9.25% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) LOGO GUARANTEED, AS DESCRIBED
HEREIN, BY
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(1) CAPITAL TRUST(2)(3)
- --------------------------------------------------------------------------------
Per Preferred Security........... $25.00 $0.9375(2) $25.00
- --------------------------------------------------------------------------------
Total(4)......................... $43,750,000 $1,640,625(2) $43,750,000
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January 13, 1997
(the "Company"), will own all the common securities (the "Common Securities" and, together with the Preferred Securities, the "Trust Securities") representing undivided beneficial interests in the assets of Capital Trust. State Street Bank and Trust Company is the Property Trustee (as defined herein) of Capital Trust. Capital Trust exists for the purpose of issuing the Preferred Securities and investing the proceeds thereof in an equivalent amount of 9.25% Subordinated Debentures (the "Subordinated Debentures") of the Company. The Subordinated Debentures will mature on March 31, 2027, which date may be (i) shortened to a date not earlier than March 31, 2002, or (ii) extended to a date not later than March 31, 2046, in each case if certain conditions are met (including, in the case of shortening the Stated Maturity (as defined herein), the Company having received prior approval of the Board of Governors of the Federal Reserve System ("Federal Reserve") to do so if then required under applicable capital guidelines or policies of the Federal Reserve). The Preferred Securities will have a preference under certain circumstances with respect to cash distributions and amounts payable on liquidation, redemption or otherwise over the Common Securities. See "Description of the Preferred Securities--Subordination of Common Securities."
Holders of Preferred Securities are entitled to receive preferential
cumulative cash distributions, at the annual rate of 9.25% of the liquidation
amount of $25 per Preferred Security (the "Liquidation Amount"), accruing from
the date of original issuance and payable quarterly in arrears on the last day
of March, June, September and December of each year, commencing March 31, 1997
(the "Distributions"). The Company has the right, so long as no Debenture
Event of Default (as defined herein) has occurred and is continuing, to defer
payment of interest on the Subordinated Debentures at any time or from time to
time for a period not to exceed 20 consecutive quarters with respect to each
deferral period (each, an "Extended Interest Payment Period"); provided that
no Extended Interest Payment Period may extend beyond the Stated Maturity of
the Subordinated Debentures. Upon the termination of any such Extended
Interest Payment Period and the payment of all amounts then due, the Company
may elect to begin a new Extended Interest Payment Period subject to the
requirements set forth herein. If interest payments on the Subordinated
Debentures are so deferred, Distributions on the Preferred Securities will
also be deferred, and the Company will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to its capital stock or debt securities that rank pari passu with or
junior to the Subordinated Debentures. DURING AN EXTENDED INTEREST PAYMENT
PERIOD, INTEREST ON THE SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND
THE AMOUNT OF DISTRIBUTIONS TO WHICH HOLDERS OF THE PREFERRED SECURITIES ARE
ENTITLED WILL ACCUMULATE) AT THE RATE OF 9.25% PER ANNUM, COMPOUNDED
QUARTERLY, AND HOLDERS OF THE PREFERRED SECURITIES WILL BE REQUIRED TO INCLUDE
INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED STATES FEDERAL INCOME TAX
PURPOSES IN ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH RESPECT TO SUCH
DEFERRED INTEREST PAYMENTS. A HOLDER OF PREFERRED SECURITIES THAT DISPOSES OF
ITS PREFERRED SECURITIES BETWEEN RECORD DATES FOR PAYMENTS OF DISTRIBUTIONS
(AND CONSEQUENTLY DOES NOT RECEIVE A DISTRIBUTION FROM CAPITAL TRUST FOR THE
PERIOD PRIOR TO SUCH DISPOSITION) WILL NEVERTHELESS BE REQUIRED TO INCLUDE
ACCRUED BUT UNPAID INTEREST ON THE SUBORDINATED DEBENTURES THROUGH THE DATE OF
DISPOSITION IN INCOME AS ORDINARY INCOME AND TO ADD SUCH AMOUNT TO ITS
ADJUSTED TAX BASIS IN ITS PRO RATA SHARE OF THE UNDERLYING SUBORDINATED
DEBENTURES DEEMED DISPOSED OF. See "Description of the Subordinated
Debentures--Option to Extend Interest Payment Period," "Certain Federal Income
Tax Consequences--Potential Extension of Interest Payment Period and Original
Issue Discount" and "--Dispositions of Preferred Securities."
