated Debentures,
and any deferrals, renewals or extensions of such Senior Indebtedness.
"Indebtedness for Money Borrowed" shall mean any obligation of, or any
obligation guaranteed by, the Corporation for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments.
The Corporation is largely a non-operating holding company and almost all
of the operating assets of the Corporation and its consolidated subsidiaries are
owned by such subsidiaries. The Corporation is a legal entity separate and
distinct from its banking, insurance and other subsidiaries. The principal
source of the Corporation's funds is the issuance of its debt securities. The
FDIC-insured Subsidiaries are subject to certain restrictions on the transfer of
funds by each of such depository institutions to the Corporation and certain
other affiliates, in the form of loans, extensions of credit, investments or
purchases of assets. Transfers by any one of such FDIC-insured Subsidiaries to
the Corporation or any single affiliate are generally limited in amount as to
the Corporation and as to each of such other affiliates to 10% of such
FDIC-insured Subsidiaries' capital and surplus and transfers to all affiliates
are limited in the aggregate to 20% of such FDIC-insured Subsidiaries' capital
and surplus. In addition, payment of dividends to the Corporation by the
FDIC-insured Subsidiaries is subject to various limitations and in certain
circumstances requires approval by banking regulatory authorities. The Insurance
Subsidiaries also are subject to the laws and regulations of, and supervision by
the states in which they are domiciled or have obtained the authority to
transact business, including limitations on the amount of dividends that may be
paid by the Insurance Subsidiaries to the Corporation. 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 the
subsidiary, except to the extent the Corporation may itself be recognized as a
creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries.
51
<PAGE> 52
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Corporation. The Corporation expects
from time to time to incur additional indebtedness constituting Senior
Indebtedness.
Governing Law. The Indenture and the New Junior Subordinated Debentures
will be governed by, and construed in accordance with, the laws of the State of
New York.
Information Concerning the Debenture Trustee. Subject to the provisions of
the Trust Indenture Act, the Debenture Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the request of any
holder of Junior Subordinated Debentures, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
DESCRIPTION OF THE NEW GUARANTEE
The Old Guarantee was executed and delivered by the Corporation
concurrently with the issuance by the Trust of the Old Capital Securities for
the benefit of the holders from time to time of the Old Capital Securities.
Promptly after the Expiration Date, the Old Guarantee will be exchanged for the
New Guarantee for the benefit of the holders from time to time of the New
Capital Securities. The Chase Manhattan Bank will act as indenture trustee
("Guarantee Trustee") under the New Guarantee. When executed and delivered, the
New Guarantee will be qualified under the Trust Indenture Act. This summary of
certain provisions of the New 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 New Guarantee, including the definitions therein of certain terms, and
the Trust Indenture Act. The Guarantee Trustee will hold the New Guarantee for
the benefit of the holders of the New 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 New 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 New Capital Securities, to the extent not paid by or on behalf of
the Trust (the "Guarantee Payments"), will be subject to the New Guarantee: (i)
any accumulated and unpaid Distributions required to be paid on New Capital
Securities, to the extent the Trust has funds on hand legally available
therefor, (ii) the Redemption Price with respect to any New Capital Securities
called for redemption, to the extent that the Trust has funds on hand legally
available therefor, or (iii) upon a voluntary or involuntary termination and
liquidation of the Trust (unless the New Junior Subordinated Debentures are
distributed to holders of the New Capital Securities), the lesser of (a) the
portion of the Liquidation Distribution payable to holders of New Capital
Securities and (b) the amount of assets of the Trust remaining available for
distribution to holders of New Capital Securities. 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 New Capital Securities or by
causing the Trust to pay such amounts to such holders.
The New Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness to the extent provided therein. See "-- Status of the
New Guarantee." Because the Corporation is a holding company, the right of the
Corporation to participate in any distribution of assets of any subsidiary upon
such subsidiary's liquidation or reorganization or otherwise is subject to the
prior claims of creditors of that subsidiary, except to the extent the
Corporation may itself be recognized as a creditor of that subsidiary.
