As filed with the Securities and Exchange Commission on November 5, 1999
Registration No. 333-
333- 01
==============
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-3
Registration Statement under the Securities Act of 1933
-----------------------
SANDY SPRING BANCORP, INC. SANDY SPRING CAPITAL TRUST I
(Exact name of Registrant as specified in its charter) (Exact name of Registrant as specified
in its trust agreement)
MARYLAND
(State or other jurisdiction of DELAWARE
incorporation or organization) (State or other jurisdiction of
_________ incorporation or organization)
_____________
6022
(Primary Standard Industrial 6719
Classification Code Number) (Primary Standard Industrial
Classification Code Number)
52-1532952
(I.R.S. Employer Applied for
Identification No.) (I.R.S. Employer
Identification No.)
________________________
17801 Georgia Avenue
Olney, Maryland
(301) 774-6400
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
________________________
Hunter R. Hollar
President and Chief Executive Officer
Sandy Spring Bancorp, Inc.
17801 Georgia Avenue
Olney, Maryland
(Name, address, including zip code, and telephone number, including area code,
of agents for service)
________________________
Copies to:
James I. Lundy, III, Esquire Norman B. Antin, Esquire
Noel M. Gruber. Esquire Jeffrey D. Haas, Esquire
Kennedy, Baris & Lundy, L.L.P. Elias, Matz, Tiernan & Herrick L.L.P.
Suite P-15 734 15th Street, N.W.
4701 Sangamore Road Washington, D.C. 20005
Bethesda, Maryland 20816
________________________
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462 under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Title of Each Class of Securities Amount Proposed Maximum Proposed Maximum Amount of
to be Registered to be Offering Price Aggregate Registration
Registered Per Unit(1) Offering Price(1) Fee(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Trust Preferred Securities of Sandy
Spring Capital Trust I................. $35,000,000 100% $35,000,000 $9,730
- ---------------------------------------------------------------------------------------------------------------------------------
Junior Subordinated Deferrable Interest
Debentures of Sandy Spring Bancorp, $35,000,000 100% $35,000,000 N/A
Inc.(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Sandy Spring Bancorp, Inc. Guarantee
with respect to the Trust Preferred N/A N/A N/A N/A
Securities(3)
--------------------------------------------------------------------------------------------------------------------------------
Total.............................. $35,000,000(4) 100% $35,000,000(4) $9,730
=================================================================================================================================
(1) Estimated solely for the purpose of computing the registration fee.
(2) No separate consideration will be received for the Junior Subordinated
Deferrable Interest Debentures of Sandy Spring Bancorp, Inc. (the "Junior
Subordinated Debentures") distributed upon any liquidation of Sandy Spring
Capital Trust I.
(3) No separate consideration will be received for the Sandy Spring Bancorp,
Inc. Guarantee.
(4) Such amount represents the liquidation amount of the Sandy Spring Capital
Trust I Trust Preferred Securities and the principal amount of Junior
Subordinated Debentures that may be distributed to holders of such Trust
Preferred Securities upon any liquidation of Sandy Spring Capital Trust I.
________________________
The Registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
Subject to completion, dated November 5, 1999
1,400,000 Trust Preferred Securities
SANDY SPRING CAPITAL TRUST I
% Cumulative Trust Preferred Securities
(Liquidation Amount $25 per Trust Preferred Security)
[LOGO]
Fully and Unconditionally Guaranteed by
Sandy Spring Bancorp, Inc.
Sandy Spring Bancorp: We are a bank holding company that offers,
through our subsidiary Sandy Spring National Bank of Maryland, a broad range of
commercial and retail banking and trust services to our customers from offices
in Montgomery, Howard, Anne Arundel and Prince George's counties in Maryland and
Tyson's Corner, Virginia.
Sandy Spring Capital Trust I is a subsidiary of Sandy Spring Bancorp
and a statutory business trust created under Delaware law.
The Offering: In this offering, the Trust will sell Trust Preferred
Securities to the public and Common Securities to us; use the proceeds from
these sales to buy an equal principal amount of ___% Junior Subordinated
Debentures due ___________, 2029 issued by us, and distribute the future
payments it receives on the Junior Subordinated Debentures to the holders of the
Trust Preferred Securities and Common Securities.
. The Trust Preferred Security will pay you cumulative cash distributions at
an annual rate of % on March 31, June 30, September 30 and December 31 of
each year, beginning , 1999. Distribution payments to you may be deferred
for up to 20 consecutive calendar quarters.
. The Trust Preferred Securities mature on , 2029.
. The Trust may redeem the Trust Preferred Securities, at a redemption price
of $25 per Trust Preferred Security, plus accrued and unpaid
distributions, on or after , 2004 and under other circumstances.
. A brief description of the Trust Preferred Securities can be found under
the heading "Summary" in this prospectus.
. We intend to apply for listing of the Trust Preferred Securities on the
Nasdaq National Market under the symbol "SASRP."
-------------------------
There are certain risks you should consider before investing in the
Trust Preferred Securities. See "Risk Factors" beginning on page __.
------------------------
Per Security Total
------------ -----
Public Offering Price................................................... $25.00 $35,000,000
Proceeds to the Trust................................................... $25.00 $35,000,000
Because the proceeds of the sale of the Trust Preferred Securities
will be invested in the Junior Subordinated Debentures, we, as issuer of
the Junior Subordinated Debentures, will pay the underwriters $ per
Trust Preferred Security (or $ in the aggregate) as compensation.
Neither the Securities and Exchange Commission nor any state
securities commission has approved of anyone's investment in these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
These securities are not savings accounts, deposits or obligations of
any bank and are not insured by the Federal Deposit Insurance Corporation
or any other governmental agency.
The Trust Preferred Securities will be ready for delivery in book-
entry form through The Depository Trust Company on or about , 1999.
-------------------------
Legg Mason Wood Walker
Incorporated
Wheat First Securities
Ferris, Baker Watts
Incorporated
The date of this prospectus is , 1999
[map]
We have not, and the underwriters have not, authorized any other person to
provide you with information other than as provided in this prospectus. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
Trust Preferred Securities in any state where the offer or sale is not
permitted. The information in this prospectus is complete and accurate as of
the date on the front cover, but the information may have changed since that
date.
TABLE OF CONTENTS
Page
----
Summary............................................................ 1
Selected Consolidated Financial and Other Data..................... 7
Risk Factors....................................................... 8
Caution About Forward Looking Statements........................... 12
Ratios of Earnings to Fixed Charges................................ 13
Use of Proceeds.................................................... 15
Capitalization..................................................... 16
Management......................................................... 14
Sandy Spring Capital Trust I....................................... 16
Description of Trust Preferred Securities.......................... 17
Description of Junior Subordinated Debentures...................... 29
Description of Guarantee........................................... 39
Book-Entry Issuance................................................ 41
Relationship among the Trust Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee...................................... 43
Certain Federal Income Tax Consequences............................ 44
ERISA Considerations............................................... 45
Underwriting....................................................... 48
Legal Matters...................................................... 49
Experts............................................................ 49
Where You Can Find More Information................................ 49
-------------------------
SUMMARY
The items in the following summary are described in more detail later in
this prospectus. This summary provides an overview of selected information and
does not contain all the information you should consider. You also should read
the more detailed information set out in this prospectus or incorporated in the
prospectus by reference. See "Where You Can Find More Information" (page ).
In this prospectus, "we," "our," and " us," refer to Sandy Spring Bancorp, Inc.
Sandy Spring Bancorp
We are the holding company for Sandy Spring National Bank of Maryland.
Founded in 1868, we are the oldest banking business native to Montgomery County,
Maryland, and the fifth largest commercial banking organization headquartered in
Maryland. At September 30, 1999, we had consolidated assets of $1.5 billion,
deposits of $1.2 billion, and stockholders' equity of $110.0 million. Our common
stock trades on the Nasdaq Stock Market's National Market under the symbol
"SASR."
We offer a broad range of commercial and retail banking and trust services
through:
. Sandy Spring National Bank's network of 30 community banking offices in
Montgomery, Howard, Anne Arundel, and Prince George's counties in Maryland
and in Tyson's Corner, Virginia;
. The bank's subsidiaries, Sandy Spring Mortgage Corporation and Sandy
Spring Insurance Corporation; and
. Our web-based internet banking services for commercial, consumer, and
trust services, first offered in 1997.
Our assets and loans have increased at a compound annual growth rate of 13%
since January 1, 1994. Our earnings increased at a compound annual growth rate
of 16% from 1994 through 1998. Earnings for the first nine months of 1999
increased by 11% compared to the same period in 1998. In general, our increased
earnings resulted from:
. Interest revenue growth from increased loans and investment securities;
. Growth in fees and other noninterest revenues, reflecting management's
continued focus on this area;
. Improvements in operating efficiency; and
. Sustained asset quality.
See "Selected Consolidated Financial and Other Data" (page ).
We have increased our assets through internal growth and acquisitions. On
September 26, 1999 we completed the acquisition of seven branches from another
financial institution, along with approximately $216 million in deposits and a
$34 million portfolio of consumer and commercial loans. In the past five years,
we also have acquired a branch in Bethesda, Maryland and an $80 million asset
bank headquartered in Annapolis, Maryland. We also expect to open a new
community banking office in Edgewater in Anne Arundel County during the first
quarter of 2000. We routinely explore opportunities for expansion of our core
banking business and related activities.
We are a community banking organization that focuses our lending and other
services on businesses and consumers in our local market area. At September 30,
1999:
. Commercial and commercial real estate loans accounted for 47% of our loan
portfolio;
. Residential mortgages were 31% of the portfolio; and
. Consumer loans were 22% of the portfolio.
Historically, we have experienced low levels of loan losses. Our annualized
ratio of net loan charge offs to average loans was 0.03% for the first nine
months of 1999 and 0.04% for the year 1998. Our ratio of nonperforming assets to
total assets was 0.29% at September 30, 1999, compared to 0.13% at December 31,
1998, and 0.31% at September 30, 1998.
Our management team is made up of experienced community bankers. On average,
our executive management team has 17 years of banking experience. See
"Management" (page ).
Our principal office is located at 17801 Georgia Avenue, Olney, Maryland, and
our telephone number is (301) 774-6400.
1
Sandy Spring Capital Trust I
Sandy Spring Capital Trust I (the "Trust") is a statutory business trust that
we formed under the Delaware Business Trust Act. The Trust is selling 1,400,000
Trust Preferred Securities in this offering. The Trust also will issue common
trust securities ("Common Securities") to us. (The Trust Preferred Securities
and the Common Securities are referred to in this prospectus as the "Trust
Securities.")
The Trust exists only to issue Trust Securities for cash, to invest the
proceeds in an equivalent amount of % Junior Subordinated Deferrable Interest
Debentures due , 2029 (the "Junior Subordinated Debentures") issued by us, and
to engage in other activities that are necessary or incidental to the issuance
of the Trust Securities and the investment in Junior Subordinated Debentures.
The Trust does not have separate financial statements. We do not believe that
the statements would be significant to you because the Trust is our direct,
wholly owned subsidiary, has no independent operations, and exists solely for
the reasons summarized above. We will pay all of the expenses of operating the
Trust.
The Trust's principal office is located at 17801 Georgia Avenue, Olney,
Maryland, and its telephone number is (301) 774-6400.
2
The Offering
Issuer of the Trust Preferred
Securities.................... Sandy Spring Capital Trust I, a Delaware
statutory business trust.
Securities offered............ 1,400,000 % Trust Preferred Securities,
liquidation amount $25 per security. The Trust
Preferred Securities represent preferred
undivided beneficial interests in the Trust's
assets, which will consist solely of the Junior
Subordinated Debentures and payments under the
Junior Subordinated Debentures.
The Trust will sell the Trust Preferred
Securities to the public and the Common
Securities to us. The Trust will use the
proceeds from the sale of the Trust Securities to
buy the Junior Subordinated Debentures from us.
Distributions................. The Trust Preferred Securities will pay
cumulative cash distributions at a ___% annual
rate. Distributions will accumulate from the date
the Trust issues the Trust Preferred Securities,
and will be paid quarterly in arrears on March
31, June 30, September 30 and December 31 of each
year, beginning on December 31, 1999.
Distributions on the Trust Preferred Securities
may be deferred, as described below. The initial
cash distribution payable on , 1999
will equal $ for each Trust Preferred
Security. Subsequent cash distributions will
equal $ for each Trust Preferred
Security.
The record date for distributions on the Trust
Preferred Securities will be one business day
prior to the relevant distribution date for so
long as the Trust Preferred Securities remain in
book-entry form (if not in book-entry form, the
record date will be the fifteenth day of the
month in which the distributions are made).
Maturity...................... The Junior Subordinated Debentures will
mature on , 2029. The Trust must redeem
the Trust Preferred Securities when the Junior
Subordinated Debentures are paid on the maturity
date. The Trust Preferred Securities will be
redeemed at the same redemption price as the
Junior Subordinated Debentures.
Redemption.................... We may redeem all or a part of the Junior
Subordinated Debentures on or after
, 2004 at a redemption price of $25 per Junior
Subordinated Debenture, plus accrued and unpaid
distributions.
In addition, we may redeem all of the Junior
Subordinated Debentures at our option:
. if certain tax events occur;
. if there is a change in the Investment Company
Act of 1940 that requires the Trust to register
under that law; or
3
. if there is a change in, among other things, the
regulatory capital adequacy guidelines that
apply to us.
These circumstances are collectively referred to
as "Special Events."
We will not redeem the Junior Subordinated
Debentures before they mature without approval by
the regulatory agencies that supervise us if such
approval is then required.
The Trust will use the cash proceeds of any
redemption of the Junior Subordinated Debentures
the liquidation amount for an equal amount of
Trust Preferred Securities. The liquidation
amount you will receive will be equal to the
redemption price described above.
Deferral of distributions.... The Trust relies solely on payments made by us on
the Junior Subordinated Debentures to pay
distributions on the Trust Preferred Securities.
If no event of default under the Junior
Subordinated Debentures is continuing, we have the
right, at one or more times, to defer interest
payments on the Junior Subordinated Debentures for
up to 20 consecutive calendar quarters, but not
beyond the maturity date of the Junior
Subordinated Debentures. If we defer interest
payments on the Junior Subordinated Debentures:
. the Trust will also defer distributions on the
Trust Preferred Securities;
. your distributions will continue to accrue at an
annual rate of ___% of the liquidation amount of
$25 per Trust Preferred Security; and
. you will accumulate additional distributions at
the same rate, compounded quarterly, on any
unpaid distributions (to the extent permitted by
law).
When a deferral period ends, we will be required
to pay to the Trust all accumulated and unpaid
interest due on the Junior Subordinated Debentures
and, when the Trust receives this payment, it will
be required to pay all accumulated and unpaid
distributions on the Trust Securities.
If we defer payments of interest on the Junior
Subordinated Debentures, the Trust Preferred
Securities will be treated as having been issued
with original issue discount for United States
federal income tax purposes. This means that you
will still be required to include income in your
gross income for United States federal income tax
purposes before you receive any corresponding cash
distribution, even if you are a cash basis
taxpayer.
We have agreed to certain restrictions if we
exercise our right to defer interest payments.
During any period in which we defer interest
payments on the Junior Subordinated Debentures, we
will not be permitted to (with limited exceptions
described under "Description of Junior
Subordinated Debentures--Option to Extend Interest
Payment Date"):
4
. declare or pay dividends or make other
distributions on, redeem, purchase or acquire,
or make liquidation payments with respect to,
our capital stock;
. pay interest, principal or premium on, or repay,
repurchase or redeem any of our debt securities
that rank equal with or junior to the Junior
Subordinated Debentures, or make guarantee
payments with respect to any of these
securities.
Guarantee.................... We will fully and unconditionally guarantee the
Trust Preferred Securities based on:
. our obligations to make payments on the Junior
Subordinated Debentures;
. our obligations under a guarantee executed for
your benefit (the "Guarantee"); and
. our obligations under the Trust Agreement, which
sets forth the terms of the Trust Securities.
Instead, you or the property trustee may enforce
the Trust's rights under the Junior Subordinated
Debentures directly against us. If we do not make
payments on the Junior Subordinated Debentures,
the Trust will not have sufficient funds to make
payments on the Trust Preferred Securities. The
Guarantee does not cover payments when the Trust
does not have sufficient funds.
Distribution of the Junior
Subordinated Debentures...... We may dissolve the Trust at any time and
distribute the Junior Subordinated Debentures to
you, subject to any required approval by the
regulatory agencies that supervise us. If the
Junior Subordinated Debentures are distributed, we
will use our best efforts to list them on a
national securities exchange or comparable
automated quotation system.
Ranking...................... Our obligations under the Junior Subordinated
Debentures are unsecured and will rank junior in
priority of payment to our current, and any
future, senior and subordinated indebtedness and
will be effectively subordinated to all existing
and future liabilities and obligations of our
subsidiaries, including Sandy Spring National
Bank. As of September 30, 1999, we had no senior
or subordinated indebtedness outstanding and our
subsidiaries had total liabilities (excluding
liabilities owed to us) of $1.4 billion. Our
obligations under the Junior Subordinated
Debentures will rank at least equal to other
junior subordinated debentures issued or to be
issued by us to similar trusts.
Our obligations under the Guarantee are unsecured
and will rank in priority of payment:
. junior to all of our indebtedness, except for
those liabilities made equal or subordinate to
the Junior Subordinated Debentures by their
terms;
5
. at least equal to all other guarantees issued or
to be issued by us with respect to other similar
trust preferred securities; and
. senior to our capital stock.
Limited voting rights........ Except in limited circumstances, you will have no
voting rights as a holder of the Trust Preferred
Securities.
Listing...................... We intend to apply for listing of the Trust
Preferred Securities on the Nasdaq National Market
under the symbol "SASRP."
Book-entry................... The Trust Preferred Securities will be represented
by a global security that will be deposited with
and registered in the name of The Depository Trust
Company, New York, New York or its nominee. This
means that you will not receive a certificate for
your Trust Preferred Securities.
Use of proceeds.............. The Trust plans to use the proceeds from the sale
of the Trust Securities to purchase the Junior
Subordinated Debentures from us. We intend to use
the net proceeds from the sale of the Junior
Subordinated Debentures for general corporate
purposes, including capital contributions to Sandy
Spring National Bank to increase its capital to
levels maintained before our recent branch
acquisition, and for working capital. Initially,
we may use the net proceeds to make short-term
investments.
6
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected historical financial and other data should be
read in connection with the historical financial information and with the
other financial information incorporated by reference in this prospectus. See
"Where You Can Find More Information" (page ). The financial information for the
interim periods ended September 30, 1999 and 1998 has not been audited, and, in
the opinion of management, reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of that data. The
results of operations for the nine months do not necessarily indicate the
results for the full year.