The Company and Capital Trust believe that, taken together, the obligations of the Company under the Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and the Expense Agreement (each as defined herein), provide, in the aggregate, a full, irrevocable and unconditional guaranty, on a subordinated basis, of all of the obligations of Capital Trust under the Preferred Securities. See "Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee." The Guarantee of the Company guarantees the payment of Distributions and payments on liquidation or redemption of the Preferred Securities, but only in each case to the extent of funds held by Capital Trust, as described herein. See "Description of the Guarantee--General." If the Company does not make interest payments on the Subordinated Debentures held by Capital Trust, Capital Trust will have insufficient funds to pay Distributions on
the Preferred Securities. The Guarantee does not cover payments of Distributions when Capital Trust does not have sufficient funds to pay such Distributions. In such event, a holder of Preferred Securities may institute a legal proceeding directly against the Company pursuant to the terms of the Indenture to enforce payments of amounts equal to such Distributions to such holder. See "Description of the Subordinated Debentures--Enforcement of Certain Rights by Holders of the Preferred Securities." The obligations of the Company under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations (each as defined herein) of the Company. The Subordinated Debentures are unsecured obligations of the Company and are subordinated to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company.
The Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures at maturity or their earlier redemption. Subject to Federal Reserve approval, if then required under applicable capital guidelines or policies of the Federal Reserve, the Subordinated Debentures are redeemable prior to maturity at the option of the Company (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event (each as defined herein), in each case at a redemption price equal to the accrued and unpaid interest on the Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. See "Description of the Preferred Securities--Redemption or Exchange."
The Company has the right at any time to dissolve, wind-up or terminate Capital Trust subject to the Company having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. In the event of the voluntary or involuntary dissolution, winding up or termination of Capital Trust, after satisfaction of liabilities to creditors of Capital Trust as required by applicable law, the holders of Preferred Securities will be entitled to receive a Liquidation Amount of $25 per Preferred Security, plus accumulated and unpaid Distributions thereon to the date of payment, which may be in the form of a distribution of such amount of a Subordinated Debenture having an aggregate principal amount equal to the Liquidation Amount of such Preferred Securities (and carrying with it accumulated interest in an amount equal to the accumulated and unpaid Distributions then due on such Preferred Securities), subject to certain exceptions. See "Description of the Preferred Securities--Redemption or Exchange" and "--Liquidation Distribution Upon Termination."
The Company will make available to the holders of the Preferred Securities quarterly reports containing unaudited financial information and annual reports containing financial statements audited by the Company's independent auditors to the same extent provided to holders of the Company's Common Stock. The Company will also furnish annual reports on Form 10-K and quarterly reports on Form 10-Q free of charge to holders of the Preferred Securities who so request in writing addressed to the Secretary of the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over- allotment option will not be exercised. Prospective investors should carefully consider the information set forth under the heading "RISK FACTORS."
The Company is a diversified financial services company organized as an Indiana bank holding company. The Company is engaged in several interrelated lines of business, the most significant ones of which include: mortgage banking, commercial banking, home equity lending and equipment leasing. The principal executive office of the Company is 500 Washington Street, Columbus, Indiana 47201 and its telephone number is (812) 376-1020.
As an interrelated group of specialized financial services companies, the Company has implemented a business strategy which focuses on serving selected markets and optimizing the productivity of its capital base. The four principal components of the Company's strategy are:
. EMPHASIZE SPECIALIZED FINANCIAL SERVICES. The delivery of financial services to consumer and commercial customers is the principal set of skills which unites the activities of the Company. Having evolved from a base in commercial banking, the core competencies of the Company's employees are in financial services. The Company continually seeks opportunities to leverage such core competencies. Diversification opportunities are evaluated on the basis of whether the Company's skills provide the requisite foundation for potential success in the proposed new business.