Accordingly, the Corporation's obligations under the New Guarantee will be
effectively subordinated to all existing and future liabilities of the
Corporation's subsidiaries. See "-- Description of New Junior Subordinated
Debentures -- General." The New 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.
52
<PAGE> 53
The Corporation will, through the New Guarantee, the Declaration, the New
Junior Subordinated Debentures and the Indenture, taken together, fully,
irrevocably and unconditionally guarantee all of the Trust's obligations under
the New 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 New Capital Securities. See "Relationship Among
the New Capital Securities, the New Junior Subordinated Debentures and the New
Guarantee."
Status of the New Guarantee. The New 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 New Junior
Subordinated Debentures, except in the case of a bankruptcy or insolvency
proceeding in respect of the Corporation, in which case the New Guarantee will
rank subordinate and junior in right of payment to all liabilities (other than
the Old Guarantee and Other Guarantees) of the Corporation.
The New Guarantee will rank pari passu with the Old Guarantee and all Other
Guarantees issued by the Corporation. The New 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 New Guarantee without first instituting a legal proceeding
against any other person or entity). The New Guarantee will be held for the
benefit of the holders of the New Capital Securities. The New 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 of the New Junior Subordinated
Debentures to the holders of the New Capital Securities. The New Guarantee does
not place a limitation on the amount of additional Senior Indebtedness that may
be incurred by the Corporation. The Corporation expects from time to time to
incur additional indebtedness constituting Senior Indebtedness.
Amendments and Assignment. Except with respect to any changes that do not
materially and adversely affect the rights of holders of the New Capital
Securities (in which case no consent will be required), the New Guarantee may
not be amended without the prior approval of the holders of a majority of the
Liquidation Amount of such outstanding New Capital Securities. The manner of
obtaining any such approval will be as set forth under "-- Description of New
Capital Securities --Voting Rights; Amendment of the Declaration." All
guarantees and agreements contained in the New Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Corporation
and shall inure to the benefit of the holders of the New Capital Securities then
outstanding.
Events of Default. An event of default under the New Guarantee will occur
upon the failure of the Corporation to perform any of its payment or other
obligations thereunder. The holders of a majority in Liquidation Amount of the
New Capital Securities will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of the New Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the New Guarantee.
Any holder of the New Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
The Corporation, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the New
Guarantee.
Termination of the New Guarantee. The New Guarantee will terminate and be
of no further force and effect upon full payment of the applicable Redemption
Price of the New Capital Securities, upon full payment of the Liquidation Amount
payable upon liquidation of the Trust or upon distribution of New Junior
Subordinated Debentures to the holders of the New Capital Securities. The New
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the New Capital Securities must restore payment
of any sums paid under the New Capital Securities or the New Guarantee.
53
<PAGE> 54
Information Concerning the Guarantee Trustee. The Guarantee Trustee, other
than during the continuance of a default with respect to the New Guarantee, will
undertake to perform only such duties as are specifically set forth in the New
Guarantee and, after default, must exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provisions, the Guarantee Trustee will be under no obligation to exercise
any of the powers vested in it by the New Guarantee at the request of any holder
of New Capital Securities, unless offered reasonable indemnity against the
costs, expenses and liabilities which might be incurred thereby. The Guarantee
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if it reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
The Corporation or its affiliates maintain certain accounts and other
banking relationships with the Guarantee Trustee and its affiliates in the
ordinary course of business.
Governing Law. The New Guarantee will be governed by, and construed in
accordance with, the laws of the State of New York.
DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all material respects to
the terms of the New Securities, except that: (i) the Old Securities have not
been registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange Offer,
except under limited circumstances); (ii) the New Capital Securities will not
contain the $100,000 minimum Liquidation Amount transfer restriction and certain
other transfer restrictions applicable to Old Capital Securities; (iii) the New
Capital Securities will not provide for any increase in the Distribution Rate
thereon; (iv) the New Junior Subordinated Debentures will not contain the
$100,000 minimum principal amount transfer restriction; and (v) the New Junior
Subordinated Debentures will not provide for any increase in the interest rate
thereon. The Old Securities provide that, in the event that a registration
statement relating to the Exchange Offer has not been filed within 150 days
after December 17, 1996 and been declared effective on or prior to the 30th day
after such required filing date, or, in certain limited circumstances, in the
event a shelf registration statement (the "Shelf Registration Statement") with
respect to the resale of the Old Capital Securities is not declared effective on
or prior to the 30th day after such required filing date, then interest will
accumulate (in addition to the stated interest rate on the Old Junior
Subordinated Debentures) at the rate of 0.25% per annum on the principal amount
of the Old Junior Subordinated Debentures and Distributions will accrue (in
addition to the stated Distribution Rate on the Old Capital Securities) at the
rate of 0.25% per annum on the Liquidation Amount of the Old Capital Securities,
for the period from the occurrence of such event until such time as such
required Exchange Offer is consummated or any required Shelf Registration
Statement is effective. The New Securities are not, and upon consummation of the
Exchange Offer the Old Securities will not be, entitled to any such additional
interest or Distributions. Accordingly, holders of Old Capital Securities should
review the information set forth under "Risk Factors -- Consequences of a
Failure to Exchange Old Capital Securities" and "Description of New Securities."
RELATIONSHIP AMONG THE NEW CAPITAL SECURITIES, THE
NEW JUNIOR SUBORDINATED DEBENTURES AND THE NEW GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the New 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 New Securities --
Description of the New Guarantee." Taken together, the Corporation's
obligations under the New Junior Subordinated Debentures, the Indenture, the
Declaration and the New Guarantee will provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of Distributions and other
amounts due on the New Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents
54
<PAGE> 55
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 New Capital Securities. If and to the
extent that the Corporation does not make the required payments on the New
Junior Subordinated Debentures, the Trust will not have sufficient funds to make
the related payments, including Distributions, on the New Capital Securities.
The New 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 New Capital Securities is to institute a Direct Action. The
obligations of the Corporation under the New 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
New Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the New Capital Securities, primarily
because: (i) the aggregate principal amount or Prepayment Price of the New
Junior Subordinated Debentures will be equal to the sum of the Liquidation
Amount or Redemption Price, as applicable, of the New Capital Securities; (ii)
the interest rate and interest and other payment dates on the New Junior
Subordinated Debentures will match the Distribution Rate and Distribution and
other payment dates for the New Capital Securities; (iii) the Corporation 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 Declaration provides that the Trust is not authorized to engage in
any activity that is not consistent with the limited purposes thereof.
ENFORCEMENT OF RIGHTS OF HOLDERS OF NEW CAPITAL SECURITIES
A holder of any New Capital Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
Trust or any other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Declaration. However, in the
event of payment defaults under, or acceleration of, Senior Indebtedness, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Senior Indebtedness
has been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on Junior Subordinated Debentures
would constitute an Event of Default under the Declaration.
LIMITED PURPOSE OF THE TRUST
The New Capital Securities will represent preferred beneficial interests in
the Trust, and the Trust exists for the sole purpose of issuing and selling the
Trust Securities, using the proceeds from the sale of the Trust Securities to
acquire the Junior Subordinated Debentures and engaging in only those other
activities necessary, advisable or incidental thereto. A principal difference
between the rights of a holder of a New Capital Security and a holder of a New
Junior Subordinated Debenture is that a holder of a New Junior Subordinated
Debenture will be entitled to receive from the Corporation the principal amount
of and premium, if any, and interest on New Junior Subordinated Debentures held,
while a holder of New Capital Securities is entitled to receive Distributions
from the Trust (or, in certain circumstances, from the Corporation under the New
Guarantee) if and to the extent the Trust has funds on hand legally available
for the payment of such Distributions.