At and for the
nine months ended
September 30, At and for the years ended December 31,
----------------- ------------------------------------------------------
1999 1998 1998 1997 1996 (1) 1995 (1) 1994 (1)
---- ---- ---- ---- -------- -------- --------
(in thousands, except per share data)
Results of Operations:
Interest income $ 67,892 $ 62,391 $ 84,272 $ 75,565 $ 66,621 $ 62,115 $ 51,578
Interest expense 29,743 28,556 38,749 34,486 30,233 29,342 21,496
------ ------ ------ ------ ------ ------ ------
Net interest income 38,149 33,835 45,523 41,079 36,388 32,773 30,082
Provision for credit losses 741 542 552 986 308 180 212
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for credit losses 37,408 33,293 44,971 40,093 36,080 32,593 29,870
Noninterest income 9,009 8,852 12,123 9,132 6,547 4,478 4,189
Noninterest expenses 27,984 25,079 34,053 29,442 25,344 22,424 21,462
------ ------ ------ ------ ------ ------ ------
Income before taxes 18,433 17,066 23,041 19,783 17,283 14,647 12,597
Income taxes 5,061 5,042 6,936 6,588 5,789 4,653 3,694
Net income $ 13,372 $ 12,024 $ 16,105 $ 13,195 $ 11,494 $ 9,994 $ 8,903
======== ======== ======== ======== ======== ======= =======
Per Share Data:
Basic net income per share $ 1.39 $ 1.25 $ 1.67 $ 1.35 $ 1.18 $ 1.05 $ 0.95
Diluted net income per share 1.39 1.24 1.66 1.34 1.18 1.04 0.94
Dividends declared per share 0.56 0.45 0.63 0.47 0.39 0.32 0.27
Book value per share at period end 11.43 11.50 11.57 10.77 9.85 9.02 7.86
Financial Condition (at period end):
Assets $1,547,014 $1,241,848 $1,343,471 $1,121,333 $ 978,595 $ 876,203 $ 830,834
Loans (2) 774,326 610,286 624,412 558,893 523,166 492,540 457,052
Securities 635,295 520,603 595,099 453,249 356,695 285,839 304,704
Deposits 1,167,172 913,928 954,571 853,011 806,341 743,592 700,340
Borrowings 259,146 212,126 271,392 159,018 72,947 39,955 53,423
Stockholders' equity 109,992 110,611 110,937 104,675 96,581 86,941 73,766
Selected Ratios (for the period):
Return on average assets (3) 1.34% 1.38% 1.36% 1.28% 1.27% 1.18% 1.14%
Return on average equity (3) 16.22 15.14 15.02 13.25 12.81 12.37 12.24
Net interest margin (3) 4.39 4.54 4.40 4.42 4.45 4.32 4.31
Efficiency ratio (4) 55.17 54.54 55.21 56.82 55.27 56.96 59.11
Dividend payout ratio 40.29 36.29 37.95 35.07 33.05 30.77 28.72
Credit Quality Ratios:
Allowance for credit losses to loans 1.03% 1.22% 1.18% 1.26% 1.22% 1.34% 1.46%
Allowance for credit losses to
nonperforming loans 186 208 408 263 137 735 382
Nonperforming loans to total loans (5) 0.55 0.59 0.29 0.48 0.89 0.18 0.38
Nonperforming assets to total assets (6) 0.28 0.31 0.13 0.26 0.48 0.11 0.24
Net charge-offs to average loans (3) 0.03 0.03 0.04 0.07 0.10 0.05 0.06
Capital Ratios:
Average equity to average assets 8.02% 8.85% 9.02% 9.65% 9.90% 9.57% 9.28%
Total capital to risk-weighted assets 12.13 16.01 15.67 17.07 17.56 17.67
Tier I capital to risk-weighted assets 11.20 14.97 14.58 15.97 16.44 16.42
Leverage ratio 7.33 8.73 8.50 9.46 10.38 10.09
Ratio of Earnings to Fixed Charges: (7)
Including interest on deposits 1.61X 1.59X 1.59X 1.57X 1.57X 1.50X 1.58X
Excluding interest on deposits 2.89 3.39 3.31 4.23 7.59 6.12 8.48
(1) Data for 1994, 1995 and 1996 other than dividends per share have been
retroactively adjusted to reflect the acquisition of Annapolis Bancshares,
Inc. on August 29, 1996, which was accounted for as a pooling of interests
transaction. Capital ratios for 1994 are not available.
(2) Loans are shown net of unearned income but before deduction of the allowance
for credit losses.
(3) The ratios for the nine-month periods have been annualized.
(4) The efficiency ratio is calculated by dividing operating expenses by the sum
of tax-equivalent net interest income and non interest income. The
calculation excludes significant non-operating income and expense, including
Y2K compliance cost, merger related expense, amortization of intangibles,
and gains and losses on sales of loans and securities.
(5) Nonperforming loans consist of non-accrual loans, loans that are
contractually past due by 90 days or more, and loans with restructured
terms.
(6) Nonperforming assets consist of nonperforming loans and other real estate
owned, net of reserves.
(7) See "Ratios of Earnings to Fixed Charges." (page ).
7
RISK FACTORS
You should carefully read the following risk factors before you decide to
buy any Trust Preferred Securities. You should also consider the other
information in this prospectus and the documents that are incorporated by
reference.
Risks Related to an Investment in the Trust Preferred Securities
Payments on the Trust Preferred Securities are entirely dependent on our making
payments on the Junior Subordinated Debentures. We will make payments under the
Guarantee only if the Trust has cash available.
The Trust's ability to pay distributions (including the $25 per Trust
Preferred Security liquidation distribution) is entirely dependent on our making
the related payments on the Junior Subordinated Debentures when due. If we do
not make payments on the Junior Subordinated Debentures, the Trust will not have
sufficient funds to pay distributions or the $25 per Trust Preferred Security
liquidation amount. Because the Guarantee does not cover payments when the Trust
does not have sufficient funds, you will not be able to rely upon the Guarantee
for payment of these amounts. Instead, you may directly sue us or seek other
remedies to collect your pro rata share of payments owed or rely on the property
trustee to enforce the Trust's rights under the Junior Subordinated Debentures
directly against us.
The Trust's ability to make payments on the Trust Preferred Securities depends
on our ability to make payments on the Junior Subordinated Debentures.
The Junior Subordinated Debentures and the Guarantee will be our
obligations only. The Trust will be unable to make payments to you if we do not
receive sufficient funds from our subsidiaries to allow us to pay interest on or
principal of the Junior Subordinated Debentures.
We are a bank holding company regulated by the Board of Governors of the
Federal Reserve System and substantially all of our assets are held by our
subsidiaries. Our ability to make payments on the Junior Subordinated Debentures
depends primarily on the results of operations of our subsidiaries and their
ability to provide funds to us. Our subsidiaries are separate and distinct legal
entities and have no obligations to pay any amounts due under the Junior
Subordinated Debentures or to make funds available, whether by dividend, loan or
otherwise, for such purpose. In addition, there are various legal limitations on
the extent to which certain of our subsidiaries may extend credit, pay dividends
or otherwise supply funds to, or engage in transactions with, us or some of our
subsidiaries.
Our right to participate in any distribution of the assets of any
subsidiary, including the bank, upon a subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of that
subsidiary, except to the extent that we may be recognized as a creditor of that
subsidiary. As a result, the Junior Subordinated Debentures and the Guarantee
will be effectively subordinated to all existing and future liabilities of our
subsidiaries. As of September 30, 1999, our subsidiaries had total liabilities
(excluding liabilities owed to us) of $1.4 billion. Holders of the Junior
Subordinated Debentures and beneficiaries of the Guarantee should look only to
our assets for payments on the Junior Subordinated Debentures or under the
Guarantee, as the case may be. There is no limit under the Trust Preferred
Securities, the Junior Subordinated Debentures or the Guarantee as to our
ability or our subsidiaries' ability to incur additional indebtedness.
Our obligations under the Guarantee and the Junior Subordinated Debentures will
be subordinated in right of payment to our current and future senior and
subordinated indebtedness.
Our obligations under the Guarantee are unsecured and will rank in priority
of payment:
. junior to all of our indebtedness, except for those liabilities made
equal or subordinate to the Guarantee by their terms;
. equal to all other guarantees issued or to be issued by us with
respect to other similar trust preferred securities; and
. senior to our capital stock.
This means that we cannot make any payments on the Guarantee if we default
on a payment of any of our other liabilities, except those liabilities, which,
by their terms, rank equal with or subordinate to the Guarantee. In the event of
our bankruptcy, liquidation or dissolution, our assets would be available to pay
obligations under the Guarantee only after all payments have been made on our
other liabilities, except those liabilities, which, by their terms, rank equal
with or subordinate to the Guarantee.
Our obligations under the Junior Subordinated Debentures are unsecured and
will rank junior in priority of payment to our current and future senior and
subordinated indebtedness, and will be effectively subordinated to all existing
and future liabilities and obligations of our subsidiaries, including the bank.
This means that we cannot make any payments of principal (including redemption
payments) or interest on the Junior Subordinated Debentures if we default on a
payment on any of our senior indebtedness or subordinated indebtedness. In the
event of our bankruptcy,
8
liquidation or distribution, our assets would be available to pay obligations
under the Junior Subordinated Debentures only after all payments have been made
on our senior indebtedness and our subordinated indebtedness. There is no limit
under the Trust Preferred Securities, the Junior Subordinated Debentures or the
Guarantee on our ability to incur additional indebtedness, including
indebtedness that ranks senior in priority of payment to the Junior Subordinated
Debentures and the Guarantee.
If we defer interest payments there will be adverse tax consequences for you and
this may affect the trading price for the Trust Preferred Securities.
At any time that there is no event of default under the Junior Subordinated
Debentures, we have the right to defer interest payments one or more times on
the Junior Subordinated Debentures for up to 20 consecutive calendar quarters,
but not beyond the maturity date of the Junior Subordinated Debentures.
If we defer interest payments on the Junior Subordinated Debentures, the Trust
will also defer distributions on the Trust Preferred Securities. During a
deferral period, you will be required to accrue income (in the form of original
issue discount) for United States federal income tax purposes in an amount equal
to the interest that accrues on your pro-rata share of the Junior Subordinated
Debentures held by the Trust. As a result, you must include the accrued but
unpaid income in your gross income for United States federal income tax purposes
before you receive cash, even if you are a cash basis taxpayer. You will not
receive the cash related to any accrued and unpaid interest from the Trust if
you sell the Trust Preferred Securities before the end of the deferral period.
The Trust Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest on the Junior Subordinated Debentures.
During a deferral period, your tax basis in the Trust Preferred Securities
will increase by the amount of accrued but unpaid distributions. If you sell the
Trust Preferred Securities during a deferral period, your increased tax basis
will decrease the amount of any capital gain or increase the amount of any
capital loss that you may have otherwise realized on the sale. A capital loss,
except in certain limited circumstances, cannot be applied to offset ordinary
income. As a result, deferral of distributions could result in ordinary income,
and a related tax liability for the holder, and a capital loss that may only be
used to offset a capital gain.
We do not currently intend to exercise our right to defer interest payments
on the Junior Subordinated Debentures. However, if we exercise our right in the
future, we expect that the market price of the Trust Preferred Securities would
be adversely affected. If you sell the Trust Preferred Securities during a
deferral period, you may not receive the same return on your investment as
someone who continues to hold the Trust Preferred Securities.
We may redeem the Trust Preferred Securities at any time upon the occurrence of
a Special Event.
If a Special Event occurs, we may elect to redeem all of the Junior
Subordinated Debentures. A Special Event means a Tax Event, an Investment
Company Event or a Regulatory Capital Event and is more fully described under
"Description of Trust Preferred Securities--Redemption" and defined under
"Description of Trust Preferred Securities - Definitions." If there is a
Special Event and we elect to redeem the Junior Subordinated Debentures, we must
do so within 90 days of the Special Event, and the Trust must redeem the Trust
Preferred Securities at a redemption price equal to the liquidation amount of
$25 per Trust Preferred Security, plus accrued and unpaid distributions. We may
exercise this right only if we receive any required approval by the regulatory
agencies that supervise us.
Some or all of the Trust Preferred Securities may be redeemed on or after
________________, 2004.
We may redeem some or all of the Junior Subordinated Debentures on or after
, 2004, which will cause an equal amount of the Trust Preferred Securities to be
redeemed simultaneously with the redemption of the Junior Subordinated
Debentures. If less than all of the Junior Subordinated Debentures are redeemed,
the Trust must redeem an
9
amount of Trust Preferred Securities having an aggregate liquidation value equal
to the principal amount of the Junior Subordinated Debentures that have been
redeemed. We can exercise this right only if we receive any required approval by
the regulatory agencies that supervise us. You should assume that we will
exercise our redemption option if we are able to refinance our obligations at a
lower interest rate or if it is otherwise in our interest to redeem the Junior
Subordinated Debentures.
Distribution of the Junior Subordinated Debentures could adversely affect the
market price for the Trust Preferred Securities and have tax consequences for
you.
We may dissolve the Trust at any time before the maturity of the Junior
Subordinated Debentures on , 2029. As a result, the Trustees
may distribute the Junior Subordinated Debentures to the holders of Trust
Preferred Securities. Although we have agreed to use our best efforts to list
the Junior Subordinated Debentures on a national securities exchange or
comparable automated quotation system if this occurs, there can be no assurance
that the Junior Subordinated Debentures will be approved for listing or that a
trading market will exist for the Junior Subordinated Debentures.
We cannot predict the market prices for the Junior Subordinated Debentures
if they are distributed. Accordingly, the Junior Subordinated Debentures that
you receive upon a distribution, or the Trust Preferred Securities you hold
pending such a distribution, may trade at a price that is less than the price
you paid for the Trust Preferred Securities. Because you may receive Junior
Subordinated Debentures, you must also make an investment decision with regard
to the Junior Subordinated Debentures. You should carefully review all the
information regarding the Junior Subordinated Debentures contained in this
prospectus.
Under current United States federal income tax laws, a distribution of the
Junior Subordinated Debentures to you upon the dissolution of the Trust would
not be a taxable event to you. Nevertheless, if the Trust is classified for
United States federal income tax purposes as an association taxable as a
corporation at the time it is dissolved, the distribution of the Junior
Subordinated Debentures would be a taxable event to you.
The holders of the Trust Preferred Securities and the Junior Subordinated
Debentures are not protected by covenants in the Indenture or the Trust
Agreement.
The Indenture, which contains the terms of the Junior Subordinated
Debentures, and the Trust Agreement, which contains the terms of the Trust
Securities, do not include financial or other terms that protect holders of
Junior Subordinated Debentures or Trust Preferred Securities if we experience
significant adverse changes in our financial condition or results of operations.
In addition, the Indenture and the Trust Agreement do not limit our ability or
the ability of our subsidiaries to incur additional indebtedness, including
indebtedness that ranks senior to the Junior Subordinated Debentures and the
Guarantee.
You will have limited voting rights.
As a holder of Trust Preferred Securities, you will have voting rights only
in limited circumstances. Your voting rights will relate only to the
modification of the Trust Preferred Securities and the exercise of the Trust's
rights as holder of the Junior Subordinated Debentures. In general, only we can
replace or remove any of the Trustees. Together with the property trustee, the
administrative trustees, we may amend the Trust Agreement without your consent
for certain things, including to ensure that the Trust will be classified for
United States federal income tax purposes as a grantor trust. You will have no
voting rights on matters submitted to a vote of our stockholders. However, if
an event of default under the Trust Agreement is continuing, the holders of at
least a majority in aggregate liquidation amount of the Trust Preferred
Securities may replace the property trustee and the Delaware trustee.
Potential tax law changes could require us to redeem the Trust Preferred
Securities.
From time to time, certain tax law changes have been proposed that would
deny interest deductions to corporate issuers of debt instruments with terms
that include certain of the terms of the Junior Subordinated Debentures. In
addition, the Internal Revenue Service ("IRS") has in the past challenged
taxpayers' treatment as indebtedness of securities issued with characteristics
similar to the Junior Subordinated Debentures. To date, such tax law change
proposals have not been enacted and the only known challenge that has advanced
as far as litigation was settled short of trial, with resolution favorable to
the taxpayer's position. However, if any similar tax law change were enacted or
any such challenge by the IRS were upheld, such event could
10
give rise to a Tax Event (as defined under "Description of Trust Preferred
Securities--Redemption") which could result in an early redemption of the Trust
Preferred Securities.
There may be no active or liquid market for the Trust Preferred Securities.
We plan to have the Trust Preferred Securities quoted on the Nasdaq
National Market. We cannot predict whether an active and liquid trading market
for the Trust Preferred Securities will develop or whether a continued quotation
of the Trust Preferred Securities will be available on the Nasdaq National
Market. Although the underwriters have informed the Trust and us that they
intend to make a market in the Trust Preferred Securities, the underwriters are
not obligated to do so and any such market-making activity may be terminated at
any time without notice. Future trading prices of the Trust Preferred
Securities will depend on many factors including, among other things, prevailing
interest rates, our operating results and financial condition, and the market
for similar securities.
Risks Relating to Us
Changes in interest rates could reduce our profitability.
Our ability to make a profit, like that of most financial institutions,
substantially depends upon our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (such as
loans and investment securities) and the interest expense we pay on our
interest-bearing liabilities (such as deposits and borrowings). Certain assets
and liabilities, however, may react in different degrees to changes in market
interest rates. Further, interest rates on some types of assets and liabilities
may fluctuate prior to changes in broader market interest rates, while rates on
other types may lag behind. Additionally, some of our assets, such as
adjustable-rate mortgages, have features, including payment and rate caps, that
restrict changes in their interest rates.
Factors such as inflation, recession, unemployment, money supply,
international disorders, instability in domestic and foreign financial markets,
and other factors beyond our control may affect interest rates. Changes in
market interest rates also will affect the level of voluntary prepayments on our
loans and the receipt of payments on our mortgage-backed securities, resulting
in the receipt of proceeds that may be reinvested at a lower rate than the loan
or mortgage-backed security being prepaid. Although we pursue an asset-
liability management strategy designed to control our risk from changes in
market interest rates, changes in interest rates can still have a material
adverse effect on our profitability.
Our allowance for credit losses may be inadequate to cover losses actually
incurred, which could affect our ability to make payments on the Junior
Subordinated Debentures.
We maintain an allowance for credit losses in an amount we believe is
sufficient to provide for known and inherent risks in our loan portfolio. At any
time, there are loans included in our loan portfolio that may result in losses,
but that have not been identified as nonperforming or potential problem loans.
We have procedures that we use to help us identify potential problem loans at a
time when they can be worked out with minimal loss. However, we cannot be sure
that we will be able to identify deteriorating loans before they become
nonperforming assets, or that we will be able to limit losses on those loans
that are identified. If Sandy Spring National Bank incurs actual losses on its
loans in excess of its allowance for credit losses, it may have insufficient
income to extend credit, pay dividends or otherwise supply funds to us. If this
occurs, we may be unable to make payments of interest and principal on the
Junior Subordinated Debentures, and the Trust may be unable to make payments of
interest and principal to you.
Changes in local economic conditions could reduce our income and growth, and
could lead to higher levels of problem loans and charge-offs.
Our lending operations are concentrated in Montgomery, Howard, Ann Arundel
and Prince George's Counties in Maryland. Adverse changes in economic
conditions in these areas, or the neighboring areas of Washington, D.C. and its
Virginia suburbs or Baltimore, Maryland and its suburbs could hurt our ability
to collect loans, could reduce the demand for loans, and otherwise could
negatively affect our performance and financial condition.
We compete with others for business.
We compete for loans, deposits, and investment dollars with other banks and
other kinds of financial institutions and enterprises, such as securities firms,
insurance companies, savings and loan associations, credit unions, mortgage
brokers, and private lenders, many of which have substantially
11
greater resources than ours. In addition, non-depository institution competitors
are generally not subject to the extensive regulation applicable to us and Sandy
Spring National Bank. The differences in resources and regulation may make it
harder for us to compete profitably, reduce the rates that we can earn on loans
and investments, increase the rates we must offer on deposits and other funds,
and adversely affect our financial condition and earnings.
Our future profits will be affected by the integration of seven new branches
acquired in September 1999 into our banking operations.
Our future profits will be affected by our ability to retain the branch
deposits acquired in September 1999, to generate revenues from the new branch
locations and the loans we acquired, to manage the costs associated with the
acquired branch offices, and otherwise to successfully integrate the new
branches into our operations.
The year 2000 problem may have significant adverse effects on us and our
customers.
Many computer programs now in use have not been designed to properly
recognize years after 1999. If not corrected, these programs could fail or
create erroneous results after December 31, 1999. This year 2000 ("Y2K") issue
affects the entire banking industry because of the industry's reliance on
computers and other equipment that uses computer chips, and may have significant
effects on banking customers, bank regulators, and the general economy.