At the same time, the Company works actively to capture the synergies available from operating companies as part of an interrelated group. For example, the program through which Irwin Union Bank and Trust Company (the "Bank") invests temporarily in mortgages held for sale and originated by the Company's mortgage banking subsidiary, Inland Mortgage Corporation ("Inland"), is combined with the results of Inland to make up the "mortgage banking" line of business for management and reporting purposes. This program--and similar ones between the Bank and the Company's home equity lending and equipment leasing subsidiaries--gives the Company a lower net cost of funds with which to compete in geographically diverse markets and a reliable source of financing for its growth.
. TARGET SELECTED MARKETS. The ability to focus on defensible market segments where a sustainable competitive advantage can be created is another important concept in the Company's strategy. In the financial services marketplace, small competitors can be at a significant disadvantage against large regional and national providers unless they are able to identify a target market and differentiate their product offering. In the strategic plans of each line of business, the Company follows a discipline of defining, as clearly as possible, the market served and the basis on which it differentiates its service and product offerings to that market.
The Company's activities are conducted principally through its subsidiaries, Inland, the Bank, Irwin Home Equity Corporation ("Home Equity") and Affiliated Capital Corp. ("Affiliated"). At September 30, 1996, the Company had consolidated assets of $1.2 billion. The Company had total revenues of $143.5 million for the nine month period ended September 30, 1996. The following table sets forth information illustrating the revenues earned by each of the Company's four principal subsidiaries for the nine month period ended September 30, 1996:
% OF
BUSINESS REVENUE TOTAL REVENUE
-------- -------- -------------
(DOLLARS IN THOUSANDS)
Mortgage banking.................................... $112,300 78%
Commercial banking.................................. 19,600 14%
Home equity lending................................. 7,000 5%
Equipment leasing................................... 3,200 2%
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As a result of its emphasis on mortgage banking, a much larger proportion of the Company's revenues are derived from fee income (77% in the first nine months of 1996) and a lesser proportion from net interest income (23% in the first nine months of 1996). The Company has averaged 22.97% return on average equity over the past five years. The compound annual growth rate on net income and net income per share as shown in the table below was 31.8% and 31.2%, respectively.
The following table sets forth certain financial information for the Company and illustrates the financial strength and earnings capacity of the Company over the last five years.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ---------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income.............. $ 15,519 $ 14,785 $ 20,083 $ 18,216 $ 15,588 $ 12,866 $ 6,651
Net income per share.... 1.33 1.29 1.75 1.55 1.33 1.12 0.59
Shareholders' equity.... 112,611 93,531 99,216 81,104 70,093 55,343 42,478
Mortgage originations... 3,803,631 2,419,012 3,559,310 2,812,962 4,273,933 3,441,347 1,926,841
Mortgage servicing port-
folio.................. 10,875,458 9,684,199 10,301,914 8,818,502 7,922,299 5,470,505 2,990,808
Return on average equi-
ty..................... 19.47% 22.92% 22.60% 23.91% 24.91% 26.51% 16.93%
Return on average as-
sets................... 1.80% 2.40% 2.28% 2.43% 2.15% 1.97% 1.30%
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PRINCIPAL OPERATING SUBSIDIARIES
Mortgage Banking. Inland originates, purchases and services conventional and government agency backed (i.e., FHA and VA) residential mortgage loans. Inland generates assets for sale in the secondary markets and services such assets for investors. Substantially all mortgages are either insured by an agency of the federal government, or in the case of a conventional mortgage, meet the requirements for resale to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. At September 30, 1996, Inland operated 101 production offices in 27 states and had an owned mortgage servicing portfolio of $10.9 billion and
Commercial Banking. The Bank, organized in 1871, is a full-service commercial bank headquartered in Columbus, Indiana. It operates through 15 locations in six south central Indiana counties. The Bank offers a wide variety of financial products and services, including insurance agency services, retail brokerage services and trust services, to individual, business, institutional, and governmental customers. At September 30, 1996, the Bank held total assets, loans and shareholders' equity of $451.2 million, $346.1 million and $32.6 million, respectively. Commercial banking is the Company's most capital- intensive business. The Company has chosen to concentrate its banking efforts in the non-metropolitan markets in southern Indiana where the Company believes there is high name recognition of the Bank. The Bank's aim is to look and feel like "the local bank" in these markets. The Bank differentiates its services by being more responsive to the local customers than "out-of-town" banks, by a long-term commitment to the communities it serves, and by its knowledge of local market conditions.