RIGHTS UPON TERMINATION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary termination and liquidation
of the Trust, the holders of the Trust Securities will be entitled to receive,
out of assets held by the Trust, the Liquidation Distribution in cash. See
"Description of New Securities -- Description of New Capital Securities --
Liquidation of the Trust and Distribution of Junior Subordinated Debentures."
Upon any voluntary or involuntary liquidation or bankruptcy of the Corporation,
the Property Trustee, as holder of the New Junior Subordinated Debentures,
would be a
55
<PAGE> 56
subordinated creditor of the Corporation, subordinated in right of payment to
all Senior Indebtedness as set forth in the Indenture, but entitled to receive
payment in full of principal (and premium, if any) and interest, before any
stockholders of the Corporation receive payments or distributions. Since the
Corporation will be the guarantor under the Guarantee and will agree to pay for
all costs, expenses and liabilities of the Trust (other than the Trust's
obligations to the holders of its Trust Securities), the positions of a holder
of Capital Securities and a holder of Junior Subordinated Debentures relative to
stockholders of the Corporation in the event of liquidation or bankruptcy of the
Corporation are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Wolf, Block, Schorr and Solis-Cohen, counsel to the
Corporation and the Trust ("Tax Counsel"), the following is a summary of certain
of the material United States federal income tax consequences of the purchase,
ownership and disposition of Capital Securities held as capital assets by a
holder who purchases such Capital Securities upon initial issuance. It does not
deal with special classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, or persons that will hold the
Capital Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Capital Securities. Further, it does not include any description
of any alternative minimum tax consequences or the tax laws of any state or
local government or of any foreign government that may be applicable to the
Capital Securities. This summary is based on the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations thereunder, the administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Old Capital Securities for New Capital Securities should
not be a taxable event to holders for United States federal income tax purposes.
The exchange of Old Capital Securities for New Capital Securities pursuant to
the Exchange Offer should not be treated as an "exchange" for United States
federal income tax purposes because the New Capital Securities should not be
considered to differ materially in kind or extent from the Old Capital
Securities and because the exchange will occur by operation of the terms of the
Old Capital Securities. If, however, the exchange of the Old Capital Securities
for the New Capital Securities were treated as an exchange for federal income
tax purposes, such exchange should constitute a recapitalization for United
States federal income tax purposes. Accordingly, the new Capital Securities
should have the same issue price as the Old Capital Securities, and a holder
should have the same adjusted tax basis and holding period in the New Capital
Securities as the holder had in the Old Capital Securities immediately before
the exchange.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Junior Subordinated Debentures, Tax
Counsel will render its opinion generally to the effect that, under then current
law and assuming full compliance with the terms of the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Junior Subordinated Debentures will be classified for United States
federal income tax purposes as indebtedness of the Corporation. An opinion of
Tax Counsel, however, is not binding on the Internal Revenue Service (the "IRS")
or the courts. Prospective investors should note that no rulings have been or
are expected to be sought from the IRS with respect to any of these issues and
no assurance can be given that the IRS will not take contrary positions.
Moreover, no assurance can be given that any of the opinions expressed herein
will not be challenged by the IRS or, if challenged, that such a challenge would
not be successful.
56
<PAGE> 57
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Capital Securities, Tax Counsel will
render its opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Declaration and the Indenture
(and certain other documents), and based on certain facts and assumptions
contained in such opinion, the Trust will be classified for United States
federal income tax purposes as a grantor trust and not as an association taxable
as a corporation. Accordingly, for United States federal income tax purposes,
each holder of Capital Securities generally will be considered the owner of an
undivided interest in the Junior Subordinated Debentures, and each holder will
be required to include in its gross income any interest (or OID accrued) with
respect to its allocable share of those Junior Subordinated Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Regulations") applicable
to debt instruments on or after August 13, 1996, a "remote" contingency that
stated interest will not be timely paid will be ignored in determining whether a
debt instrument is issued with OID. The Corporation believes that the likelihood
of its exercising its option to defer payments of interest is "remote" since
exercising that option would prevent the Corporation from declaring dividends on
any class of its equity securities. Accordingly, the Corporation intends to take
the position, based on the advice of Tax Counsel, that the Junior Subordinated
Debentures will not be considered to be issued with OID and, accordingly, stated
interest on the Junior Subordinated Debentures generally will be taxable to a
holder as ordinary income at the time it is paid or accrued in accordance with
such holder's method of accounting.