We established a Y2K plan to prevent or limit adverse effects of the Y2K
issue on us and our customers. We believe implementation of our plan is
substantially complete However, our belief that we, and our principal suppliers
of software and data processing services, will achieve Y2K compliance, is based
on assumptions that may not prove accurate, and on statements made by our data
processing suppliers and other third parties, and is therefore subject to
uncertainty. Although we have undertaken a customer awareness program, customer
concerns about the Y2K issue may adversely impact us. The actual effects on our
individual customers, on governmental authorities that regulate us, on the
financial markets and economy in general, and any resulting consequences to us,
cannot be estimated with any assurance. Because of these uncertainties, we
cannot be certain that Y2K compliance will be achieved.
Failure to achieve Y2K compliance by us, our principal software suppliers, the
payments system of banks and the Federal Reserve System, and the
telecommunications and power suppliers upon which we and they rely, could cause
disruptions in services to our customers. Failure by our borrowers to achieve
Y2K compliance could have adverse financial effects on them, and make it more
difficult for them to pay their loans, which in turn could result in reduced
income or additional loan losses for us.
Government regulation significantly affects our business.
The banking industry is heavily regulated. Banking regulations are
primarily intended to protect the federal deposit insurance funds and
depositors, not shareholders. Sandy Spring National Bank is subject to
regulation and supervision by the Office of the Comptroller of the Currency. We
are subject to regulation and supervision by the Board of Governors of the
Federal Reserve System. The burden imposed by federal and state regulations puts
banks and bank holding companies at a competitive disadvantage compared to less
regulated competitors such as finance companies, mortgage banking companies and
leasing companies. Changes in the laws, regulations and regulatory practices
affecting the banking industry could impose additional costs on us, could hurt
our ability to compete profitably with other financial institutions, or could
have other material adverse effects on us.
CAUTION ABOUT FORWARD LOOKING STATEMENTS
We make forward looking statements in this prospectus that are subject to
risks and uncertainties. These forward looking statements include:
. Statements of goals, intentions, and expectations;
. Estimates of risks and of future costs and benefits;
. Statements of the ability to achieve "Y2K" compliance; and
. Statements of the ability to achieve financial and other goals.
12
These forward looking statements are subject to significant uncertainties
because they are based upon or are affected by:
. Our estimates and projections of future interest rates and other economic
conditions;
. Statements by suppliers of data processing equipment and services, government
agencies, and other third parties as to "Y2K" compliance and costs;
. Future laws and regulations; and
. A variety of other matters.
Because of these uncertainties, the actual future results may be materially
different from the results indicated by these forward looking statements. In
addition, our past results of operations do not necessarily indicate our future
results.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table shows our consolidated ratios of earnings to fixed
charges for the indicated periods.
At and for the
nine months ended
September 30, At and for the years ended December 31,
----------------- --------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
Ratios of earnings to
fixed charges:
Including interest on
deposits 1.61X 1.59X 1.59X 1.57X 1.57X 1.50X 1.58X
Excluding interest on
deposits 2.89 3.39 3.31 4.23 7.59 6.12 8.48
For purposes of computing the ratios of earnings to fixed charges, earnings
represent income (loss) before extraordinary items and cumulative effect of
changes in accounting principles plus applicable income taxes and fixed charges.
Fixed charges include gross interest expense (excluding interest on deposits in
one case and including that interest in the other) and one-third of rent
expenses, which approximates the interest expense of those charges.
13
MANAGEMENT
Name Age Position
- ------------------------------------------------------------------------ --- --------------------------------------------
Hunter R. Hollar 50 President and Chief Executive
Officer of Sandy Spring
Bancorp ( "Sandy Spring") and
Sandy Spring National Bank
James H. Langmead 49 Vice President and Treasurer of Sandy Spring
and Executive Vice President and Chief
Financial Officer of the bank
Lawrence T. Lewis, III 50 Executive Vice President of the
bank
Frank H. Small 53 Executive Vice President of the
bank
James R. Farmer 48 Senior Vice President of the
bank
Stanley L. Merson 43 Senior Vice President of the
bank and
President, Sandy Spring
Mortgage Corporation
Sara E. Watkins 43 Senior Vice President of the
bank
The principal occupations and business experience of each of our executive
officers are shown below.
Hunter R. Hollar is President and Chief Executive Officer and a director of
Sandy Spring and the bank. From 1990 and until 1993, Mr. Hollar served as
President of Sandy Spring and Chief Operating Officer of the bank. He began his
banking career in 1972. Prior to joining Sandy Spring, Mr. Hollar served in
various positions with Dominion Bancshares, including Regional Executive Officer
of Dominion Bank of Shenadoah Valley, N.A. and Senior Vice President and Senior
Credit Officer of Dominion Bank of Richmond, N.A. He is active in state and
local civic associations. He serves as a member of the Maryland Chamber of
Commerce Strategic Planning Task Force, the Board of the Maryland Bankers
Association and of the Board of Trustees of the Maryland Bankers Association
School of Bank Management, and is Chairman of Maryland Bank Services, Inc. (an
affiliate of the Maryland Bankers Association). He is Chair of the Board of
Montgomery General Hospital, and is a member of the boards of the Montgomery
County Chamber of Commerce, the Easter Seal Society, the Strathmore Hall Arts
Center, and St. Johns Episcopal School of Olney, Maryland.
James H. Langmead, CPA, is the Vice President and Treasurer of Sandy
Spring, and Executive Vice President and Chief Financial Officer of the bank.
Previously, Mr. Langmead served in various positions with Sandy Spring and the
bank, including Senior Vice President and Controller of the bank. His banking
career began in 1971. Prior to joining the bank in 1992, Mr. Langmead was
Executive Vice President and Chief Financial Officer of the Bank of Baltimore.
He is a member of the Financial Executives Institute and is Trustee and
Treasurer of the Sandy Spring Museum.
Lawrence T. Lewis is Executive Vice President of the bank with
responsibility for lending, investment, and trust activities. He began his
employment with the bank in 1996 as Senior Vice President. From January 1984 to
December 1995, Mr. Lewis was a managing director of Clark Melvin Securities
Corporation. From 1979 to 1984, he served as Senior Vice President for
institutional sales at the predecessor to Ferris, Baker, Watts. His prior
commercial banking career, which included service as Senior Vice President with
responsibility for the investment portfolio at Maryland National Bank, began in
1972.
Frank H. Small is Executive Vice President of the bank with responsibility
for the branch system, operations, technology management, and electronic
banking. His banking career began in 1969. Before joining the bank in 1990, Mr.
Small was Vice President in charge of branch operations at Equitable Bank, N.A.
and Maryland National Bank.
14
James R. Farmer became a Senior Vice President of the bank in 1994. Prior
to that, Mr. Farmer was Vice President of the bank. Mr. Farmer has been employed
by the bank since 1979.
Stanley L. Merson is President of Sandy Spring Mortgage Corporation and a
Senior Vice President of the bank. Mr. Merson has served in various positions
with the bank since 1982, including Vice President of the Commercial Loan
Department.
Sara E. Watkins became a Senior Vice President of the bank in 1997. Prior
to that, Ms. Watkins was Vice President and Branch Administrator of the bank
(from June 1994) and Vice President and Region Manager of the bank (from April
1992).
USE OF PROCEEDS
All of the proceeds from the sale of the Trust Preferred Securities
together with proceeds of the Common Securities will be invested by the Trust in
the Junior Subordinated Debentures to be issued by us. We intend to use the
estimated net proceeds from the sale of the Junior Subordinated Debentures of
approximately $ million for general corporate purposes, including
capital contributions to Sandy Spring National Bank to increase its capital to
levels maintained before our recent branch acquisition, and for working capital.
Initially, the net proceeds may be used to make short-term investments.
15
CAPITALIZATION
The following table shows our unaudited consolidated capitalization as of
September 30, 1999, and our capitalization on a pro forma basis as if the sale
of the Trust Preferred Securities, the issuance of the Junior Subordinated
Debentures and the application of the estimated net proceeds as described in
"Use of Proceeds" occurred on September 30, 1999. You should also read the more
detailed information included or incorporated by reference in this prospectus,
including the financial statements and related notes.
At September 30, 1999
-----------------------
Actual Pro Forma
------ ---------
(dollars in thousands, except per share)
Guaranteed preferred beneficial interests in Sandy Spring Bancorp, Inc.
subordinated debentures $ -- $
Stockholders' Equity:
Common stock--par value $1.00; shares authorized 15,000,000;
shares issued and outstanding 9,626,090 $ 9,626 9,626
Surplus 23,928 23,928
Retained earnings 84,305 84,305
Accumulated other comprehensive income (7,867) (7,867)
-------- --------
Total Stockholders' Equity $109,992 $109,992
======== ========
Capital Ratios:
Total capital to risk-weighted assets (1) 12.13%
Tier I capital to risk-weighted assets (1) 11.20
Leverage ratio (1) (2) 7.33
________________
(1) The total risk-based capital ratio, as adjusted, is computed including the
total estimated net proceeds from the sale of the Preferred Securities.
Federal Reserve guidelines limit the amount of the Preferred Securities and
cumulative perpetual preferred stock included in Tier 1 capital to an
aggregate of 25% of Tier 1 capital, and accordingly the leverage and Tier 1
capital ratios, as adjusted, are computed excluding $8,726,000 of the
Preferred Securities. Pro Forma risk-weighted capital ratios assume that
net proceeds of the offering of the Preferred Securities are invested in
assets in the 20% risk weight category.
(2) The leverage ratio is Tier 1 capital divided by quarterly average total
assets less intangibles.
The Federal Reserve has allowed cumulative preferred stock meeting certain
criteria and issued by subsidiaries of bank holding companies to be included as
Tier 1 capital for purposes of regulatory capital calculations, up to a maximum,
along with other cumulative preferred stock issued by the bank holding company,
of 25% of Tier 1 capital. We believe the Trust Preferred Securities will
meet the Federal Reserve's criteria for inclusion in Tier 1 capital, subject to
such 25% limitation.
SANDY SPRING CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law upon the
filing of a certificate of trust with the Delaware Secretary of State. The
Trust will be governed by the terms of the Amended and Restated Declaration of
Trust (the "Trust Agreement"), which will be qualified under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of Trust Securities to acquire the Junior
Subordinated Debentures and (iii) engaging in other activities that are
incidental or necessary to these purposes. The Junior Subordinated Debentures
will be the sole assets of the Trust, and, accordingly, payments under the
Junior Subordinated Debentures will be the sole revenues of the Trust.
All of the Common Securities will be owned by us. We will acquire Common
Securities with a $25 liquidation amount, equal to at least 3% of the total
capital of the Trust. While the Common Securities will have terms equal in
priority of payment with the Trust Preferred Securities, if we default on the
Junior Subordinated Debentures, then cash distributions and liquidation,
redemption and other amounts payable on the Common Securities will be
subordinated to the Trust Preferred Securities in priority of payment.
16
The Trust has a term of approximately 31 years, but may be dissolved
earlier as provided in the Trust Agreement. The Trust's business and affairs are
conducted by the Issuer Trustees, who are appointed by us as holder of the
Common Securities. The trustees for the Trust will be The Bank of New York, as
the Property Trustee (the "Property Trustee"), The Bank of New York (Delaware),
as the Delaware Trustee (the "Delaware Trustee") and three Administrative
Trustees who are our officers (each, an "Administrative Trustee" and
collectively, the "Administrative Trustees"). The Property Trustee, the
Delaware Trustee and the Administrative Trustees are collectively referred to as
the "Issuer Trustees" in this prospectus. The Property Trustee will act as sole
indenture trustee under the Trust Agreement. The Bank of New York will also act
as trustee under the Guarantee and the Indenture. The duties and obligations of
each Issuer Trustee are governed by the Trust Agreement. The holder of the
Common Securities of the Trust or, if an event of default under the Trust
Agreement has occurred and is continuing, the holders of not less than a
majority in liquidation amount of the Trust Preferred Securities, will be
entitled to appoint, remove or replace the Property Trustee and/or the Delaware
Trustee. In no event will the holders of the Trust Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, whose
voting rights will be vested exclusively in the holder of the Common Securities.
We will pay all fees, expenses, debts and obligations related to the Trust
and the offering of the Trust Preferred Securities and will pay, directly or
indirectly, all ongoing costs and expenses of the Trust, except the Trust's
obligations with respect to the Trust Preferred Securities and the Common
Securities.
For financial reporting purposes, the Trust will be treated as our
subsidiary and, accordingly, the accounts of the Trust will be included in our
Consolidated Financial Statements. We will present the Trust Preferred
Securities as a separate line item in our consolidated Statement of Financial
Condition entitled, "Guaranteed preferred beneficial interests in Sandy Spring
Bancorp, Inc. subordinated debentures," and we will include appropriate
disclosures about the Trust Preferred Securities, the Guarantee and the Junior
Subordinated Debentures in the notes to our Consolidated Financial Statements.
For financial reporting purposes, we will record distributions payable on the
Trust Preferred Securities as "minority interest income of subsidiaries" in our
Consolidated Statements of Operations.
DESCRIPTION OF TRUST PREFERRED SECURITIES
This summary of certain provisions of the Trust Preferred Securities, the
Common Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Trust Agreement, including the definitions therein of certain terms, and
the Trust Indenture Act. The form of the Trust Agreement has been filed as an
exhibit to the Registration Statement of which this prospectus forms a part.
The Trust Agreement will be qualified under the Trust Indenture Act. The
Property Trustee will act as the indenture trustee (the "Debenture Trustee") for
purposes of complying with the Trust Indenture Act.
General
The Trust will issue the Trust Preferred Securities pursuant to the terms
of the Trust Agreement. We will own all of the Common Securities. The Trust
Preferred Securities will represent preferred undivided beneficial interests in
the assets of the Trust. The holders of the Trust Preferred Securities will be
entitled to a preference in certain circumstances with respect to Distributions
(as defined below) and amounts payable on redemption or liquidation over the
Common Securities, as well as other benefits as described in the Trust
Agreement. The Trust Agreement prohibits the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any indebtedness
by the Trust.
The Trust Preferred Securities will rank equal in priority of payment, and
payments will be made thereon pro rata with the Common Securities except under
certain circumstances. See "--Subordination of Common Securities." Legal title
to the Junior Subordinated Debentures will be held by the Property Trustee in
trust for the benefit of the holders of the Trust Securities. The Guarantee will
not guarantee payment of Distributions or amounts payable on redemption of the
Trust Preferred Securities or liquidation of the Trust when the Trust does not
have funds on hand legally available for such payments.
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Distributions
Payment of Distributions. Distributions on each Trust Preferred Security
will be cumulative, will accrue from December 31, 1999, and will be payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing December 31, 1999, at the annual rate of % of the stated
liquidation amount of $25 per Trust Preferred Security ("Distributions"). The
initial Distribution will equal $ for each Trust Preferred Security.
Subsequent Distributions will equal $ for each Trust Preferred
Security. Distributions in arrears for more than one quarter will (to the
extent permitted by law) accrue interest at the rate per annum of ____%,
compounded quarterly. Distributions shall be made to the holders of the Trust
Preferred Securities on the relevant record date, which for so long as the Trust
Preferred Securities remain in book-entry form, will be one Business Day (as
defined below) prior to the relevant Distribution Date (as defined below) and,
in the event the Trust Preferred Securities are not in book-entry form, will be
the fifteenth day of the month in which the relevant Distribution Date occurs.
The amount of Distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months and, for any period of less than a
full calendar quarter, on the basis of the actual number of days elapsed in the
quarter based on 30-day months. In the event that any date on which
Distributions are payable on the Trust Preferred Securities is not a Business
Day, payment of the Distribution payable will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect to
any such delay), except that if the next succeeding Business Day falls in the
next succeeding calendar year, the payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date (each date on which Distributions are payable in accordance with
the foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in the City
of New York, New York or Olney, Maryland are authorized or required by law or
executive order to close.
Deferral Period. So long as no Debenture Event of Default shall have
occurred and be continuing, we will have the right under the Indenture to defer
the payment of interest on the Junior Subordinated Debentures at any time or
from time to time for a period not exceeding 20 consecutive calendar quarters
with respect to each deferral period (each, a "Deferral Period"), provided that
no Deferral Period shall end on a date other than an Interest Payment Date (as
defined herein) or extend beyond , 2029, which is the "Stated
Maturity Date." Upon any such election, quarterly Distributions on the Trust
Preferred Securities will be deferred by the Trust during such Deferral Period.
Distributions to which holders of the Trust Preferred Securities are entitled
during any such Deferral Period will accumulate additional Distributions thereon
at the rate per annum of %, compounded quarterly from the relevant
Distribution Date. The term "Distributions," as used herein, includes any such
additional Distributions.
Prior to the termination of any Deferral Period, we may further extend the
Deferral Period, provided that an extension will only be permitted under the
Trust Agreement to the extent that the Deferral Period, together with all other
extensions occurring both before and after such extension, does not exceed 20
consecutive calendar quarters, end on a date other than an Interest Payment Date
or extend beyond the Stated Maturity Date. Upon the termination of any such
Deferral Period and the payment of all amounts then due on any Interest Payment
Date, we may elect to begin a new Deferral Period, subject to the above
requirements. No interest shall be due and payable during a Deferral Period,
except at the end of the period. If Distributions are deferred, the deferred
Distributions and accrued interest will be paid to holders of the Trust
Preferred Securities as they appear on the books and records of the Trust on the
record date for Distributions due at the end of the Deferral Period. We must
give the Property Trustee, the Administrative Trustees and the Debenture Trustee
notice of our election of any such Deferral Period (or an extension thereof) at
least five Business Days prior to the earlier of (i) the date the Distributions
on the Trust Preferred Securities would have been payable except for the
election to begin such Deferral Period and (ii) the date the Administrative
Trustees are required to give notice to any securities exchange or automated
quotation system or to holders of such Trust Preferred Securities of the record
date or the date such Distributions are payable, but in any event not less than
five Business Days prior to such record date. There is no limitation on the
number of times that we may elect to begin a Deferral Period.
During any such Deferral Period, we may not:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our capital
stock;
. make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any of our debt securities (including any other
debentures related to other trust preferred securities that
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may be issued in the future ("Other Debentures")) and that rank equal with
or junior in right of payment to the Junior Subordinated Debentures; or
. make any guarantee payments with respect to any guarantee made by us of the
debt securities of any of our subsidiaries (including other guarantees of
trust preferred securities) if such guarantee ranks equal with or junior in
right of payment to the Junior Subordinated Debentures.
However, we will not be in violation of the Indenture if, during the
Deferral Period, we
. declare or pay dividends or make distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, our common
stock;
. declare a dividend in connection with the implementation of a stockholders'
rights plan, or issue stock under any such plan in the future, or redeem or
repurchase of any such rights pursuant to any such plan;
. make payments under the Guarantee;
. purchase any fractional shares as a result of a reclassification of our
capital stock;
. purchase any fractional interests in shares of our capital stock pursuant
to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged therefor; or
. purchase common stock as a result of the issuance of common stock or rights
under any of our benefit plans for directors, officers, employees, or any
of our dividend reinvestment plans.
We do not currently intend to exercise our option to defer payments of
interest on the Junior Subordinated Debentures.
Source of Distribution. The Trust's funds available for distribution to
holders of the Trust Preferred Securities will be limited to payments under the
Junior Subordinated Debentures. If we do not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Trust Preferred Securities. The payment of
Distributions will be guaranteed by us if and to the extent the Trust has funds
on hand legally available for the payment of such Distributions.
Redemption
Mandatory Redemption of the Trust Preferred Securities. Upon the repayment
or redemption at any time, in whole or in part, of any Junior Subordinated
Debentures, the proceeds from such repayment or redemption will be applied by
the Property Trustee to redeem a Like Amount (as defined below) of the Trust
Securities, upon not less than 30 nor more than 60 days' notice of a date of
redemption (the "Redemption Date"), at a redemption price equal to $25 per Trust
Preferred Security plus any accrued and unpaid Distributions thereon to the
Redemption Date. If less than all of the Junior Subordinated Debentures are to
be prepaid on a Redemption Date, then the proceeds of such prepayment will be
allocated pro rata to the Preferred and Common Trust Securities, as described
below.