Home Equity Lending. Home Equity was formed in 1994 and is located in San Ramon, California. Home Equity originates and services home equity loans and lines of credit nationwide via direct mail and telemarketing to a target market of active debt users. The home equity lending program is designed to originate loans which the Bank may choose to hold in its portfolio or sell into the secondary market. To date, Home Equity has securitized $191.6 million of the approximately $250.4 million in home equity loans and lines of credit originated.
Equipment Leasing. Affiliated, acquired in 1990 and located in Northbrook, Illinois, is engaged in the small-ticket equipment leasing and commercial lending business. Affiliated offers non-recourse, non-operating, full payout leases and commercial lines of credit to physicians and other health care professionals. At present, all of the leases generated by Affiliated are held either on its balance sheet or that of the Bank. In the future the Company may consider using available off-balance sheet funding sources.
OWNERSHIP
As of December 31, 1996, the directors and executive officers of the Company and their immediate families owned approximately 53.8% of the Company's Common Stock and, as a result, exercise substantial control over the Company.
Capital Trust is a statutory business trust formed under Delaware law pursuant to (i) a trust agreement, dated as of December 20, 1996, executed by the Company, as depositor, and the trustees of Capital Trust (together with the Property Trustee, the "Trustees"), and (ii) a certificate of trust filed with the Secretary of State of the State of Delaware on December 20, 1996. The initial trust agreement will be amended and restated in its entirety (as so amended and restated, the "Trust Agreement") substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred Securities, the purchasers thereof will own all of the Preferred Securities. The Company will acquire all of the Common Securities which will represent an aggregate liquidation amount equal to at least 3% of the total capital of Capital Trust. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Preferred Securities, except that upon the occurrence and during the continuance of an Event of Default (as defined herein) under the Trust Agreement resulting from a Debenture Event of Default, the rights of the Company as holder of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Preferred Securities. See "Description of the Preferred Securities--Subordination of Common Securities." Capital Trust exists for
The number of the Trustees will, pursuant to the Trust Agreement, initially be five. Three of the Trustees (the "Administrative Trustees") will be persons who are employees or officers of, or who are affiliated with, the Company. The fourth trustee will be a financial institution that is unaffiliated with the Company, which trustee will serve as institutional trustee under the Trust Agreement and as indenture trustee for the purposes of compliance with the provisions of the Trust Indenture Act (the "Property Trustee"). State Street Bank and Trust Company, a state chartered trust company organized under the laws of the Commonwealth of Massachusetts, will be the Property Trustee until removed or replaced by the holder of the Common Securities. For purposes of compliance with the provisions of the Trust Indenture Act, State Street Bank and Trust Company will also act as trustee (the "Guarantee Trustee") under the Guarantee and as Debenture Trustee (as defined herein) under the Indenture. The fifth trustee will be an entity that maintains its principal place of business in the State of Delaware (the "Delaware Trustee"). Wilmington Trust Company, a Delaware chartered trust company, will act as Delaware Trustee.
The Property Trustee will hold title to the Subordinated Debentures for the benefit of the holders of the Trust Securities and in such capacity will have the power to exercise all rights, powers and privileges under the Indenture. The Property Trustee will also maintain exclusive control of a segregated non- interest-bearing bank account (the "Property Account") to hold all payments made in respect of the Subordinated Debentures for the benefit of the holders of the Trust Securities. The Property Trustee will make payments of Distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. The Company, as the holder of all the Common Securities, will have the right to appoint, remove or replace any Trustee and to increase or decrease the number of the Trustees. The Company will pay all fees and expenses related to Capital Trust and the offering of the Trust Securities.
The rights of the holders of the Preferred Securities, including economic rights, rights to information and voting rights, are set forth in the Trust Agreement, the Delaware Business Trust Act (the "Trust Act") and the Trust Indenture Act. See "Description of the Preferred Securities."