Under the Regulations, if the Corporation were to exercise its option to
defer payments of interest, the Junior Subordinated Debentures would at that
time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would be treated as OID as long as the Junior
Subordinated Debentures remain outstanding. Thereafter, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures would
thereafter be accounted for on an economic accrual basis regardless of such
holder's method of tax accounting, and actual distributions of stated interest
would not be reported as taxable income. Consequently, a holder of Capital
Securities would be required to include in gross income OID even though the
Corporation would not make actual cash payments during an Extension Period.
Moreover, under the Regulations, if the option to defer the payment of interest
was determined not to be "remote," the Junior Subordinated Debentures would be
treated as having been originally issued with OID. In such event, all of a
holder's taxable interest income with respect to the Junior Subordinated
Debentures would be accounted for on an economic accrual basis regardless of
such holder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income.
Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Corporation will have the right at any time to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of the
Trust Securities. Under current law, such a distribution, for United States
federal income tax purposes, would be treated as a nontaxable event to each
holder, and each holder would receive an aggregate tax basis in the Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
Capital Securities. A holder's holding period in the Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the Capital Securities were held by such holder. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Junior Subordinated Debentures may constitute a taxable
event to holders of Capital Securities and a holder's holding period in Junior
Subordinated Debentures would begin on the date such Junior Subordinated
Debentures were received.
Under certain circumstances described herein (see "Description of New
Capital Securities"), the Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to
57
<PAGE> 58
holders in redemption of their Capital Securities. Under current law, such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Capital Securities, and a holder could
recognize gain or loss as if it sold such redeemed Capital Securities for cash.
See "-- Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and the
amount realized on the sale of such Capital Securities (other than with respect
to accrued and unpaid interest which has not yet been included in income, which
will be treated as ordinary income). A holder's adjusted tax basis in the
Capital Securities generally will be its initial purchase price increased by OID
(if any) previously includable in such holder's gross income to the date of
disposition and decreased by payments (if any) received on the Capital
Securities in respect of OID. Such gain or loss generally will be a capital gain
or loss and generally will be a long-term capital gain or loss if the Capital
Securities have been held for more than one year.
The Capital Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) who disposes of
such holder's Capital Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest on
the Junior Subordinated Debentures through the date of disposition in income as
ordinary income (i.e., interest or, possibly, OID), and to add such amount to
such holder's adjusted tax basis in such holder's pro rata share of the
underlying Junior Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include
all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
PROPOSED TAX LEGISLATION
On February 6, 1997, the Treasury Department proposed the Proposed
Legislation, which would, among other things, generally deny corporate issuers a
deduction for interest in respect of certain debt obligations, such as the
Junior Subordinated Debentures, issued on or after the "date of first committee
action" if such debt obligations have a maximum term in excess of 15 years and
are not shown as indebtedness on the issuer's applicable consolidated balance
sheet. Neither of the tax-writing committees of the Congress has considered or
acted upon the Proposed Legislation and the New Junior Subordinated Debentures
should be considered as having been issued on December 17, 1996. If the Proposed
Legislation were enacted with the effective date proposed by the Treasury
Department, such legislation would not apply to the Junior Subordinated
Debentures. There can be no assurance, however, that such effective date will be
incorporated into the Proposed Legislation, if enacted, or that other
legislation enacted after the date hereof will not otherwise adversely affect
the ability of the Corporation to deduct the interest payable on the Junior
Subordinated Debentures. Accordingly, there can be no assurance that a Special
Event will not occur. The occurrence of a Special Event may result in the
redemption of the Junior Subordinated Debentures for cash, in which event the
holders of the Capital Securities would receive cash in redemption of their
Capital Securities. See "Description of New Securities -- Description of New
Capital Securities -- Redemption" and "Description of New Securities --
Description of New Junior Subordinated Debentures -- Special Event Prepayment."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for United States federal income tax purposes.