Optional Redemption of the Junior Subordinated Debentures. On or after
, 2004, we will have the right to redeem the Junior Subordinated Debentures in
whole at any time or in part from time to time at a redemption price equal to
100% of the principal amount thereof plus accrued and unpaid interest on the
Junior Subordinated Debentures so redeemed to the date fixed for redemption. We
would redeem the Junior Subordinated Debentures upon not less than 30 nor more
than 60 days written notice, in each case subject to receipt of prior approval
if it is then required under applicable regulatory requirements. If we redeem
the Junior Subordinated Debentures, the Trust Securities will be redeemed as
described in the preceding paragraph.
Special Event or Distribution of Junior Subordinated Debentures. If a
Special Event (as defined below) occurs and is continuing, we will have the
right, within 90 days following the occurrence of such Special Event, and upon
not less than 30 nor more than 60 days written notice, to redeem the Junior
Subordinated Debentures in whole (but not in
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part) and thereby cause a mandatory redemption of the Trust Securities in whole
(but not in part) at the redemption price, in each case subject to receipt of
prior approval if it is then required under applicable regulatory requirements.
If a Special Event has occurred and is continuing and we do not elect to redeem
the Junior Subordinated Debentures (and thereby cause a mandatory redemption of
the Trust Securities) or to dissolve the Trust and, after satisfaction of
creditors as required by applicable law, cause the Junior Subordinated
Debentures to be distributed to holders of the Trust Securities, the Trust
Securities will remain outstanding and Additional Sums (as defined below) may be
payable on the Junior Subordinated Debentures.
Definitions. The terms described in the preceding paragraph have the
following meanings:
"Additional Sums" means the additional amounts as may be necessary to be
paid by us with respect to the Junior Subordinated Debentures in order that the
amount of Distributions then due and payable by the Trust on the outstanding
Trust Securities will not be reduced as a result of any additional taxes, duties
and other governmental charges to which the Trust has become subject.
An "Investment Company Event" means the receipt by us of an opinion of
counsel experienced in such matters to the effect that, as a result of any
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the Trust is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act of 1940 (the "Investment Company Act"), which change
becomes effective on or after the original issuance of the Trust Preferred
Securities.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture, allocated to the Common Securities
and to the Trust Preferred Securities based upon the relative Liquidation
Amounts of such classes and the proceeds of which will be used to pay the
redemption price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of the Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holders to whom such Junior Subordinated Debentures are
distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
A "Regulatory Capital Event" means that we shall have received an opinion
of bank regulatory counsel experienced in such matters to the effect that, as a
result of (a) any amendment to, or change (including any announced prospective
change) in, the laws or any regulations of the United States or any rules,
guidelines or policies of applicable regulatory agencies or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of the Trust
Agreement, there is more than an insubstantial risk that the Trust Preferred
Securities do not constitute, or within 90 days of the date thereof, will not
constitute, Tier 1 Capital (or its then equivalent) for purposes of the capital
adequacy guidelines of the Board of Governors of the Federal Reserve (or any
successor regulatory authority with jurisdiction over bank holding companies),
or any capital adequacy guidelines as then in effect and applicable to us. The
distribution of the Junior Subordinated Debentures in connection with the
dissolution of the Trust by us will not in and of itself constitute a Regulatory
Capital Event.
A "Special Event" means a Tax Event, an Investment Company Event or a
Regulatory Capital Event, as the case may be.
A "Tax Event" means the receipt by us 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 of the United States or of any political subdivision or
taxing authority, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is announced
on or after the date of the Trust Agreement, 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 us on the Junior Subordinated Debentures is not, or within 90 days of the
date of such opinion
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will not be, deductible by us, 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 minor amount of other taxes, duties or
other governmental charges.
Distribution of Junior Subordinated Debentures
We will have the right at any time to dissolve the Trust and, after
satisfaction of liabilities to creditors of the Trust as required by applicable
law, to cause the Junior Subordinated Debentures to be distributed to the
holders of the Trust Securities in liquidation of the Trust. This right is
subject to (i) our having received an opinion of counsel to the effect that such
distribution will not be a taxable event to holders of Trust Preferred
Securities and (ii) prior approval by the applicable regulatory authorities if
it is then required under applicable regulatory requirements.
After the 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) The Depository Trust Company ("DTC" or
"Depositary") or its nominee will receive, in respect of each registered global
certificate, if any, representing Trust Securities held by it, a registered
global certificate or certificates representing the Junior Subordinated
Debentures to be delivered upon such distribution and (iii) any certificates
representing Trust Securities not held by DTC or its nominee will be deemed to
represent Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of such Trust Securities with an interest rate identical to
the distribution rate of, and accrued and unpaid interest equal to the
accumulated and unpaid Distributions on, such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon we will issue to such holder, and the Debenture Trustee
will authenticate, a certificate representing such Junior Subordinated
Debentures.
We can give no assurance as to the market prices for the Trust Preferred
Securities, or the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Securities, if a dissolution and liquidation of the Trust
were to occur. Accordingly, the Trust Preferred Securities that you may
purchase, or the Junior Subordinated Debentures that you may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that you paid to purchase the Trust Preferred Securities.
If the Junior Subordinated Debentures are distributed to the holders of
Trust Preferred Securities, we will use our best efforts to list the Junior
Subordinated Debentures on a national securities exchange or comparable
automated quotation system.
Redemption Procedures
If applicable, Trust Securities will be redeemed at the redemption price
with the proceeds from the contemporaneous repayment or redemption of the Junior
Subordinated Debentures. Any redemption of Trust Securities will be made and the
redemption price shall be payable on the Redemption Date only to the extent that
the Trust has funds legally available for the payment of such redemption price.
The Trust may not redeem fewer than all of the outstanding Trust Preferred
Securities unless all accrued and unpaid Distributions have been paid on all
Trust Preferred Securities for all quarterly Distribution periods terminating on
or prior to the date of redemption. If a partial redemption of the Trust
Preferred Securities would result in the delisting of the Trust Preferred
Securities by a national securities exchange or other organization on which the
Trust Preferred Securities are listed, then, pursuant to the Indenture, we may
only redeem the Junior Subordinated Debentures in whole and, as a result, the
Trust may only redeem the Trust Preferred Securities in whole.
If the Trust gives a notice of redemption in respect of the Trust Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the Redemption Date, to the extent that we have deposited with the
Property Trustee by 10:00 a.m., New York City time, funds sufficient to pay the
redemption price with respect to the Trust Preferred Securities held by DTC or
its nominees, the Property Trustee will deposit or cause the Paying Agent (as
defined herein) to deposit irrevocably with DTC funds sufficient to pay the
redemption price and will give DTC or its nominees irrevocable instructions and
authority to pay the redemption price to the holders of such Trust Preferred
Securities. See "Book-Entry Issuance." If such Trust Preferred Securities are
no longer in book-entry form, the Property Trustee, to the extent we have
deposited with the Property Trustee funds sufficient to pay the redemption
price, will irrevocably deposit with the Paying Agent for such Trust Preferred
Securities funds sufficient to pay the
21
aggregate redemption price and will give such Paying Agent irrevocable
instructions and authority to pay the redemption price to the holders thereof
upon surrender of their certificates evidencing such Trust Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date shall be payable to the holders of such Trust Preferred
Securities on the relevant record dates for the related Distribution Dates. If
notice of redemption shall have been given and funds deposited as required, then
upon the date of such deposit, all rights of the holders of the Trust Preferred
Securities called for redemption will cease, except the right of the holders of
such Trust Preferred Securities to receive the redemption price, but without
interest on such redemption price and such Trust Preferred Securities will cease
to be outstanding. In the event that any Redemption Date of Trust Preferred
Securities is not a Business Day, then the redemption price payable on such date
will be paid on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
next succeeding Business Day falls in the next calendar year, such payment shall
be made on the immediately preceding Business Day. In the event that we fail to
repay the Junior Subordinated Debentures on maturity or payment of the
redemption price is improperly withheld or refused and not paid either by the
Trust or by us pursuant to the Guarantee as described under "Description of
Guarantee," (i) Distributions on Trust Preferred Securities will continue to
accrue at the then applicable rate from the Redemption Date originally
established by the Trust to the date such redemption price is actually paid and
(ii) the actual payment date will be the Redemption Date for purposes of
calculating the redemption price.
Subject to the Trust Agreement and applicable law (including, without
limitation, United States federal securities law), we or our subsidiaries may at
any time and from time to time purchase outstanding Trust Preferred Securities
by tender, in the open market or by private agreement.
Payment of the redemption price on the Trust Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Trust Preferred
Securities will be made on the Redemption Date.
If less than all of the Trust Securities issued by the Trust are to be
redeemed on a Redemption Date, then the aggregate redemption price for such
Trust Securities to be redeemed will be allocated pro rata to the Trust
Preferred Securities and Common Securities based upon the relative Liquidation
Amounts of the Trust Securities or such other method as the Trustee shall deem
appropriate, not more than 60 days prior to the date fixed for redemption. The
particular Trust Preferred Securities to be redeemed will be selected by the
Property Trustee from the outstanding Trust Preferred Securities not previously
called for redemption, by such method as the Property Trustee deems fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple thereof) of the Liquidation Amount of
Trust Preferred Securities. The Property Trustee will promptly notify the
security registrar in writing of the Trust Preferred Securities selected for
redemption and, in the case of any Trust Preferred Securities selected for
partial redemption, the Liquidation Amount thereof to be redeemed. For all
purposes of the Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of Trust Preferred Securities shall relate
to the portion of the aggregate Liquidation Amount of Trust Preferred Securities
which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless we default in payment of the redemption price on, or
in the repayment of, the Junior Subordinated Debentures, on and after the
Redemption Date, Distributions will cease to accrue on the Trust Securities
called for redemption.
Subordination of Common Securities
Payment of Distributions on, and the redemption price of, the Trust
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of the Trust Securities. However, if on any Distribution Date or
Redemption Date a Debenture Event of Default (as described in "Description of
Junior Subordinated Debentures--Debenture Events 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, will be made unless payment in full in cash of all accumulated and
unpaid Distributions on all of the outstanding Trust Preferred Securities for
all Distribution periods terminating on or prior to the Debenture Event of
Default, or in the case of payment of the redemption price, the full amount of
such redemption price shall have been made or provided for, and all funds
available to the Property Trustee will first be applied to the payment in full
in cash of all Distributions on, or redemption price of, the Trust Preferred
Securities then due and payable.
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In the case of any Event of Default under the Trust Agreement relating to a
Debenture Event of Default (as described in "-- Events of Default; Notice"), as
holder of the Common Securities, we 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 has been cured, waived or otherwise eliminated. Until any such Event of
Default has been so cured, waived or otherwise eliminated, the Property Trustee
will act solely on behalf of the holders of the Trust Preferred Securities and
not on behalf of us as holder of the Common Securities, and only the holders of
the Trust Preferred Securities will have the right to direct the Property
Trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
We will have the right at any time to dissolve the Trust and cause the
Junior Subordinated Debentures to be distributed to the holders of the Trust
Preferred Securities. Our right is subject to (i) our having received an
opinion of an independent tax counsel experienced in such matters to the effect
that such distribution will not be a taxable event to holders of Trust Preferred
Securities for United States federal income tax purposes, and (ii) our having
received prior approval if it is then required under applicable regulatory
requirements. See "--Distribution of Junior Subordinated Debentures."
In addition, the Trust will automatically dissolve upon the first to occur
of: (i) certain events of our bankruptcy, dissolution or liquidation; (ii) the
distribution of a Like Amount of the Junior Subordinated Debentures to the
holders of the Trust Securities, if we have given written direction to the
Property Trustee to dissolve the Trust (which direction is optional and, except
as described above, wholly within our discretion); (iii) redemption of all of
the Trust Securities; (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 dissolution occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust will be liquidated by the Administrative Trustees as
expeditiously as the Administrative Trustees determine to be possible by
distributing to the holders of the Trust Securities, after satisfaction of
liabilities to creditors of the Trust, a Like Amount of the Junior Subordinated
Debentures. However, if such a distribution is determined by the Property
Trustee not to be practicable, the holders will be entitled to receive out of
the assets of the Trust legally available for distribution, after satisfaction
of liabilities to creditors of the Trust, an amount equal to the aggregate of
the Liquidation Amount plus accumulated and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Trust has
insufficient assets on hand legally available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Trust Securities shall be paid on a pro rata basis. However, if a Debenture
Event of Default has occurred and is continuing, the Trust Preferred Securities
will have a priority over the Common Securities. See "--Subordination of Common
Securities."
If we elect not to redeem the Junior Subordinated Debentures prior to
maturity in accordance with their terms and either elect not to or are 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.
If we elect to dissolve the Trust and thereby cause the Junior Subordinated
Debentures to be distributed to holders of the Trust Preferred Securities in
liquidation of the Trust, we shall continue to have the right to shorten the
maturity of the Junior Subordinated Debentures, subject to certain conditions.
Events of Default; Notice
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Trust Preferred Securities, regardless of the
reason for such Event of Default and whether it occurs voluntary or involuntary
or by operation of law or pursuant to any order, rule or regulation:
. the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default");
23
. default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period
of 30 days;
. default by the Trust in the payment of the redemption price of any
Trust Security when it becomes due and payable;
. default in the performance, or breach, in any material respect, of any
covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a default or breach in the performance of a covenant or
warranty which is addressed in the second or third clause above), and
continuation of the default or breach, for a period of 60 days after
there has been given, by registered or certified mail, to the
defaulting Issuer Trustee or Trustees by the holders of at least 25%
in aggregate Liquidation Amount of the outstanding Trust Preferred
Securities, a written notice specifying the default or breach and
requiring it to be remedied and stating that the notice is a "Notice
of Default" under the Trust Agreement; or
. the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by us to appoint a
successor Property Trustee within 60 days of the event.
Within 90 days after the occurrence of any Event of Default known to the
Property Trustee, the Property Trustee will transmit notice of the Event of
Default to the holders of the Trust Preferred Securities, the Administrative
Trustees and us, unless the Event of Default has been cured or waived. We and
the Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not we or they are in compliance with all
the conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities will have a preference over the Common Securities. See "--
Subordination of Common Securities" and "--Liquidation Distribution Upon
Default." Upon a Debenture Event of Default, unless the principal of all the
Junior Subordinated Debentures has already become due and payable, either the
Property Trustee or the holders of not less than 25% in aggregate principal
amount of the Junior Subordinated Debentures then outstanding may declare all of
the Junior Subordinated Debentures to be due and payable immediately by giving
notice in writing to us (and to the Property Trustee, if notice is given by
holders of the Junior Subordinated Debentures). If the Property Trustee or the
holders of the Junior Subordinated Debentures fail to declare the principal of
all of the Junior Subordinated Debentures due and payable upon a Debenture Event
of Default, the holders of at least 25% in Liquidation Amount of the Trust
Preferred Securities then outstanding will have the right to declare the Junior
Subordinated Debentures immediately due and payable. In either event, payment
of principal and interest on the Junior Subordinated Debentures will remain
subordinated to the extent provided in the Indenture. In addition, holders of
the Trust Preferred Securities have the right in certain circumstances to bring
a direct action ("Direct Action"). See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Trust Preferred
Securities."
Removal of Issuer Trustees
Unless a Debenture Event of Default has occurred and is 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 by the holders of a
majority in Liquidation Amount of the outstanding Trust Preferred Securities. In
no event will the holders of the Trust Preferred Securities have the right to
vote to appoint, remove or replace the Administrative Trustees, which voting
rights are vested exclusively in us, as the holder of the Common Securities. No
resignation or removal of an Issuer Trustee (other than an Administrative
Trustee) and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
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Co-trustees and Separate Property Trustee
Unless an Event of Default has occurred and is continuing, at any time or
times, for the purpose of meeting the legal requirements of the Trust Indenture
Act or of any jurisdiction in which any property of the Trust may at the time be
located, we, as the holder of the Common Securities, and the Administrative
Trustees shall have the right to appoint one or more persons either to act as a
co-trustee, jointly with the Property Trustee, of all or any part of such
property, or to act as separate trustee of any such property, in either case,
with such powers as may be provided in the instrument of appointment, and to
vest in the person or persons in such capacity any property, title, right or
power deemed necessary or desirable, subject to the provisions of the Trust
Agreement. In case a Debenture Event of Default has occurred and is continuing,
the Property Trustee alone will have power to make the appointment.
Merger or Consolidation of Issuer Trustees
Any Person into which the Property Trustee or the Delaware Trustee that is
not a natural person may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Issuer Trustee is a party, or any Person succeeding
to all or substantially all the corporate trust business of such Issuer Trustee,
will be the successor of such Issuer Trustee under the Trust Agreement, provided
the Person shall be otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below or as otherwise described under "-- Distribution of
Junior Subordinated Debentures." The Trust may, at our request, with the consent
of the Administrative Trustees but without the consent of the holders of the
Trust Preferred Securities, the Property Trustee or the Delaware Trustee, merge
with or into, consolidate, amalgamate, or be replaced by or convey, transfer or
lease its properties and assets as an entirety or substantially as an entirety
to a trust organized under the laws of any State; provided, that (i) the
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Trust Securities or (b) substitutes for the Trust
Securities other securities having substantially the same terms as the Trust
Securities (the "Successor Securities"), so long as the Successor Securities
rank the same as the Trust Securities rank in priority with respect to
Distributions and payments upon liquidation, redemption and otherwise, (ii) we
expressly appoint 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 Trust Preferred Securities or the Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which the
Trust Preferred Securities are then listed or quoted, if any, (iv) if the Trust
Preferred Securities (including any Successor Securities) are rated by any
nationally recognized statistical rating organization prior to the transaction,
the merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Trust Securities (including any Successor Securities)
or, if the Junior Subordinated Debentures are so rated, the Junior Subordinated
Debentures, to be downgraded by any such nationally recognized statistical
rating organization, (v) the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities), (vi) the successor entity has a purpose substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, we have received an opinion from
independent counsel to the Trust experienced in such matters to the effect that
(a) the merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Trust Securities (including any Successor Securities) in any
material respect (other than any dilution of such holders' interests in the new
entity), (b) following the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the Investment Company
Act, and (c) the Trust will continue to be, or the successor entity will be,
classified as a grantor trust for federal income tax purposes, (viii) we 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 and
(ix) the Property Trustee is given an officer's certificate and an opinion of
counsel each to the effect that all conditions precedent in the Trust Agreement
to the transactions have been satisfied. Notwithstanding the foregoing, the
Trust will not, except with the consent of holders of 100% in Liquidation Amount
of the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, any other
25
entity or permit any other entity to consolidate, amalgamate, merge with or
into, or replace it if the consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity not
to be classified as a grantor trust for United States federal income tax
purposes or each holder of the Trust Securities not to be treated as owning an
undivided interest in the Junior Subordinated Debentures.
Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "--Mergers, Consolidations,
Amalgamations or Replacements of the Trust" and "Description of Guarantee--
Amendments and Assignment" and as otherwise required by law and the Trust
Agreement, the holders of the Trust Preferred Securities will have no voting
rights.