Securities Offered............ 1,750,000 Preferred Securities having a
Liquidation Amount of $25.00 per Preferred
Security. The Preferred Securities represent
preferred undivided beneficial interests in the
assets of Capital Trust, which will consist
solely of the Subordinated Debentures and
payments thereunder. Capital Trust has granted
the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to
purchase up to an additional 250,000 Preferred
Securities at the initial offering price,
solely to cover over-allotments, if any.
Payment of Distributions...... The Distributions payable on each Preferred
Security will be fixed at a rate per annum of
9.25% of the Liquidation Amount of $25 per
Preferred Security, will be cumulative, will
accrue from January 17, 1997, the date of
issuance of the Preferred Securities, and will
be payable quarterly in arrears, on March 31,
June 30, September 30 and December 31 of each
year, commencing March 31, 1997. See
"Description of the Preferred Securities--
Distributions--Payment of Distributions."
Extension of Interest Payment The Company has the right, at any time, so long
Period........................ as no Debenture Event of Default has occurred
and is continuing, to defer payments of
interest on the Subordinated Debentures for a
period not exceeding 20 consecutive quarters;
provided, that no Extended Interest Payment
Period may extend beyond the Stated Maturity of
the Subordinated Debentures. As a consequence
of the extension by the Company of the interest
payment period, quarterly Distributions on the
Preferred Securities will be deferred (though
such Distributions would continue to accrue
with interest thereon compounded quarterly,
since interest will continue to accrue and
compound on the Subordinated Debentures) during
any such Extended Interest Payment Period.
During an Extended Interest Payment Period, the
Company will be prohibited, subject to certain
exceptions described herein, from declaring or
paying any cash distributions with respect to
its capital stock or debt securities that rank
pari passu with or junior to the Subordinated
Debentures. Upon the termination of any
Extended Interest Payment Period and the
payment of all amounts then due, the Company
may commence a new Extended Interest Payment
Period, subject to the foregoing requirements.
See "Description of the Preferred Securities--
Distributions--Extended Interest Payment
Period" and "Description of the Subordinated
Debentures--Option to Extend Interest Payment
Period."
Should an Extended Interest Payment Period
occur, holders of Preferred Securities will be
required to include deferred interest income in
their gross income for United States federal
income tax purposes in advance of receipt of
the cash distributions with
9
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respect to such deferred interest payments. See
"Certain Federal Income Tax Consequences--
Potential Extension of Interest Payment Period
and Original Issue Discount."
Optional Redemption...........
The Preferred Securities are subject to
redemption, in whole or in part, upon repayment
of the Subordinated Debentures at maturity or
their earlier redemption. Subject to Federal
Reserve approval, if then required under
applicable capital guidelines or policies of
the Federal Reserve, the Subordinated
Debentures are redeemable prior to maturity at
the option of the Company (i) on or after March
31, 2002, in whole at any time or in part from
time to time, or (ii) at any time, in whole
(but not in part), within 180 days following
the occurrence of a Tax Event or an Investment
Company Event, in each case at the redemption
price equal to 100% of the principal amount of
the Subordinated Debenture, together with any
accrued but unpaid interest to the date fixed
for redemption. See "Description of the
Subordinated Debentures--Redemption or
Exchange."
Distribution of Subordinated
Debentures....................
The Company has the right at any time to
terminate the Preferred Securities and cause
the Subordinated Debentures to be distributed
to holders of Preferred Securities in
liquidation of Capital Trust, subject to the
Company having received prior approval of the
Federal Reserve to do so if then required under
applicable capital guidelines or policies of
the Federal Reserve. See "Description of the
Preferred Securities--Redemption or Exchange"
and "Description of the Preferred Securities--
Liquidation Distribution Upon Termination."
Guarantee.....................