A "U.S. Holder" is a holder of Capital Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for federal income tax purposes, (ii) a
corporation or partnership created or organized (or treated as created or
organized for federal income tax
58
<PAGE> 59
purposes) in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is includable in its gross income
for federal income tax purposes without regard to its source or (iv) if, and
only if, (A) a court within the United States is able to exercise primary
supervision over the administration of the trust and (B) one or more United
States trustees have the authority to control all substantial decisions of the
trust.
Under present United States federal income tax laws: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the Capital
Security does not actually or constructively own 10 percent or more of the total
combined voting power of all classes of stock of the Corporation entitled to
vote, (b) the beneficial owner of the Capital Security is not a controlled
foreign corporation that is related to the Corporation through stock ownership,
and (c) either (A) the beneficial owner of the Capital Security certifies to the
Trust or its agent, under penalties of perjury, that it is not a United States
holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Capital Security in such capacity, certifies to the
Trust or its agent, under penalties of perjury, that such statement has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and furnishes the Trust or its agent with a copy
thereof; and (ii) a United States Alien Holder of a Capital Security will not be
subject to United States federal withholding tax on any gain realized upon the
sale or other disposition of a Capital Security.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will be allowed as a
credit against the holder's United States federal income tax, provided the
required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
The Corporation, the obligor with respect to the New Junior Subordinated
Debentures held by the Trust, and its affiliates and the Property Trustee may be
considered a "party in interest" (within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to many employee
benefit plans ("Plans") that are subject to ERISA. Any purchaser proposing to
acquire New Capital Securities with assets of any Plan should consult with its
counsel. The purchase and/or holding of New Capital Securities by a Plan that is
subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975 of the Code (including individual
retirement arrangements and other plans described in Section 4975(e)(1) of the
Code) and with respect to which the Corporation, the Property Trustee or any
affiliate is a service provider (or otherwise is a party in interest or a
disqualified person) may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, unless such New Capital
59
<PAGE> 60
Securities are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an
exemption for certain transactions determined by an independent qualified
professional asset manager), PTCE 91-38 (an exemption for certain transactions
involving bank collective investment funds), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate accounts), PTCE 95-60
(an exemption for transactions involving certain insurance company general
accounts) or PTCE 95-23 (an exemption for certain transactions determined by an
in-house asset manager). In addition, a Plan fiduciary considering the purchase
of Capital Securities should be aware that the assets of the Trust may be
considered "plan assets" for ERISA purposes. Therefore, a Plan fiduciary should
consider whether the purchase of New Capital Securities could result in a
delegation of fiduciary authority to the Property Trustee, and, if so, whether
such a delegation of authority is permissible under the Plan's governing
instrument or any investment management agreement with the Plan. In making such
determination, a Plan fiduciary should note that the Property Trustee is a U.S.
bank qualified to be an investment manager (within the meaning of section 3(38)
of ERISA) to which such a delegation of authority generally would be permissible
under ERISA. Further, prior to an Event of Default with respect to the New
Junior Subordinated Debentures, the Property Trustee will have only limited
custodial and ministerial authority with respect to Trust assets.
Under the U.S. Department of Labor regulations defining "plan assets" for
ERISA purposes (the "Plan Assets Regulations"), the assets of the Trust will be
considered plan assets of Plans owning New Capital Securities unless the
aggregate investment in New Capital Securities by "benefit plan investors" is
not deemed "significant" or the New Capital Securities qualify as "publicly
offered securities" as defined in such Regulations. For this purpose, equity
participation by benefit plan investors will not be considered "significant" on
any date only if, immediately after the most recent acquisition of Capital
Securities, the aggregate interest in the New Capital Securities held by benefit
plan investors will be less than 25% of the value of the New Capital Securities.