The Trust Agreement may be amended from time to time by us, the Property
Trustee and the Administrative Trustees, without the consent of the holders of
the Trust Securities (i) to cure any ambiguity, correct or supplement any
provisions in the Trust Agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Trust Agreement, which shall not be inconsistent with the
other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to
any provisions of the Trust Agreement to such extent as shall be necessary to
ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that the Trust will not be required to register as an
investment company under the Investment Company Act. However, the amendment to
the Trust Agreement under these circumstances may not adversely affect the
interests of the holders of the Trust Securities. Any amendments of the Trust
Agreement under these circumstances will become effective when notice is given
to the holders of the Trust Securities. The Trust Agreement may be amended by
the Administrative Trustees, the Property Trustee and us (i) with the consent of
holders representing a majority (based upon Liquidation Amount) of the
outstanding Trust Securities and (ii) upon receipt by the Issuer Trustees of an
opinion of counsel experienced in such matters to the effect that such amendment
or the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Trust's status as a grantor trust for United
States federal income tax purposes or the Trust's exemption from status as an
investment company under the Investment Company Act. However, without the
consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (i) change the amount or timing of any Distribution on the Trust
Securities or reduce the amount payable on redemption thereof or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any payment
on or after the specified date. Notwithstanding the foregoing, no amendments or
modification may be made to the Declaration if such amendment or modification
would (i) cause the Trust to be classified as other than a grantor trust for
United States federal income tax purposes, (ii) reduce or otherwise adversely
affect the powers of the Property Trustee in contravention of the Trust
Indenture Act or (iii) cause a Special Event.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, subject to the requirement of the Property Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in Liquidation Amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
direct the exercise of any trust or power conferred on the Property Trustee with
respect to the Junior Subordinated Debentures, including the right to direct the
Property Trustee, as holder of the Junior Subordinated Debentures, to (i)
exercise the remedies available under the Indenture with respect to the Junior
Subordinated Debentures, (ii) waive any past defaults under the Indenture that
are available 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 the
consent will be required. However, where a consent under the Indenture would
require the consent of each affected holder of Junior Subordinated Debentures,
no consent may be given by the Property Trustee without the prior approval of
each holder of the Trust Preferred Securities. The Issuer Trustees will not
revoke any action previously authorized or approved by a vote of the holders of
the Trust Preferred Securities except by subsequent vote of those holders. The
Property Trustee will notify each holder of Trust Preferred Securities within 90
days of any notice of default with respect to the Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals of the holders of
the Trust Preferred Securities prior to taking any of the foregoing actions, the
Property Trustee will 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.
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Any required approval of holders of Trust Preferred Securities may be given
at a meeting of the holders convened for that purpose or pursuant to written
consent without prior notice. The Administrative Trustees will cause a notice of
any meeting at which holders of Trust Preferred Securities are entitled to vote
to be given to each holder of record of Trust Preferred Securities in the manner
set forth in the Trust Agreement.
No vote or consent of the holders of Trust Preferred Securities will be
required for the Trust to redeem and cancel the Trust Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Trust Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Trust Preferred Securities that are owned by us, the Trustees or any affiliate
of us or any Trustees, will, for purposes of such vote or consent, be treated as
if they were not outstanding.
Global Trust Preferred Securities
The Trust Preferred Securities will be represented by one or more global
certificates registered in the name of DTC or its nominee (a "Global Trust
Preferred Security"). Beneficial interests in the Trust Preferred Securities
will be shown on, and transfer thereof will be effected only through, records
maintained by persons that have accounts with such Depositary ("Participants").
Except as described below, Trust Preferred Securities in the certificated form
will not be issued in exchange for the global certificates. See "Book-Entry
Issuance."
A global security will be exchangeable for Trust Preferred Securities
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies us that it is unwilling or unable to continue as
a depositary for the global security and no successor depositary shall have been
appointed within 90 days, or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the Depository
is required to be so registered to act as such depository, (ii) the Trust in its
sole discretion determines that the global security may be so exchangeable, or
(iii) there shall have occurred and be continuing an Event of Default under the
Indenture. Any global security that is exchangeable as described in the
preceding sentence will be exchangeable for definitive certificates registered
in the names as the Depositary shall direct. We expect that the instructions
will be based upon directions received by the Depositary with respect to
ownership of beneficial interests in the global security. In the event that
Trust Preferred Securities are issued in definitive form, the Trust Preferred
Securities will be in denominations of $25 and integral multiples thereof and
may be transferred or exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for individual Trust
Preferred Securities, a Global Trust Preferred Security may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any nominee to a successor Depositary or any nominee of
the successor.
Payments on Trust Preferred Securities represented by a global security
will be made to the Depositary, as the depositary for the Trust Preferred
Securities. In the event the Trust Preferred Securities are issued in
definitive form, Distributions will be payable, the transfer of the Trust
Preferred Securities will be registrable, and Trust Preferred Securities will be
exchangeable for Trust Preferred Securities of other denominations of a like
aggregate Liquidation Amount, at the corporate trust office of the Property
Trustee, or at the offices of any paying agent or transfer agent appointed by
the Administrative Trustees by check mailed to the address of the persons
entitled thereto or by wire transfer. For a description of the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other manners, See "Book-Entry Issuance."
Upon the issuance of a Global Trust Preferred Security, and the deposit of
the Global Trust Preferred Security with or on behalf of the Depositary, the
Depositary for the Global Trust Preferred Security or its nominee will credit,
on its book-entry registration and transfer system, the respective aggregate
Liquidation Amounts of the individual Trust Preferred Securities represented by
the Global Trust Preferred Securities to the accounts of Participants. These
accounts will be designated by the dealers, underwriters, or agents with respect
to the Trust Preferred Securities. Ownership of beneficial interests in a
Global Trust Preferred Security will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
the Global Trust Preferred Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the
records of Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of the
27
securities in definitive form. These limits and laws may impair the ability to
transfer beneficial interest in a Global Trust Preferred Security.
So long as the Depositary for a Global Trust Preferred Security, or its
nominee, is the registered owner of the Global Trust Preferred Security, the
Depositary or the nominee, as the case may be, will be considered the sole owner
or holder of the Trust Preferred Securities represented by the Global Trust
Preferred Security for all purposes under the Trust Agreement governing such
Trust Preferred Securities. Except as provided below, owners of beneficial
interest in a Global Trust Preferred Security will not be entitled to have any
of the individual Trust Preferred Securities represented by such Global Trust
Preferred Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Trust Preferred Securities in definitive
form and will not be considered the owners or holders under the Trust Agreement.
Neither the Property Trustee, any Paying Agent (as defined below), the
Securities Registrar (as defined below) for the Trust Preferred Securities nor
we will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of the
Global Trust Preferred Security representing the Trust Preferred Securities or
for maintaining supervising or reviewing any records relating to the beneficial
ownership interests.
We expect that the Depositary for Trust Preferred Securities or its
nominee, upon receipt of any payment of the Liquidation Amount or Distributions
in respect of a permanent Global Trust Preferred Security, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the aggregate Liquidation Amount of such
Global Trust Preferred Security as shown on the records of such Depositary or
its nominee. We also expect that payments by Participants to owners of
beneficial interests in such Global Trust Preferred Security held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." These payments will be the responsibility
of such Participants.
If the Depositary for the Trust Preferred Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by us within 90 days, the Trust will issue
individual Trust Preferred Securities in exchange for the Global Trust Preferred
Security. In addition, the Trust may at any time and in its sole discretion,
subject to any limitations described herein relating to the Trust Preferred
Securities, determine not to have any Trust Preferred Securities represented by
one or more Global Trust Preferred Securities and, in that event, will issue
individual Trust Preferred Securities in exchange for the Global Trust Preferred
Security. In any such instance, an owner of a beneficial interest in a Global
Trust Preferred Security will be entitled to physical delivery of individual
Trust Preferred Securities represented by the Global Trust Preferred Security
equal in Liquidation Amount to the beneficial interest and to have the Trust
Preferred Securities registered in its name. Individual Trust Preferred
Securities so issued will be issued in denominations, unless otherwise specified
by us, of $25 and integral multiples thereof.
Payment and Paying Agency
Payments on the Trust Preferred Securities held in global form will be made
to the Depositary, which will credit the relevant accounts at the Depositary on
the applicable Distribution Dates. Payments on the Trust Preferred Securities
that are not held by the Depositary will be made by check mailed to the address
of the holder entitled thereto as the address which appears on the register. The
paying agent (the "Paying Agent") will initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and us. The Paying Agent will be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustees. In the
event that the Property Trustee will no longer be the Paying Agent, the
Administrative Trustees will appoint a successor (which will be a bank or trust
company acceptable to the Administrative Trustees and us) to act as Paying
Agent.
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Registrar and Transfer Agent
The Property Trustee will initially act as registrar and transfer agent for
the Trust Preferred Securities (the "Securities Registrar"). Registration of
transfers of the Trust Preferred Securities will be effected without charge by
or on behalf of the Trust, but upon payment of any tax or other governmental
charges that may be imposed in connection with any transfer or exchange. The
Trust will not be required to register or cause to be registered the transfer of
the Trust Preferred Securities after they have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only the duties as are specifically
set forth in the Trust Agreement and, during the existence of an Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of Trust
Securities unless it is offered reasonable indemnity or security against the
costs, expenses and liabilities that might be incurred. If no Event of Default
has occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the Trust
Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of the Trust Securities
are entitled under the Trust Agreement to vote, then the Property Trustee may
take the action as is directed by and, if not so directed, may take 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 or classified as other than a grantor trust for United
States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated by us as indebtedness for United States federal
income tax purposes. In this connection, we and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the Trust Agreement, that we and the
Administrative Trustees determine in our discretion to be necessary or desirable
for these purposes, as long as the action does not adversely affect the
interests of the holders of the Trust Securities or vary the terms thereof.
The Administrative Trustees also serve as administrative trustees of Trust I.
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 JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under an Indenture, as
supplemented from time to time (as so supplemented, the "Indenture"), between
the Debenture Trustee and us. The Indenture will be qualified under the Trust
Indenture Act. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Indenture does not purport to be complete, and
is qualified in its 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. The form of the Indenture has been filed as an exhibit to the Registration
Statement.
Concurrently with the issuance of the Trust Preferred Securities, the Trust
will invest the proceeds, together with the consideration paid by us for the
Common Securities, in Junior Subordinated Debentures issued by us. The Junior
Subordinated Debentures will be issued as unsecured debt under the Indenture.
We may at any time dissolve the Trust and, after satisfaction of
liabilities to creditors of the Trust, cause the Junior Subordinated Debentures
to be distributed to the holders of the Trust Securities in liquidation of the
Trust. If the Junior Subordinated Debentures are distributed to the holders of
the Trust Preferred Securities, we will use our best
29
efforts to list the Junior Subordinated Debentures on a national securities
exchange or comparable automated quotation system.
General
The Junior Subordinated Debentures will bear interest at the annual rate of
% of the principal amount thereof, payable quarterly in arrears on the last day
of March, June, September and December of each year (each, an "Interest Payment
Date"), commencing , 1999, to the person in whose name each
Junior Subordinated Debenture is registered, subject to certain exceptions, on
the fifteenth day of the month in which the relevant Interest Payment Date
occurs. Notwithstanding the above, in the event that either (i) Junior
Subordinated Debentures are held by the Property Trustee and the Trust Preferred
Securities are no longer in book-entry only form or (ii) the Junior Subordinated
Debentures are not represented by a Global Subordinated Debenture, the record
date for such payment shall be the first day of the month in which such payment
is made. The amount of each interest payment due with respect to the Junior
Subordinated Debentures will include amounts accrued through the date the
interest payment is due. We anticipate that, until the dissolution, 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 Preferred
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months and, for any period of less
than a full calendar quarter, on the basis of the actual number of days elapsed
in the quarter based upon 30-day months. In the event that any date on which
interest is payable on the Junior Subordinated Debentures is not a Business Day,
then payment of the interest payable will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that if the next succeeding Business Day falls in the
next succeeding calendar year, then the payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of % thereof, compounded quarterly.
The term "interest," as used herein, includes quarterly interest payments,
interest on quarterly interest payments not paid on the applicable Interest
Payment Date and Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on , 2029 (the
"Stated Maturity Date"). Beginning on , 2004 we will have the right
to redeem the Junior Subordinated Debentures, in whole or in part and from time
to time, at a redemption price equal to 100% of the principal amount plus
accrued and unpaid interest on the Junior Subordinated Debentures redeemed to
the date fixed for redemption, subject to our having received prior approval if
it is then required under applicable regulatory requirements. In the event that
we elect to redeem the Junior Subordinated Debentures, we will give notice to
the Debenture Trustee, and the Debenture Trustee will give notice of the
shortening to the holders of the Junior Subordinated Debentures no less than 30
days or more than 60 days prior to the effectiveness thereof.
The Junior Subordinated Debentures will rank equal with all Other
Debentures and will be unsecured and will rank subordinate and junior in right
of payment to all Senior and Subordinated Indebtedness (as defined under
"Description of Junior Subordinated Debentures--Subordination") to the extent
and in the manner set forth in the Indenture.
Option to Extend Interest Payment Date
So long as no Debenture Event of Default has occurred and is continuing, we
will have the right under the Indenture to defer the payment of interest on the
Junior Subordinated Debentures at any time and from time to time for a period
not exceeding 20 consecutive calendar quarters, provided that no Deferral Period
may end on a date other than an Interest Payment Date or extend beyond the
Stated Maturity Date. At the end of such Deferral Period, we must pay all
interest then accrued and unpaid (together with interest thereon) at the annual
rate of %, compounded quarterly, to the extent permitted by applicable
law. During a Deferral Period, interest will continue to accrue and, if the
Junior Subordinated Debentures have been distributed to holders of the Trust
Preferred Securities, holders of Junior Subordinated Debentures (or holders of
the Trust Preferred Securities while Trust Preferred Securities are outstanding)
will be required to accrue such deferred interest income for United States
federal income tax purposes prior to the receipt of cash attributable to such
income. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount."
30
During a Deferral Period, we will not undertake any of the actions set
forth below under "-- Certain Covenants We Have Made."
Prior to the termination of any such Deferral Period, we may further extend
such Deferral Period, provided that such extension does not cause such Deferral
Period together with all previous and further extensions within the Deferral
Period to exceed 20 consecutive calendar quarters, end on a date other than an
Interest Payment Date or extend beyond the Stated Maturity Date. Upon the
termination of any such Deferral Period and the payment of all amounts then due
on any Interest Payment Date, we may elect to begin a new Deferral Period,
subject to the above requirements. No interest will be due and payable during a
Deferral Period, except at the end of that period. We must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of
election of any Deferral Period (or an extension thereof) at least five Business
Days prior to the earlier of (i) the next succeeding date on which Distributions
on the Trust Preferred Securities are payable or (ii) the date the Trust is
required to give notice to any securities exchange or to holders of Trust
Preferred Securities of the record date or the date such Distributions are
payable, but in any event not less than five Business Days prior to the record
date. The Debenture Trustee will give notice of our election to begin or extend
a new Deferral Period to the holders of the Trust Preferred Securities.
Additional Sums
If the Trust or the Property Trustee is required to pay any additional
taxes, duties, assessments or other governmental charges, we will pay Additional
Sums as required so that the Distributions payable by the Trust shall not be
reduced as a result of any such additional taxes, duties, assessments or other
governmental charges.
Redemption
Subject to our having received any prior approval required under applicable
regulatory requirements, the Junior Subordinated Debentures are redeemable prior
to maturity at our option on or after , 2004, in whole (at any time)
or in part (from time to time), at a redemption price equal to 100% of the
principal amount plus accrued and unpaid interest on the Junior Subordinated
Debentures to the date of redemption.
The Junior Subordinated Debentures are also redeemable prior to maturity at
any time in whole (but not in part), within 90 days following the occurrence of
a Special Event, in each case at a redemption price equal to 100% of the
principal amount plus accrued and unpaid interest on the Junior Subordinated
Debentures so redeemed to the date fixed for redemption. If a partial
redemption of the Trust Preferred Securities resulting from a partial redemption
of the Junior Subordinated Debentures would result in a delisting of the Trust
Preferred Securities, then we may redeem the Junior Subordinated Debentures in
whole only.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at the holder's registered address. Unless we default
in payments of the redemption price, on and after the redemption date, interest
ceases to accrue on the Junior Subordinated Debentures or portions called for
redemption.
The Junior Subordinated Debentures will not be subject to any sinking fund.
Distribution upon Liquidation
Under certain circumstances involving the dissolution of the Trust, the
Junior Subordinated Debentures may be distributed to the holders of the Trust
Preferred Securities in liquidation of the Trust after satisfaction of
liabilities to creditors of the Trust. See "Description of Trust Preferred
Securities--Liquidation Distribution Upon Dissolution." If distributed to
holders of the Trust Preferred Securities in liquidation, the Junior
Subordinated Debentures will initially be issued in the form of one or more
global securities and the Depositary or any successor depositary for the Trust
Preferred Securities will act as depositary for the Junior Subordinated
Debentures. We anticipate that the depositary arrangements for the Junior
Subordinated Debentures be substantially identical to those in effect for the
Trust Preferred Securities. If the Junior Subordinated Debentures are
distributed to the holders of Trust Preferred Securities upon the liquidation of
the Trust, we will use our best efforts to list the Junior Subordinated
Debentures on the Nasdaq National Market or such other stock exchanges or
automated quotation system, if any, on which the Trust Preferred Securities are
then listed or quoted. We can give no assurance as to the market price of any
Junior Subordinated Debentures that may be distributed to the holders of Trust
Preferred Securities.
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Certain Covenants We Have Made
If at any time (1) there shall have occurred any event of which we have
actual knowledge that (a) is, or with the giving of notice or the lapse of time,
or both, would be, a Debenture Event of Default and (b) in respect of which we
shall not have taken reasonable steps to cure, (2) we are in default with
respect to our payment of any obligations under the Guarantee, or (3) we shall
have given notice of our election of a Deferral Period as provided in the
Indenture and shall not have rescinded such notice, and such Deferral Period, or
any extension thereof, shall have commenced and be continuing, then we will not,
. declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to,
any of our capital stock;
. make any payment of principal, interest or premium, if any, on
or repay or repurchase or redeem any of our debt securities
(including Other Debentures) that rank equal with or junior in
right of payment to the Junior Subordinated Debentures; or
. make any guarantee payments with respect to any guarantee by us
of the debt securities of any of our subsidiaries (including
under Other Guarantees) if such guarantee ranks equal or junior
in right of payment to the Junior Subordinated Debentures.
. However, we will not violate the first bullet point above if we
declare or pay dividends or make distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares
of our common stock;
. declare a dividend in connection with the implementation of a
stockholders' rights plan, or issue stock under any plan in the
future, or redeem or repurchase any rights under such a plan;
. make payments under the Guarantee;
. purchase fractional shares as a result of a reclassification of
our capital stock;
. purchase fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of our capital
stock or the security being converted or exchanged; or
. purchase common stock as a result of the issuance of common
stock or rights under any of our benefit plans for directors,
officers, or employees or our dividend reinvestment plan.
So long as the Trust Securities remain outstanding, we also have agreed (i)
to maintain 100% direct or indirect ownership of the Common Securities;
provided, however, that any permitted successor to us under the Indenture may
succeed to our ownership of such Common Securities, (ii) to not voluntarily
dissolve, wind-up or terminate the Trust, except in connection with the
distribution of the Junior Subordinated Debentures or certain mergers,
consolidations or amalgamations, each as permitted by the Trust Agreement, (iii)
to timely perform our duties as sponsor of the Trust, (iv) to use our reasonable
efforts to cause the Trust (a) to remain a business trust, except in connection
with the distribution of Junior Subordinated Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement, and (b) to otherwise continue to be
classified as a grantor trust for United States federal income tax purposes and
(v) to use our reasonable efforts to cause each holder of Trust Securities to be
treated as owning an undivided beneficial interest in the Junior Subordinated
Debentures.
Subordination
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In the Indenture, we have covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior and Subordinated 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 which we are the subject of, the holders of
Senior and Subordinated Indebtedness will first be entitled to receive payment
in full of principal of all Allocable Amounts (as defined below) on such Senior
and Subordinated Indebtedness before the holders of Junior Subordinated
Debentures will be entitled to receive or retain any payment in respect thereof.
As of September 30, 1999, we had no Senior and Subordinated Indebtedness
outstanding.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior and Subordinated Indebtedness outstanding
at the time of such acceleration will first be entitled to receive payment in
full of such amounts due thereon (including any amounts due upon acceleration)
before the holders of Junior Subordinated Debentures will be entitled to receive
or retain any payment in respect of the Junior Subordinated Debentures.
No payments on account of principal, or interest, if any, in respect of the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to any Senior and Subordinated
Indebtedness, or an event of default with respect to any Senior and Subordinated
Indebtedness resulting in the acceleration of the maturity thereof, or if any
judicial proceeding shall be pending with respect to any default.
We are a holding company and almost all of our operating assets are owned
by our subsidiaries. We are a legal entity separate and distinct from our
subsidiaries. Holders of Junior Subordinated Debentures should look only to us
for payments on the Junior Subordinated Debentures. The principal sources of our
income are dividends, interest and fees from our subsidiaries. We rely primarily
on dividends from the Bank to meet our obligations for payment of principal and
interest on our corporate expenses. There are regulatory limitations on the
payment of dividends directly or indirectly to us from the Bank. As of September
30, 1999, under applicable banking statutes, the total capital available for
payment of dividends by the Bank to us was approximately $27 million. However,
bank regulatory authorities have the power to prohibit any act, including the
payment of dividends, if such act would reduce bank capital to a point that, in
the opinion of such regulatory authorities, would render the Bank
undercapitalized and thus constitute an unsafe or unsound banking practice. In
addition, the Bank is subject to certain restrictions imposed by federal law on
any extensions of credit to, and certain other transactions with, us and certain
affiliates, and on investments in stock or other securities. These restrictions
prevent us and our affiliates from borrowing from the Bank unless the loans are
secured by various types of collateral. Further, secured loans, other
transactions and investments by the Bank are generally limited in amount as to
us and as to each of our affiliates to 10% of the Bank's capital and surplus and
as to us and all of our other affiliates to an aggregate of 20% of the Bank's
capital and surplus.
Because we are a holding company, our right to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Trust
Preferred Securities to benefit indirectly from such distribution), is subject
to the prior claims of creditors of that subsidiary (including depositors, in
the case of the Bank), except to the extent we may be recognized as a creditor
of that subsidiary. At September 30, 1999, our subsidiaries had total
liabilities (excluding liabilities owed to us) of $1.4 billion. Accordingly,
the Junior Subordinated Debentures will be effectively subordinated to all
existing and future liabilities of our subsidiaries and all liabilities of any
of our future subsidiaries. The Indenture does not limit our or our
subsidiaries' ability to incur or issue other secured or unsecured debt,
including Senior and Subordinated Indebtedness.
Definitions. For purposes of the foregoing paragraphs, the following
definitions apply:
"Allocable Amounts," when used with respect to any Senior and Subordinated
Indebtedness, means all amounts due or to become due on the Senior and
Subordinated Indebtedness less, if applicable, any amount which would have been
paid to, and retained by, the holders of the Senior and Subordinated
Indebtedness (whether as a result of the receipt of payments by the holders of
such Senior and Subordinated Indebtedness from us or any other obligated party
or from any holders of, or trustee in respect of, other indebtedness that is
subordinate and junior in right of payment to the Senior and Subordinated
Indebtedness) but for the fact that such Senior and Subordinated Indebtedness is
subordinated or junior in right of payment to (or subject to a requirement that
amounts received on such Senior and Subordinated Indebtedness be paid over to
obligees on) trade accounts payable or accrued liabilities arising in the
ordinary course of business.
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"Indebtedness" means with respect to any person, whether recourse is to all
or a portion of the assets of such person and whether or not contingent: (i)
every obligation of any person for money borrowed; (ii) every obligation of the
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the person with
respect to letters of credit, banker's acceptances or similar facilities issued
for the account of the person; (iv) every obligation of the person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of the person; (vi) all
indebtedness of the person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another person and all dividends
of another person the payment of which, in either case, the person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Senior and Subordinated Indebtedness" means the principal of (and premium,
if any) and interest, if any (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to us whether or
not the claim for post-petition interest is allowed in such proceeding), on our
Indebtedness whether incurred on or prior to the date of the Indenture or
thereafter incurred, unless in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
are not superior in right of payment to the Junior Subordinated Debentures or to
other Indebtedness which is equal with, or subordinated to, the Junior
Subordinated Debentures. However, Senior and Subordinated Indebtedness does not
include (i) any of our Indebtedness which when incurred and without respect to
any election under section 1111(b) of the United States Bankruptcy Reform Act of
1978, as amended, was without recourse to us, (ii) any Indebtedness we have to
any of our subsidiaries, (iii) Indebtedness to any of our employees, and (iv)
any other debt securities issued pursuant to the Indenture.
Denominations, Registration and Transfer
If the Junior Subordinated Debentures are distributed to the holders of the
Trust Preferred Securities, the Junior Subordinated Debentures will be
represented by global certificates registered in the name of the Depositary or
its nominee (the "Global Subordinated Debenture"). Beneficial interests in the
Junior Subordinated Debentures will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary. Except as described
below, Junior Subordinated Debentures in certificated form will not be issued in
exchange for the global certificates. See "Book-Entry Issuance."
Unless and until a Global Subordinated Debenture is exchanged in whole or
in part for the individual Junior Subordinated Debentures, it may not be
transferred except as a whole by the Depositary for the Global Subordinated
Debenture to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
nominee to a successor Depositary or any nominee of the successor.
A Global Subordinated Debenture will be exchangeable for Junior
Subordinated Debentures registered in the names of persons other than the
Depositary or its nominee only if (i) the Depositary notifies us that it is
unwilling or unable to continue as a depositary for such Global Subordinated
Debenture and no successor shall have been appointed, or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange Act, at
a time when the Depositary is required to be so registered to act as such
depositary, (ii) we in our sole discretion determine that the Global
Subordinated Debenture will be so exchangeable or (iii) there shall have
occurred and be continuing a Debenture Event of Default with respect to the
Global Subordinated Debenture. Any Global Subordinated Debenture that is
exchangeable pursuant to the preceding sentence will be exchangeable for
definitive certificates registered in such names as the Depositary shall direct.
It is expected that the instructions will be based upon directions received by
the Depositary from its Participants with respect to ownership of beneficial
interests in the Global Subordinated Debenture. In the event that Junior
Subordinated Debentures are issued in definitive form, the Junior Subordinated
Debentures will be in denominations of $25 and integral multiples thereof and
may be transferred or exchanged at the offices described below.
Payments on Junior Subordinated Debentures represented by a Global
Subordinated Debenture will be made to the Depositary, as the depositary for the
Junior Subordinated Debentures. In the event Junior Subordinated Debentures will
be registrable, Junior Subordinated Debentures will be exchangeable for Junior
Subordinated Debentures of other denominations of a like aggregate principal
amount, at the corporate office of the Debenture Trustee, or at the offices of
any paying agent or transfer agent appointed by us, provided that payment of
interest may be made at our option by
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check mailed to the address of the persons entitled thereto or by wire transfer.
In addition, if the Junior Subordinated Debentures are issued in certificated
form, the record dates for payment of interest will be the first day of the
month in which such payment is to be made. For a description of the Depositary
and the terms of the depositary arrangements relating to payments, transfers,
voting rights, redemptions and other notices and other matters, see "Book-Entry
Issuance."
We will appoint the Debenture Trustee as securities registrar under the
Indenture (the "Securities Registrar"). Junior Subordinated Debentures may be
presented for exchange as provided above, and may be presented for registration
of transfer (with the form of transfer endorsed thereon, or a satisfactory
written instrument of transfer, duly executed), at the office of the Securities
Registrar. We may at any time rescind the designation of any transfer agent or
approve a change in the location through which any transfer agent acts, provided
that we maintain a transfer agent in the place of payment. We may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither we nor the Debenture Trustee shall
be required to (i) issue, register the transfer of or exchange Junior
Subordinated Debentures during a period beginning at the opening of business 15
days before the day of selection for redemption of Junior Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption or (ii) transfer or exchange any Junior
Subordinated Debentures so selected for redemption, except, in the case of any
Junior Subordinated Debentures being redeemed in part, any portion thereof not
to be redeemed.
Global Subordinated Debentures
Upon the issuance of the Global Subordinated Debenture and the deposit of
such Global Subordinated Debenture with or on behalf of the Depositary, the
Depositary for the Global Subordinated Debenture or its nominee will credit, on
its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by the
Global Subordinated Debenture to the accounts of persons that have accounts with
such Depositary ("Participants"). Ownership of beneficial interests in a Global
Subordinated Debenture will be limited to Participants or persons that may hold
interests through Participants. Ownership of beneficial interests in such Global
Subordinated Debenture will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of Participants). The laws of some states
require that certain purchasers of securities take physical delivery of the
securities in definitive form. These limits and laws may impair the ability to
transfer beneficial interests in a Global Subordinated Debenture.
So long as the Depositary for a Global Subordinated Debenture, or its
nominee, is the registered owner of the Global Subordinated Debenture, the
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Junior Subordinated Debentures represented by the Global
Subordinated Debenture for all purposes under the Indenture governing the Junior
Subordinated Debentures. Except as provided below, owners of beneficial
interests in a Global Subordinated Debenture will not be entitled to have any of
the individual Junior Subordinated Debentures represented by such Global
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated Debentures
in definitive form and will not be considered the owners or holders under the
Indenture.
Payments of principal of and interest on individual Junior Subordinated
Debentures represented by a Global Subordinated Debenture registered in the name
of the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner of the Global Subordinated Debenture
representing the Junior Subordinated Debentures. Neither we nor the Debenture
Trustee, any Paying Agent, or the Securities Registrar for such Junior
Subordinated Debentures will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Global Subordinated Debenture representing the Junior
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
If the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by us within
90 days after we receive notice or otherwise become aware of the situation, we
will issue individual Junior Subordinated Debentures in exchange for the Global
Subordinated Debenture. In addition, we may at any time and in our sole
discretion, determine not to have the Junior Subordinated Debentures represented
by one or more Global Subordinated Debenture and, in such event, we will issue
individual Junior Subordinated
35
Debentures in exchange for the Global Subordinated Debenture. Further, if we so
specify with respect to the Junior Subordinated Debentures, an owner of a
beneficial interest in a Global Subordinated Debenture representing Junior
Subordinated Debentures may, on terms acceptable to us, the Debenture Trustee
and the Depositary for such Global Subordinated Debenture, receive individual
Junior Subordinated Debentures in exchange for such beneficial interests. In any
such instance, an owner of a beneficial interest in a Global Subordinated
Debenture will be entitled to physical delivery of individual Junior
Subordinated Debentures registered in its name. Individual Junior Subordinated
Debentures so issued will be issued in denominations, unless otherwise specified
by us, of $25 and integral multiples thereof.
Payment and Paying Agents
Payment of principal of and any interest on Junior Subordinated Debentures
will be made at the office of the Debenture Trustee in the City of New York or
at the office of such Paying Agent or Paying Agents as we may designate from
time to time, except that at our option, payment of any interest may be made,
except in the case of Junior Subordinated Debentures in global form, (i) by
check mailed to the address of the Person entitled thereto as the address
appears in the register for Junior Subordinated Debentures or (ii) by transfer
to an account maintained by the Person as specified in the register, provided
that proper transfer instructions have been received by the relevant Record
Date. Payment of any interest on any Junior Subordinated Debenture will be made
to the Person in whose name such Junior Subordinated Debenture is registered at
the close of business on the Record Date. We may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent; however
we will at all times be required to maintain a Paying Agent in each place of
payment for the Junior Subordinated Debentures.
We expect that the Depositary or its nominee, upon receipt of any payment
of principal or interest in respect of a permanent Global Subordinated Debenture
representing the Junior Subordinated Debentures, immediately will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the Global
Subordinated Debenture as shown on the records of such Depositary or its
nominee. We also expect that payments by Participants to owners of beneficial
interests in such Global Subordinated Debenture held through the Participants
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name." These payments will be the responsibility of such
Participants.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by us in trust, for the payment of the principal of or interest on any
Junior Subordinated Debenture and remaining unclaimed for two years after such
principal or interest has become due and payable will, at our request, be repaid
to us and the holder of such Junior Subordinated Debenture will thereafter look,
as a general unsecured creditor, only to us for payment thereof.
Modification of Indenture
From time to time we 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 action does not
adversely affect the interest of the holders of Junior Subordinated Debentures),
and qualifying, or maintaining the qualification of, the Indenture under the
Trust Indenture Act. The Indenture contains provisions permitting us and the
Debenture Trustee, with the consent of the holders of a majority in principal
amount of Junior Subordinated Debentures, to modify the Indenture in a manner
affecting the rights of the holders of Junior Subordinated Debentures; provided
that no such modification may, without the consent of the holders of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity Date, or reduce the principal amount of the Junior Subordinated
Debentures or reduce the rate or extend the time of payment of interest except
pursuant to our right under the Indenture to defer the payment of interest or
make the principal of, or interest on, the Junior Subordinated Debentures
payable in any coin or currency other than U.S. dollars, or impair or affect the
right of any holder of Junior Subordinated Debentures to institute suit for the
payment thereof, or (ii) reduce the percentage of principal amount of Junior
Subordinated Debentures, the holders of which are required to consent to any
modification of the Indenture; provided that so long as any of the Trust
Preferred Securities remain outstanding, no modification may be made that
adversely affects the holders of such Trust Preferred Securities, and no
termination of the Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Indenture may be effective,
without the prior consent of the holders of at least a majority of the aggregate
Liquidation Amount of the Trust Preferred Securities unless and until the
principal amount of the Junior Subordinated Debentures and all accrued and
unpaid interest thereon have been paid in full and certain other conditions
36
are satisfied. If the consent of the Property Trustee, as holder of the Junior
Subordination Debentures, is required under the Indenture with respect to
amendments, waivers or supplements of the Indenture or the Junior Subordinated
Debentures, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendments, waivers or supplements and
shall vote as directed by a majority in Liquidation Amount of the Trust
Securities voting together as a single class. Where a consent under the
Indenture would require the consent of each holder of Junior Subordinated
Debentures, no such consent shall be given by the Property Trustee without the
prior consent of each holder of Trust Preferred Securities. In addition, we and
the Debenture Trustee may execute, without the consent of any holder of Junior
Subordinated Debentures, any supplemental Indenture for the purpose of creating
any new series of Junior Subordinated Debentures.
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," regardless of the reason and whether it is
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree, order, rule or regulation:
. 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 Deferral Period);
. failure to pay any principal on the Junior Subordinated Debentures or
any Other Debentures when due whether at maturity, upon redemption, by
declaration of acceleration of maturity or otherwise;
. failure to observe or perform certain other covenants contained in the
Indenture for 60 days after written notice to us from the Debenture
Trustee or the holders of at least 25% in aggregate outstanding
principal amount of Junior Subordinated Debentures;
. certain events of our bankruptcy, insolvency or reorganization.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have, subject to certain exceptions, the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee or exercising any trust or power conferred on
the Debenture Trustee, with respect to the Junior Subordinated Debentures. 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
amount of, and any interest on, the Junior Subordinated Debentures to be due and
payable immediately upon a Debenture Event of Default; provided that, in the
case of certain events of bankruptcy, insolvency or reorganization, such amounts
shall automatically become due and payable. If the Debenture Trustee or
holders of the Junior Subordinated Debentures fail to make the declaration, the
Property Trustee or the holders of at least 25% in the aggregate Liquidation
Amount of the Trust Preferred Securities will have the right. The holders of a
majority in aggregate outstanding principal amount of the Junior Subordinated
Debentures may annul the declaration and waive the default if the default (other
than the non-payment of the principal of the Junior Subordinated Debentures
which has become due solely by such acceleration) has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Should the holders of the Junior Subordinated Debentures fail to annul such
declaration and waive the default, the holders of a majority in aggregate
Liquidation Amount of the Trust Preferred Securities shall have the right.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures may, on behalf of the holders of all the Junior
Subordinated Debentures, waive any past default, except a default in the payment
of principal on or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture.
In case a Debenture Event of Default occurs and is continuing as to Junior
Subordinated Debentures, the Property Trustee will have the right to declare the
principal of and the interest on such Junior Subordinated Debentures, and any
other amounts payable under the Indenture, to be due and payable and to enforce
its other rights as a creditor with respect to such Junior Subordinated
Debentures.
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The Indenture requires the annual filing by us with the Debenture Trustee
of a certificate as to the absence of certain defaults under the Indenture.
Enforcement of Certain Rights by Holders of Trust Preferred Securities
If a Debenture Event of Default has occurred and is continuing and is
attributable to our failure to pay the principal of or interest on the Junior
Subordinated Debentures on the due date, a holder of Trust Preferred Securities
may institute a Direct Action. We may not amend the Indenture to remove the
right to bring a Direct Action without the prior written consent of the holders
of all of the Trust Preferred Securities. If the right to bring a Direct Action
is removed, the Trust may become subject to the reporting obligations under the
Exchange Act and the rules and regulations thereunder. Notwithstanding any
payments made to a holder of Trust Preferred Securities by us in connection with
a Direct Action, we will remain obligated to pay the principal of or interest on
the Junior Subordinated Debentures, and we will be subrogated to the rights of
the holder of such Trust Preferred Securities with respect to payments on the
Trust Preferred Securities to the extent of any payments made by us to such
holder in any Direct Action.
The holders of the Trust Preferred Securities will not be able to exercise
directly any remedies available to the holders of the Junior Subordinated
Debentures, other than those set forth in the preceding paragraph, unless there
shall have been an Event of Default under the Trust Agreement. See "Description
of Trust Preferred Securities--Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that we will not consolidate with or merge into any
other Person or convey, transfer or lease its properties as an entirety, or
substantially as an entirety, to any Person, unless: (i) we are the surviving
Person, or the Person formed by or surviving any consolidation or merger (if
other than us) or to which the sale, conveyance, transfer or lease of property
is made is a Person organized and existing under the laws of the United States
or any state thereof or the District of Columbia; (ii) upon any consolidation,
merger, sale, conveyance, transfer or lease, the due and punctual payment of the
principal of and interest on the Junior Subordinated Debentures according to
their tenor and the due and punctual performance and observance of all the
covenants and conditions of the Indenture to be kept or performed by us will be
expressly assumed, by supplemental indenture (which shall conform to the
provisions of the Trust Indenture Act, as then in effect) satisfactory in form
to the Debenture Trustee executed and delivered to the Debenture Trustee by the
Person formed by the consolidation, or into which we will have been merged, or
by the Person which will have acquired our property, as the case may be; (iii)
after giving effect to the consolidation, merger, sale, conveyance, transfer or
lease, no Default or Event of Default, or any event which, after notice or lapse
of time or both, would become a Default or an Event of Default, will have
occurred and be continuing; (iv) the consolidation, merger, sale, conveyance,
transfer or lease does not cause the Junior Subordinated Debentures to be
downgraded by a nationally recognized statistical rating organization; and (v)
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 us that may adversely affect holders of the Junior
Subordinated Debentures.
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Satisfaction and Discharge
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at maturity or called for redemption within one year, and we deposit or cause to
be deposited with the Debenture Trustee funds, in trust, for the purpose and in
an amount sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal and interest to the Stated Maturity Date, then
the Indenture will cease to be of further effect (except as to our obligations
to pay all other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and we will be deemed
to have satisfied and discharged the Indenture. We will only be permitted to
take such action if, among other things, we deliver to the Debenture Trustee an
opinion of counsel (who may be counsel for us) to the effect that the holders of
the Junior Subordinated Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of our actions and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Governing Law
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York.
Information Concerning the Debenture Trustee
The Debenture Trustee has and will be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Debenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by The Bank of New York (the
"Guarantee Trustee") and us concurrently with the issuance by the Trust of the
Trust Preferred Securities for the benefit of the holders from time to time of
the Trust Preferred Securities. The Guarantee will be qualified as an Indenture
under the Trust Indenture Act. This summary of certain provisions of the
Guarantee does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Guarantee and the
Trust Indenture Act. The form of the Guarantee has been filed as an exhibit to
the Registration Statement of which this prospectus forms a part.