Although it is possible that the equity participation by benefit plan investors
in New Capital Securities on any date will not be "significant" for purposes of
the Plan Assets Regulations, such result cannot be assured.
The New Capital Securities may qualify as "publicly offered securities"
under the Plan Assets Regulations if at the time of the Exchange Offer they are
also "widely held" and "freely transferable." Under the Regulations, a class of
securities is "widely held" only if it is a class of securities that is owned by
100 or more investors independent of the issuer and of one another. Although it
is possible that at the time of the Exchange Offer the New Capital Securities
will be "widely held," such result cannot be assured. Whether a security is
"freely transferable" for purposes of the Regulations is a factual question to
be determined on the basis of all relevant facts and circumstances. If at the
time of the Exchange Offer the New Capital Securities qualify as "publicly
offered securities," the assets of the Trust should not be "plan assets" with
respect to Plans acquiring New Capital Securities. If at the time of the
Exchange Offer the New Capital Securities do not qualify as "publicly offered
securities," the "plan asset" considerations discussed in the preceding
paragraphs could be applicable in connection with the investment by Plans in the
New Capital Securities.
60
<PAGE> 61
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities. The Corporation and the Trust have
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Capital Securities for a period ending 90 days after the Expiration
Date (subject to extension under certain limited circumstances described herein)
or, if earlier, when all such New Capital Securities have been disposed of by
such Participating Broker-Dealer. However, a Participating Broker-Dealer who
intends to use this Prospectus in connection with the resale of New Capital
Securities received in exchange for Old Capital Securities pursuant to the
Exchange Offer must notify the Corporation or the Trust, or cause the
Corporation or the Trust to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set forth herein under "The Exchange
Offer -- Exchange Agent." See "The Exchange Offer -- Resales of New Capital
Securities."
The Corporation or the Trust will not receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. New Capital Securities
received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Capital Securities.
Any broker-dealer that resells New Capital Securities that were received by
it for its own account in connection with the Exchange Offer and any broker or
dealer that participates in a distribution of such New Capital Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon on behalf of the Corporation by
Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania. Certain legal
matters relating to the New Junior Subordinated Debentures and the New Guarantee
will be passed upon on behalf of the Corporation by Brown & Wood LLP, New York,
New York. Wolf, Block, Schorr and Solis-Cohen will also pass upon certain
matters relating to United States federal income taxation considerations.
EXPERTS
The consolidated financial statements and schedules of the Corporation and
subsidiaries, incorporated by reference in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are incorporated herein in reliance upon the authority of said
firm as experts in giving said reports.
61
<PAGE> 62
UNTIL OCTOBER 15, 1997 ALL PARTICIPATING BROKER-DEALERS EFFECTING
TRANSACTIONS IN THE NEW SECURITIES ACQUIRED IN THE EXCHANGE OFFER WILL BE
REQUIRED TO DELIVER A PROSPECTUS.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE TRUST. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. 7
Incorporation of Certain Documents by Reference....................................... 8
Summary............................................................................... 9
Risk Factors.......................................................................... 15
Advanta Corp.......................................................................... 21
Use of Proceeds....................................................................... 21
Ratios of Earnings to Fixed Charges................................................... 21
Capitalization........................................................................ 22
Summary Financial Data................................................................ 23
Recent Developments................................................................... 24
Advanta Capital Trust I............................................................... 25
The Exchange Offer.................................................................... 26
Description of New Securities......................................................... 35
Description of Old Securities......................................................... 54
Relationship Among the New Capital Securities, the New Junior Subordinated
Debentures and the New Guarantee.................................................... 54
Certain Federal Income Tax Consequences............................................... 56
ERISA Considerations.................................................................. 59
Plan of Distribution.................................................................. 61
Legal Matters......................................................................... 61
Experts............................................................................... 61
</TABLE>