General
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust's obligations under the Trust Preferred Securities, but will apply
only to the extent that the Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
We will irrevocably agree to pay in full on a subordinated basis, the
Guarantee Payments (as defined below) to the holders of the Trust Preferred
Securities, as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert other than the defense of
payment. The following payments with respect to the Trust Preferred Securities,
to the extent not paid by or on behalf of the Trust (the "Guarantee Payments"),
will be subject to the Guarantee: (i) any accrued and unpaid Distributions
required to be paid on the Trust Preferred Securities, to the extent that the
Trust has funds on hand legally available therefor at such time, (ii) the
applicable redemption price with respect to the Trust Preferred Securities
called for redemption, to the extent that the Trust has funds on hand legally
available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of the Trust (other than in connection
with the distribution of the Junior Subordinated Debentures to holders of the
Trust Preferred Securities or the redemption of all Trust Preferred Securities),
the lesser of (a) the Liquidation Distribution, to the extent the Trust has
funds legally available therefor at the time, and (b) the amount of assets of
the Trust remaining
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available for distribution to holders of Trust Preferred Securities after
satisfaction of liabilities to creditors of the Trust as required by applicable
law. Our obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by us to the holders of the Trust Preferred
Securities or by causing the Trust to pay such amounts to such holders.
We will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guarantee all of the Trust's obligations under the Trust
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Trust Preferred Securities. See "Relationship
Among the Trust Preferred Securities, the Junior Subordinated Debentures and the
Guarantee."
Status of the Guarantee
If we do not make interest payments on the Junior Subordinated Debentures
held by the Trust, the Trust will not be able to pay Distributions on the Trust
Preferred Securities and will not have funds legally available therefor. The
Guarantee will rank subordinate and junior in right of payment to all Senior and
Subordinated Indebtedness. The Guarantee will rank pari passu to the Junior
Subordinated Debentures, Other Debentures, the guarantee on the Common
Securities, any other guarantee on future issuances of trust preferred
securities and any senior preferred stock which may be hereafter issued by us.
Because we are a holding company, our right 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 we may be recognized as a creditor of that subsidiary.
Accordingly, our obligations under the Guarantee effectively will be
subordinated to all existing and future liabilities of our subsidiaries and all
liabilities of any of our future subsidiaries. Claimants should look only to our
assets for payments under the Guarantee. For more information, please refer to
"Description of Junior Subordinated Debentures--General."
The Guarantee will constitute a guarantee of payment and not of collection,
which means the guaranteed party may institute a legal proceeding directly
against us to enforce its rights under the Guarantee without first instituting a
legal proceeding against any other person or entity. The Guarantee will be held
for the benefit of the holders of the Trust Preferred Securities. The Guarantee
will not be discharged except by payment of the Guarantee Payments in full to
the extent not paid by the Trust or upon distribution to the holders of the
Trust Preferred Securities of the Junior Subordinated Debentures. The Guarantee
does not limit our ability to incur or issue other secured or unsecured debt,
including Senior and Subordinated Indebtedness, whether under the Indenture, any
other indenture that we may enter into in the future or otherwise.
Events of Default
An event of default under the Guarantee will occur upon our failure to
perform any of our payment or other obligations. The holders of a majority in
aggregate Liquidation Amount of the Trust Preferred Securities will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee in respect of the Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under the Guarantee. Any holder of the Trust Preferred Securities may institute
a legal proceeding directly against us to enforce the Guarantee Trustee's rights
under the Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person or entity. Notwithstanding the
foregoing, if we fail to make a payment under the Guarantee, a holder of Trust
Preferred Securities may directly institute a proceeding against us for
enforcement of the Guarantee for payment to the holder of the Trust Preferred
Securities of the holder's pro rata portion of the principal of or interest on
the Junior Subordinated Debentures on or after the due dates specified in the
Junior Subordinated Debentures.
We, as guarantor, will be required to file annually with the Guarantee
Trustee a certificate as to whether or not we are in compliance with all the
conditions and covenants applicable to us under the Guarantee.
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Amendments and Assignment
Except with respect to any changes that do not adversely affect the rights
of holders of the Trust Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of a majority of the aggregate Liquidation Amount of such outstanding
Trust Preferred Securities. All guarantees and agreements contained in the
Guarantee Agreement shall bind our successors, assigns, receivers, trustees and
representatives and shall inure to the benefit of the holders of the Trust
Preferred Securities then outstanding.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the redemption price of the Trust Preferred Securities, upon
full payment of the Liquidation Amount payable upon liquidation of the Trust or
upon distribution of Junior Subordinated Debentures to the holders of the Trust
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Trust Preferred
Securities must restore payment of any sums paid under the Trust Preferred
Securities or the Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of
a default by us in performance of the Guarantee, will undertake to perform only
such duties as are specifically set forth in the Guarantee and, in case a
default with respect to the Guarantee has occurred, must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee will be under no obligation to exercise any of the powers vested in it
by the Guarantee at the request of any holder of the Trust Preferred Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
Governing Law
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Trust
Preferred Securities and the Junior Subordinated Debentures. The Trust
Preferred Securities and the Junior Subordinated Debentures will be issued only
as fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global certificates will be
issued for the Trust Preferred Securities and the Junior Subordinated Debentures
and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, as a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. "Direct Participants" include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain custodial relationships with Direct
Participants, either directly or indirectly ("Indirect Participants"). The
rules applicable to the Depositary and its Participants are on file with the
SEC.
Purchases of Trust Preferred Securities or Junior Subordinated Debentures
within the Depositary system must be made by or through Direct Participants,
which will receive a credit for the Trust Preferred Securities or Junior
Subordinated Debentures on the Depositary's records. The ownership interest of
each actual purchaser of each Trust Preferred Securities and each Subordinated
Debenture ("Beneficial Owner") is in turn to be recorded on the Direct and
41
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchases, but we expect that
Beneficial Owners will receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased Trust
Preferred Securities or Junior Subordinated Debentures. Transfers of ownership
interests in the Trust Preferred Securities or Junior Subordinated Debentures
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Trust Preferred Securities or Junior
Subordinated Debentures, except in the event that use of the book-entry system
for the Junior Subordinated Debentures is discontinued.
The Depositary has no knowledge of the actual Beneficial Owners of the
Trust Preferred Securities or Junior Subordinated Debentures; the Depositary's
records reflect only the identity of the Direct Participants to whose accounts
such Trust Preferred Securities or Junior Subordinated Debentures are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Trust Preferred Securities or Junior Subordinated Debentures. If less than
all of the Trust Preferred Securities or the Junior Subordinated Debentures are
being redeemed, the Property Trustee will determine by lot or pro rata the
amount of the Trust Preferred Securities of each Direct Participant to be
redeemed.
Although voting with respect to the Trust Preferred Securities or the
Junior Subordinated Debentures is limited to the holders of record of the Trust
Preferred Securities or Junior Subordinated Debentures, as applicable, in those
instances in which a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities or Junior
Subordinated Debentures. Under its usual procedures, the Depository would mail
an omnibus proxy (the "Omnibus Proxy") to the relevant Issuer Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts such
Trust Preferred Securities or Junior Subordinated Debentures are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Trust Preferred Securities or the Junior
Subordinated Debentures will be made by the relevant Issuer Trustee to the
Depositary. The Depositary's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of the Depositary, the relevant Issuer Trustee, the Trust or us, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to the Depositary is the responsibility of the relevant
Issuer Trustee, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Trust Preferred Securities or the Junior
Subordinated Debentures at any time by giving reasonable notice to the relevant
Issuer Trustee and us. In the event that a successor securities depositary is
not obtained, definitive Trust Preferred Securities or Junior Subordinated
Debentures certificates representing such Trust Preferred Securities or Junior
Subordinated Debentures are required to be printed and delivered. We, at our
option, may decide to discontinue use the system of book-entry transfers through
the Depositary (or a successor depositary). After a Debenture Event of Default,
the holders of a majority in liquidation preference of Trust Preferred
Securities or aggregate principal amount of Junior Subordinated Debentures may
determine to discontinue the system of book-entry transfers through the
Depositary. In any such event, definitive certificates for such Trust Preferred
Securities or Junior Subordinated Debentures will be printed and delivered.
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The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Trust and
we believe to be accurate but neither the Trust nor we assume any responsibility
for the accuracy thereof. Neither the Trust nor we have any responsibility for
the performance by the Depositary or its Participants of their respective
obligations as described herein or under the rules and procedures governing
their respective operations.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Trust Preferred
Securities (to the extent the Trust has funds on hand legally available for the
payment of such Distributions) will be irrevocably guaranteed by us as and to
the extent set forth under "Description of Guarantee." Taken together, our
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement and the Guarantee will provide, in the aggregate, a full, irrevocable
and unconditional guarantee of payments of Distributions and other amounts due
on the Trust Preferred Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Trust Preferred Securities. If and to the extent
that we do not make the required payments on the Junior Subordinated Debentures,
the Trust will not have sufficient funds to make the related payments, including
Distributions, on the Trust Preferred Securities. The Guarantee will not cover
any such payment when the Trust does not have sufficient funds on hand legally
available therefor. In such event, the remedy of a holder of Trust Preferred
Securities is to institute a Direct Action. Our obligations under the Guarantee
will be (i) subordinate and junior in right of payment to all Senior and
Subordinated Indebtedness, except for those liabilities made equal or
subordinate to the Guarantee by their terms, (ii) pari passu to all other
guarantees that may be issued by us in the future with respect to other similar
trust preferred securities,; (iii) senior to our capital stock and (iv)
effectively subordinated to the liabilities and obligations of our subsidiaries.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities, because:
(i) the aggregate principal amount of the Junior Subordinated Debentures will be
equal to the sum of the aggregate Liquidation Amount of the Trust Securities;
(ii) the interest rate and interest and other payment dates on the Junior
Subordinated Debentures will match the Distribution rate and Distribution and
other payment dates for the Trust Securities; (iii) we shall pay for all and any
costs, expenses and liabilities of the Trust except the Trust's obligations to
holders of Trust Securities under the Trust Securities; and (iv) the Trust
Agreement will provide that the Trust is not authorized to engage in any
activity that is not consistent with the limited purposes thereof.
Enforcement Rights of Holders of Trust Preferred Securities
A holder of any Trust Preferred Security may institute a legal proceeding
directly against us to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior and Subordinated
Indebtedness would not constitute a default or Event of Default under the Trust
Agreement. However, in the event of payment defaults under, or acceleration of,
Senior and Subordinated Indebtedness, the subordination provisions of the
Indenture will provide that no payments may be made in respect of the Junior
Subordinated Debentures until such Senior and Subordinated Indebtedness has been
paid in full or any payment default thereunder has been cured or waived. Failure
to make required payments on Junior Subordinated Debentures would constitute an
Event of Default under the Trust Agreement.
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Limited Purpose of the Trust
The Trust Preferred 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 other
activities that are necessary or incidental thereto. A principal difference
between the rights of a holder of a Trust Preferred Security and a holder of a
Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture will be entitled to receive from us the principal amount of and
interest on Junior Subordinated Debentures held, while a holder of Trust
Preferred Securities is entitled to receive Distributions from the Trust (or, in
certain circumstances, from us under the 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 dissolution, winding-up or
liquidation of the Trust, after satisfaction of the liabilities of creditors of
the Trust as required by applicable law, the holders of the Trust Preferred
Securities will be entitled to receive, out of assets held by the Trust, the
Liquidation Distribution in cash. See "Description of Trust Preferred Securities
- - Distribution of Junior Subordinated Debentures." Upon our voluntary or
involuntary liquidation or bankruptcy, the Property Trustee, as holder of the
Junior Subordinated Debentures, would be a subordinated creditor of ours,
subordinated in right of payment to all Senior and Subordinated Indebtedness as
set forth in the Indenture, but entitled to receive payment in full of principal
and interest, before any of our stockholders receive payments or distributions.
Since we 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 Trust
Preferred Securities and a holder of Junior Subordinated Debentures relative to
other creditors and to our stockholders in the event of our liquidation or
bankruptcy will be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of the material United States federal income tax
considerations that may be relevant to the purchasers of Trust Preferred
Securities, which has been passed upon by Kennedy, Baris & Lundy, L.L.P.,
counsel to Sandy Spring and the Trust, as it relates to matters of law and legal
conclusions. The conclusions expressed are based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), related regulations and
current administrative rulings and court decisions, all of which are subject to
change at any time, with possible retroactive effect. Subsequent changes may
cause tax consequences to vary substantially from the consequences described
below. Furthermore, the authorities on which the following summary is based are
subject to various interpretations, and it is therefore possible that the United
States federal income tax treatment of the purchase, ownership, and disposition
of Trust Preferred Securities may differ from the treatment described below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Trust Preferred
Securities. The discussion generally focuses on holders of Trust Preferred
Securities who are individual citizens or residents of the United States and who
acquire Trust Preferred Securities on their original issue at their offering
price and hold Trust Preferred Securities as capital assets. The discussion has
only limited application to dealers in securities, corporations, estates, trusts
or nonresident aliens and does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as, for
example, 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 Trust Preferred Securities as a
position in a "straddle," as part of a "synthetic security" or "hedge," as part
of a "conversion transaction" or other integrated investment, or as other than a
capital asset.
The following summary also does not address the tax consequences to persons
that have a functional currency other than the U.S. dollar, or the tax
consequences to shareholders, partners or beneficiaries of a holder of Trust
Preferred Securities. It also does not include any description of any
alternative minimum tax consequences, or the tax laws of any state or local
government or of any foreign government, that may be applicable to the Trust
Preferred Securities. Accordingly, each prospective investor should consult, and
should rely exclusively on, such investor's own tax advisors in analyzing the
federal, state, local and foreign tax consequences of the purchase, ownership or
disposition of Trust Preferred Securities.
44
Classification of the Junior Subordinated Debentures
The Junior Subordinated Debentures will be classified for United States
federal income tax purposes as our indebtedness under current law, assuming full
compliance with the terms of the Indenture and certain other documents, and
based upon certain other facts and circumstances. No assurance can be given,
however, that this classification will not be challenged by the Internal Revenue
Service or, if challenged, that such a challenge will not be successful. We, the
Trust and the holders of the Trust Preferred Securities (by acceptance of a
beneficial interest in a Trust Preferred Security) agree to treat the Junior
Subordinated Debentures as our indebtedness for all United States federal income
tax purposes. The remainder of this discussion assumes that the Junior
Subordinated Debentures will be classified for United States federal income tax
purposes as our indebtedness.
Classification of the Trust
Under current law and assuming full compliance with the terms of the Trust
Agreement and Indenture (and certain other documents described herein), the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each holder of Trust Preferred
Securities generally will be treated as owning an undivided beneficial interest
in the Junior Subordinated Debentures, and each holder will be required to
include in its gross income items of income realized with respect to its
allocable share of the Junior Subordinated Debentures.
Interest Income and Original Issue Discount
Under applicable Treasury regulations (the "Regulations"), if the terms and
conditions of a debt instrument make the likelihood that stated interest will
not be timely paid a "remote" contingency, such contingency will be ignored in
determining whether a debt instrument is issued with Original Issue Discount
("OID"). We believe that the likelihood of our exercising our option to defer
payments of interest is remote, because exercising the option would, among other
things, prevent us from declaring dividends on any class of our equity
securities. Based on this conclusion by us, Tax Counsel has rendered its opinion
that the Junior Subordinated Debentures will not be considered to be issued with
OID and, accordingly, stated interest on the Junior Subordinated Debentures
generally will be taxable to a holder as ordinary income at the time it is paid
or accrued in accordance with such holder's method of tax accounting.
Under the Regulations, if we were to exercise our option to defer payments
of stated interest, the Junior Subordinated Debentures would, at such time, be
treated as redeemed and reissued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID as long as the Junior
Subordinated Debentures remain outstanding. In such event, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures would
thereafter be accounted for on an economic accrual basis regardless of such
holder's method of tax accounting, and actual distributions of stated interest
related thereto would not be reported as taxable income. Consequently, a holder
of Trust Preferred Securities would be required to include in gross income OID
even though we would not make actual cash payments during a Deferral Period.
The Regulations have not yet been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation described in this summary. If the option
to defer the payment of interest were determined not to be "remote," the Junior
Subordinated Debentures would be treated as having been originally issued with
OID. In that 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 the holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Characterization of Income
Because income on the Trust Preferred Securities will constitute interest
or OID, corporate holders of the Trust Preferred Securities will not be entitled
to a dividends-received deduction with respect to any income recognized with
respect to the Trust Preferred Securities.
45
Distribution of Junior Subordinated Debentures or Cash Upon Liquidation of the
Trust
We 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. The 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
the holder's aggregate tax basis in its Trust Preferred Securities. For United
States federal income tax purposes, a holder's holding period in the Junior
Subordinated Debentures so received in liquidation of the Trust would include
the period during which the Trust Preferred Securities were held by the holder.
Under certain circumstances described herein, the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Trust Preferred Securities. Such
a redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Trust Preferred Securities, and a holder
could recognize gain or loss as if it sold such redeemed Trust Preferred
Securities for cash.
Sales of Trust Preferred Securities
A holder that sells Trust Preferred Securities (including a redemption of
the Trust Preferred Securities by us) will recognize gain or loss equal to the
difference between its adjusted tax basis in the Trust Preferred Securities and
the amount realized on the sale of such Trust Preferred Securities (other than
with respect to accrued and unpaid interest which has not yet been included in
income, which will be treated as ordinary income). A holder's adjusted tax basis
in the Trust Preferred Securities generally will be its initial purchase price
increased by OID (if any) previously includable in such holder's gross income to
the date of disposition and decreased by payments (if any) received on the Trust
Preferred Securities in respect of OID. The gain or loss generally will be a
capital gain or loss and generally will be a long-term capital gain or loss if
the Trust Preferred Securities have been held for more than one year.
A holder who disposes of the Trust Preferred Securities between record
dates for payments of distributions thereon will be required to include in
income (to the extent not previously included in income) as ordinary income
amounts attributable to accrued and unpaid interest on the Junior Subordinated
Debentures through the date of disposition. A holder will recognize gain on a
disposition in an amount equal to the excess of the amount realized on
disposition (excluding the portion of the sales price treated as interest) over
the holder's adjusted basis in the Trust Preferred Securities. To the
extent the selling price is less than the holder's adjusted tax basis, 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.
The Trust Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying Junior Subordinated Debentures. A holder who uses the accrual method
of accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debenture are deemed to have been issued with OID) who disposes of
his Trust Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest on
the Junior Subordinated Debentures through the date of disposition in income as
ordinary income (i.e., interest or, if applicable, OID), and to add the amount
to his adjusted tax basis in his pro rata share of the underlying Junior
Subordinated Debentures deemed disposed of. To the extent the selling price is
less than the holder's adjusted tax basis (which will include all accrued but
unpaid interest) a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
Holders of Trust Preferred Securities other than a holder who purchased the
Trust Preferred Securities upon original issuance may be considered to have
acquired their undivided interests in the Junior Subordinated Debentures with
"market discount" or "acquisition premium" as such phrases are defined for
United States federal income tax purposes. Such holders are advised to consult
their tax advisors as to the income tax consequences of the acquisition,
ownership and disposition of the Trust Preferred Securities.
Potential Tax Law Changes
Changes in legislation affecting the United States federal income tax
treatment of the Junior Subordinated Debentures are possible, and could
adversely affect our ability to deduct the interest payable on the Junior
Subordinated Debentures.
46
Information Reporting to Holders
Generally, income on the Trust Preferred Securities will be reported to
holders on Internal Revenue Form 1099, which forms should be mailed to holders
of Trust Preferred Securities by January 31 following each calendar year.
Backup Withholding and Information Reporting
The amount of interest (or OID) accrued on the Trust Preferred Securities
held of record by individual citizens or residents of the United States, or
certain trusts, estates, and partnerships, will be reported to the Internal
Revenue Service on Forms 1099. These forms should be mailed to such holders of
Trust Preferred Securities by January 31 following each calendar year. Payments
made on, and proceeds from the sale of, the Trust Preferred Securities may be
subject to a "backup" withholding tax (currently at 31%) unless the holder
complies with certain identification and other requirements. Any amounts
withheld under the backup withholding rules will be allowed as a credit against
the holder's United States federal income tax liability, provided the required
information is provided to the Internal Revenue Service.
The United States Federal Income Tax discussion provided above is included
for general information only and may not be applicable depending upon the
particular situation of a holder of Trust Preferred Securities. Holders of Trust
Preferred Securities should consult their tax advisors with respect to the tax
consequences to them of the purchase, ownership and disposition of the Trust
Preferred Securities, including the tax consequences under state, local, foreign
and other tax laws and the possible effects of changes in united states federal
or other tax laws.
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("Plans") generally may purchase Trust Preferred Securities, subject to the
investing fiduciary's determination that the investment in Trust Preferred
Securities satisfies ERISA's fiduciary standards and other requirements
applicable to investments by the Plan.
In any case, we or any of our affiliates may be considered a "party in
interest" (within the meaning of ERISA) or a "disqualified person" (or within
the meaning of Section 4975 of the Code) with respect to certain Plans
(generally, Plans maintained or sponsored by, or contributed to by, any such
persons with respect to which Sandy Spring or an affiliate is a fiduciary, or
Plans for which we or an affiliate provides services). The acquisition and
ownership of Trust Preferred Securities by a Plan (or by an individual
retirement arrangement or other Plans described in Section 4975(e)(1) of the
Code) with respect to which we or any of our affiliates is considered a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Trust Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption.
As a result, Plans with respect to which we or any of our affiliates is a
party in interest or a disqualified person should not acquire Trust Preferred
Securities unless the Trust Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption. Any other Plans or other entities whose
assets include Plan assets subject to ERISA or Section 4975 of the Code
proposing to acquire Trust Preferred Securities should consult with their own
counsel.
The sale of Trust Preferred Securities to Plans is in no respect a
representation by the Trust, us, the Property Trustee, the underwriters or any
other person associated with the sale of the Trust Preferred Securities that
such securities meet all relevant legal requirements with respect to investments
by Plans generally or any particular Plan, or that such securities are otherwise
appropriate for Plans generally or any particular Plan. Any purchaser proposing
to acquire Trust Preferred Securities with assets of any Plan should consult
with its counsel.
47
UNDERWRITING
The underwriters named below have severally agreed, to purchase from the
Trust the number of Trust Preferred Securities shown by their names, below, at
the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus.
Underwriter Number of Trust
Preferred Securities
- ------------------------------------------ ------------------------
Legg Mason Wood Walker, Incorporated
Wheat First Securities, a division of
First Union Securities, Inc.
Ferris, Baker Watts, Incorporated
-----
Total =====
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions, and that if any of the foregoing
Trust Preferred Securities are purchased by the underwriters pursuant to the
underwriting agreement, all such securities must be purchased. In the event of
a default by an underwriter, the underwriting agreement provides that, in
certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased, or the underwriting agreement may be terminated. The
underwriters may reject orders in whole or in part and withdraw, cancel, or
modify the offer without notice. We and the Trust each have agreed to
indemnify the underwriters and their controlling persons against certain
liabilities, including liabilities under the Securities Act of 1933 or to
contribute to payments the underwriters may be required to made.
The underwriters also may impose a penalty bid on certain selling group
members. This means that if the underwriters purchases Trust Preferred
Securities in the open market to reduce the underwriter's short position or to
stabilize the price of the Trust Preferred Securities, it may reclaim the amount
of the selling concession from the selling group members who sold those Trust
Preferred Securities as part of the offering.
The underwriters may create a "short position" in the Trust Preferred
Securities in connection with the offering, which means that they may over-allot
or sell more shares than are set forth on the cover page of this prospectus. If
the underwriters create a short position by such over-allotment, then the
underwriters may reduce that short position by purchasing Trust Preferred
Securities in the open market. The underwriters also may elect to reduce any
short position by exercising all or part of the over-allotment option. In
general, purchases of a security for the purpose of stabilization or to reduce a
short position could cause the price of security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
The underwriters have advised us and the Trust that it proposes to offer
the Trust Preferred Securities directly to the public initially at the public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $ per Trust
Preferred Security. The underwriters may allow and such dealers may reallow a
concession not in excess of $ per Trust Preferred Security to certain other
brokers and dealers. After the public offering, the public offering price,
concession and reallowance, and other selling terms may be changed by the
underwriters.
Because the National Association of Securities Dealers, Inc. (the "NASD")
is expected to view the Trust Preferred Securities as interests in a direct
participation program, the offering of the Trust Preferred Securities is being
made in compliance with the applicable provisions of the NASD's Rules of
Conduct.
Application has been made to have the Trust Preferred Securities approved
for quotation on The Nasdaq Stock Market's National Market. The underwriters
have advised the Trust that they presently intend to make a market in the Trust
Preferred Securities after the commencement of trading on The Nasdaq Stock
Market's National Market, but no assurances can be made as to the liquidity of
such Trust Preferred Securities or that an active and liquid trading market will
develop or, if developed, that it will continue. The offering price and
distribution rate have been determined by negotiations
48
between us and the underwriters, and the offering price of the Trust Preferred
Securities may not be indicative of the market price following the offering. The
underwriters will have no obligation to make a market in the Trust Preferred
Securities, however, and may cease market-making activities, if commenced, at
any time.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Trust
Preferred Securities, the enforceability of the Trust Agreement and the
formation of the Trust will be passed upon by Richards, Layton & Finger, P.A.,
special Delaware counsel to Sandy Spring and the Trust. Certain legal matters
for Sandy Spring and the Trust, including the validity of the Guarantee and the
Junior Subordinated Debentures, will be passed upon for Sandy Spring and the
Trust by Kennedy, Baris & Lundy, L.L.P., Bethesda, Maryland, counsel to Sandy
Spring and the Trust. Certain legal matters will be passed upon for the
underwriters by Elias, Matz, Tiernan & Herrick L.L.P.,Washington, D.C..
Kennedy, Baris & Lundy, L.L.P. and Elias, Matz, Tiernan & Herrick L.L.P. will
rely on the opinion of Richards, Layton & Finger, P.A. as to matters of Delaware
law. Certain matters relating to United States federal income tax
considerations will be passed upon for Sandy Spring by Kennedy, Baris & Lundy,
L.L.P.
EXPERTS
The consolidated financial statements of Sandy Spring Bancorp, Inc. at
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998, incorporated by reference in this Prospectus have been
audited by Stegman & Company, independent auditors, as stated in their reports,
which are incorporated by reference in this Prospectus. These financial
statements have been incorporated by reference in reliance upon the report of
that firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You also may read and copy any documents we file with the
SEC at its public reference room at 450 Fifth Street, NW, Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room.
The Trust is not currently subject to the information reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Trust will become subject to these requirements upon the
effectiveness of the registration statement that contains this prospectus,
although it intends to seek and expects to receive an exemption from those
requirements.
We and the Trust have filed a registration statement on Form S-3 (the
"Registration Statement) to register the Trust Preferred Securities to be sold
in the offering, the Junior Subordinated Debentures and the Guarantee. This
Prospectus is part of that Registration Statement. As allowed by the SEC, this
Prospectus does not contain all of the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
SEC regulations allow us to "incorporate by reference" information into
this Prospectus, which means that the we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered part of this Prospectus.
Information incorporated by reference from earlier documents is superseded by
information that has been incorporated by reference from more recent documents.
This Prospectus incorporates by reference the documents listed below that
we have previously filed with the SEC (file no. 000-19065). These documents
contain important information about us and our finances. Some of these filings
have been amended by later filings, which are also listed.
1. Annual Report on Form 10-K for the Year ended December 31, 1998;
2. Quarterly Report on Form 10-Q for the Quarter ended March 31, 1999;
3. Current Report on Form 8-K filed April 7; 1999;
4. Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998;
5. Current Report on Form 8-K filed July 23, 1999 ;
6. Current Report on Form 8-K filed September 30, 1999; and
7. Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1999;
49
We also incorporate by reference additional documents that may be filed
with the SEC after the date of this prospectus and before the termination of the
offering. These additional documents are incorporated by reference in this
prospectus and to be a part of this prospectus from the date the additional
documents are filed.. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on
Form 8-K, as well as proxy statements. You can obtain any of the documents
incorporated by reference through us, the SEC or the SEC's internet web site as
described above. Documents that are incorporated by reference are available from
us without charge, including any exhibits that are specifically incorporated by
reference. You may obtain documents incorporated by reference in this prospectus
by requesting them in writing or by telephone from us at the following address:
Marjorie S. Holsinger
Corporate Secretary
Sandy Spring Bancorp, Inc.
17801 Georgia Avenue,
Olney, Maryland 20832
Telephone: (301) 774-6400.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus. This
prospectus is dated November [ ], 1999. You should not assume that the
information contained in this prospectus is accurate as of any date other than
that date.
_________________________
50
================================================================================
1,400,000 Trust Preferred
Securities
Sandy Spring Capital Trust I
% Cumulative Trust Preferred Securities fully and unconditionally
guaranteed by
Sandy Spring Bancorp, Inc.
PROSPECTUS
Legg Mason Wood Walker
Incorporated
Wheat First Securities
Ferris, Baker Watts
Incorporated
, 1999
================================================================================
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC registration fee $ 9,730
NASD fee 4,000
Nasdaq fees* 35,000
Trustees' fees and expenses* 25,000
Legal fees and expenses* 75,000
Accounting fees and expenses* 10,000
Printing expenses* 30,000
Miscellaneous expenses* 21,270
--------
Total $210,000
_________________ ========
* Estimated.
Item 15. Indemnification of Directors and Officers.
Sandy Spring's Articles of Incorporation generally provide for indemnification
to the extent authorized by applicable law. Section 2-418 of the Maryland
General Corporation Law sets forth circumstances under which directors,
officers, employees and agents of Sandy Spring may be insured or indemnified
against liability which they may incur in these capacities. The Maryland General
Corporation Law provides, in pertinent part, as follows:
2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. --
(a) In this section the following words have the meanings indicated.
(1) "Director" means any person who is or was a director of a corporation
and any person who, while a director of a corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee,
or agent of another foreign or domestic corporation, partnership, joint venture,
other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger, consolidation, or other transaction in which the
predecessor's existence ceased upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the office of director in the
corporation; and
(ii) When used with respect to a person other than a director as
contemplated in sub-section (j), the elective or appointive office in the
corporation held by the officer, or the employment or agency relationship
undertaken by the employee or agent in behalf of the corporation.
(iii) "Official capacity" does not include service for any other foreign or
domestic corporation or any partnership, joint venture, trust, other enterprise,
or employee benefit plan.
(5) "Party" includes a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative.
(b)(1) A corporation may indemnify any director made a party to any proceeding
by reason of service in that capacity unless it is established that:
(i) The act or omission of the director was material to the matter giving
rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The director actually received an improper personal benefit in money,
property, or services; or
(iii) In the case of any criminal proceeding, the director had reasonable
cause to believe that the act or omission was unlawful.
(2)(i) Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by the director in
connection with the proceeding.
(ii) However, if the proceeding was one by or in the right of the
corporation, indemnification may not be
made in respect of any proceeding in which the director shall have been adjudged
to be liable to the corporation.
(3)(i) The termination of any proceeding by judgment, order, or settlement
does not create a presumption that the director did not meet the requisite
standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by conviction, or a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttal presumption that the director did not meet that
standard of conduct.
(c) A director may not be indemnified under subsection (B) of this section
in respect of any proceeding charging improper personal benefit to the director,
whether or not involving action in the director's official capacity, in which
the director was adjudged to be liable on the basis that personal benefit was
improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on the merits or otherwise, in the
defense of any proceeding referred to in subsection (B) of this section shall be
indemnified against reasonable expenses incurred by the director in connection
with the proceeding.
(2) A court of appropriate jurisdiction upon application of a director and
such notice as the court shall require, may order indemnification in the
following circumstances:
(i) If it determines a director is entitled to reimbursement under
paragraph
(1) of this subsection, the court shall order indemnification, in which
case the director shall be entitled to recover the expenses of securing such
reimbursement; or
(ii) If it determines that the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director has met the standards of conduct set forth in subsection (b) of this
section or has been adjudged liable under the circumstances described in
subsection (c) of this section, the court may order such indemnification as the
court shall deem proper. However, indemnification with respect to any
proceeding by or in the right of the corporation or in which liability shall
have been adjudged in the circumstances described in subsection (c) shall be
limited to expenses.
(3) A court of appropriate jurisdiction may be the same court in which the
proceeding involving the director's liability took place.
(e)(1) Indemnification under subsection (b) of this section may not be made by
the corporation unless authorized for a specific proceeding after a
determination has been made that indemnification of the director is permissible
in the circumstances because the director has met the standard of conduct set
forth in subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a quorum consisting of
directors not, at the time, parties to the proceeding, or, if such a quorum
cannot be obtained, then by a majority vote of a committee of the board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full board in which the designated directors who are parties may
participate;
(ii) By special legal counsel selected by the board of directors or a
committee of the board by vote as set forth in subparagraph (I) of this
paragraph, or, if the requisite quorum of the full board cannot be obtained
therefor and the committee cannot be established, by a majority vote of the full
board in which directors who are parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to reasonableness
of expenses shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in subparagraph (ii) of paragraph (2) of this
subsection for selection of such counsel.
(4) Shares held by directors who are parties to the proceeding may not be
voted on the subject matter under this subsection.
(f)(1) Reasonable expenses incurred by a director who is a party to a
proceeding may be paid or reimbursed by the corporation in advance of the final
disposition of the proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the director's good faith
belief that the standard of conduct necessary for indemnification by the
corporation as authorized in this section has been met; and
(ii) A written undertaking by or on behalf of the director to repay the
amount if it shall ultimately be determined that the standard of conduct has not
been met.
(2) The undertaking required by subparagraph (ii) of paragraph (1) of this
subsection shall be an unlimited
II-2
general obligation of the director but need not be secured and may be accepted
without reference to financial ability to make the repayment.
(3) Payments under this subsection shall be made as provided by the
charter, bylaws or contract or as specified in subsection (e) of this section.
(g) The indemnification and advancement of expenses provided or authorized
by this section may not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be entitled under the
charter, the bylaws, a resolution of stockholders of directors, an agreement or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office.
(h) This section does not limit the corporation's power to pay or reimburse
expenses incurred by a director in connection with an appearance as a witness in
a proceeding at a time when the director has not been made a named defendant or
respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have requested a director to serve
an employee benefit plan where the performance of the director's duties to the
corporation also imposes duties on, or otherwise involves services by, the
director to the plan or participants or beneficiaries of the plan:
(2) Excise taxes assessed on a director with respect to an employee benefit
plan pursuant to applicable law shall be deemed fined; and
(3) Action taken or omitted by the director with respect to an employee
benefit plan in the performance of the director's duties for a purpose
reasonably believed by the director to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and to the extent
provided in subsection (d) of this section for a director and shall be entitled,
to the same extent as a director, to seek indemnification pursuant to the
provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to an officer,
employee, or agent of the corporation to the same extent that it may indemnify
directors under this section; and
(3) A corporation, in addition, may indemnify and advance expenses to an
officer, employee, or agent who is not a director to such further extent,
consistent with law, as may be provided by its charter, bylaws, general or
specific action of its board of directors or contract.
(k)(1) A corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or who, while a director, officer, employee, or agent of the corporation, is or
was serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
corporation would have the power to indemnify against liability under the
provisions of this section.
(2) A corporation may provide similar protection, including a trust fund,
letter of credit, or surety bond, not inconsistent with this section.
(3) The insurance or similar protection may be provided by a subsidiary or
an affiliate of the corporation.
(l) Any indemnification of, or advance of expenses to, a director in
accordance with this section, if arising out of a proceeding by or in the right
of the corporation, shall be reported in writing to the stockholders with the
notice of the next stockholders' meeting or prior to the meeting.
II-3
Item 16. Exhibits and Financial Statement Schedules
Exhibit No. Description
- ----------- -----------
1 Form of Underwriting Agreement
4.1 Indenture of the Corporation relating to the Junior Subordinated
Debentures
4.2 Form of Certificate of Junior Subordinated Debenture (included as
Exhibit A to Exhibit 4.1)
4.3 Certificate of Trust of Sandy Spring Capital Trust I
4.4 Amended and Restated Declaration of Trust of Sandy Spring Capital
Trust I
4.5 Form of Trust Preferred Security Certificate for Sandy Spring Capital
Trust I (included as Exhibit A to Exhibit 4.4)
4.6 Form of Guarantee of the Corporation relating to the Trust Preferred
Securities
5.1 Form of Opinion and consent of Kennedy, Baris & Lundy, L.L.P. as to
legality of the Junior Subordinated Debentures and the Guarantee to be
issued by the Corporation
5.2 Form of Opinion of Richards, Layton & Finger P.A. as to legality of
the Trust Preferred Securities to be issued by Sandy Spring Capital
Trust I
8 Form of Opinion of Kennedy, Baris & Lundy, L.L.P. as to certain
federal income tax matters
12.1 Computation of ratio of earnings to fixed charges
23.1 Consent of Stegman & Company
23.2 Consent of Kennedy, Baris & Lundy, L.L.P. (included in Exhibit 5.1)
23.3 Consent of Richards, Layton & Finger P.A. (included in Exhibit 5.2)
24 Power of Attorney
25.1 Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Amended and Restated Declaration of Trust of Sandy
Spring Capital Trust I
25.2 Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
25.3 Form T-1 Statement of Eligibility of The Bank of New York under the
Guarantee for the benefit of the holders of the Trust Preferred
Securities
- --------------------
Item 17. Undertakings
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of each
undersigned Registrant pursuant to the provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by each undersigned Registrant of
expenses incurred or paid by a director, officer of controlling person of each
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, each Registrant will, unless in the opinion of its
counsel the matter has been settled by the controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-4
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Sandy Spring
Bancorp, Inc. certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Olney, State of Maryland, on the 5th day of
November 1999.
SANDY SPRING BANCORP, INC.
By: /s/ Hunter R. Hollar
-----------------------------------------
Hunter R. Hollar
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ John Chirtea* Director November 5, 1999
- -----------------
John Chirtea
/s/ Susan D. Goff* Director November 5, 1999
- ------------------
Susan D. Goff
/s/ Solomon Graham* Director November 5, 1999
- -------------------
Solomon Graham
/s/ Gilbert L. Hardesty* Director November 5, 1999
- ------------------------
Gilbert L. Hardesty
/s/ Joyce R. Hawkins* Director November 5, 1999
- ---------------------
Joyce R. Hawkins
/s/ Thomas O. Keech* Director November 5, 1999
- --------------------
Thomas O. Keech
/s/ Charles F. Mess* Director November 5, 1999
- --------------------
Charles F. Mess
/s/ Robert L. Mitchell* Director November 5, 1999
- -----------------------
Robert L. Mitchell
/s/ Robert l. Orndorff, Jr.* Director November 5, 1999
- -----------------------------
Robert L. Orndorff, Jr.
/s/ David E. Rippeon* Director November 5, 1999
- ---------------------
David E. Rippeon
/s/ Lewis R. Schumann* Director November 5, 1999
- ----------------------
Lewis R. Schumann
/s/ W. Drew Stabler* Director, Chairman of November 5, 1999
- -------------------- the Board
W. Drew Stabler
II-6
/s/ James H. Langmead Vice President, Treasurer and
- --------------------- Principal Financial and
James H. Langmead Accounting Officer
*By: /s/ Marjorie S. Holsinger
-------------------------------------
Marjorie S. Holsinger, Attorney in Fact
Pursuant to the requirements of the Securities Act of 1933, Sandy Spring
Capital Trust I certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Olney, State of Maryland, on the 5th day of
November 1999.
SANDY SPRING CAPITAL TRUST I
By: /s/ Hunter R. Hollar
----------------------------------------------
Hunter R. Hollar, Administrative Trustee
By: /s/ James H. Langmead
----------------------------------------------
James H. Langmead, Administrative Trustee
By: /s/ Lawrence T. Lewis, III
----------------------------------------------
Lawrence T. Lewis, III, Administrative Trustee
II-7