The Company has guaranteed the payment of
Distributions and payments on liquidation or
redemption of the Preferred Securities, but
only in each case to the extent of funds held
by Capital Trust, as described herein. The
Company and Capital Trust believe that, taken
together, the obligations of the Company under
the Guarantee, the Trust Agreement, the
Subordinated Debentures, the Indenture and the
Expense Agreement provide, in the aggregate, a
full, irrevocable and unconditional guarantee,
on a subordinated basis, of all of the
obligations of Capital Trust under the
Preferred Securities. The obligations of the
Company under the Guarantee and the Preferred
Securities are subordinate and junior in right
of payment to all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the
Company. If the Company does not make principal
or interest payments on the Subordinated
Debentures, Capital Trust will not have
sufficient funds to make distributions on the
Preferred Securities; in which event, the
Guarantee will not apply to such Distributions
until Capital Trust has sufficient funds
available therefor. See "Description of the
Guarantee."
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Voting Rights................. The holders of the Preferred Securities will
have no voting rights except in limited
circumstances. See "Description of the
Preferred Securities--Voting Rights; Amendment
of Trust Agreement."
Use of Proceeds............... The proceeds from the sale of the Preferred
Securities offered hereby will be used by
Capital Trust to purchase the Subordinated
Debentures issued by the Company. The Company
intends to add the net proceeds from the sale
of the Subordinated Debentures to its general
funds, to be used for general corporate
purposes, including the repayment of certain
short term borrowings of the Company. See "Use
of Proceeds."
The Nasdaq National MarketSM The Preferred Securities have been approved for
Symbol........................ quotation on the Nasdaq National MarketSM under
the symbol "IRWNP."
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NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- --------- ----------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED RESULTS OF
OPERATIONS
Interest income........ $ 64,849 $ 45,257 $ 64,161 $ 49,186 $ 49,066 $ 48,661 $ 40,305
Interest expense....... 29,363 18,649 28,568 17,633 16,688 19,228 20,672
Net interest income.... 35,486 26,608 35,593 31,553 32,378 29,433 19,633
Provision for loan
losses................ 2,774 2,140 3,073 1,727 1,577 1,910 1,054
Net interest income
after provision for
possible loan losses.. 32,712 24,468 32,520 29,826 30,801 27,523 18,579
Net gains on sale of
loans................. 25,427 11,258 21,006 2,219 14,225 10,337 2,876
Other noninterest
income................ 85,400 69,099 94,838 84,863 74,340 57,073 38,550
Noninterest expense.... 117,405 81,791 115,915 86,844 93,803 73,811 49,216
Income before income
tax expense........... 26,135 23,034 32,449 30,064 25,563 21,122 10,789
Income tax expense..... 10,616 8,249 12,366 11,848 9,975 8,256 4,138
----------- --------- ----------- --------- --------- --------- ---------
Net income............. $ 15,519 $ 14,785 $ 20,083 $ 18,216 $ 15,588 $ 12,866 $ 6,651
=========== ========= =========== ========= ========= ========= =========
PER SHARE DATA(1)
Net income
Primary................ $ 1.33 $ 1.29 $ 1.75 $ 1.55 $ 1.33 $ 1.12 $ 0.59
Fully diluted.......... 1.33 1.29 1.74 1.55 1.33 1.11 0.59
Cash dividends
declared.............. 0.18 0.17 0.22 0.18 0.15 0.10 0.08
Book value............. 9.91 8.27 8.76 7.21 6.03 4.82 3.77
Dividend payout ratio.. 13.17% 12.58% 12.36% 11.38% 11.12% 8.88% 13.52%
SELECTED BALANCE SHEET
DATA
Assets................. $ 1,161,735 $ 978,947 $ 1,038,307 $ 659,671 $ 881,864 $ 602,465 $ 598,024
Securities(2).......... 69,552 63,822 60,869 77,357 95,350 46,673 50,549
Total mortgage
servicing rights...... 66,606 40,544 48,535 18,834 11,505 10,156 8,045
Loans held for sale.... 318,282 352,941 378,658 154,964 370,755 218,080 264,740
Loans and leases....... 575,983 413,594 412,525 308,411 256,116 210,359 180,789
Allowance for loan and
lease losses.......... 6,111 4,463 4,620 3,863 3,293 3,220 2,282
Deposits............... 613,713 551,645 563,999 439,918 500,370 389,323 337,927
Shareholders' equity... 112,611 93,531 99,216 81,104 70,093 55,343 42,478
Long-term debt......... 19,515 21,525 21,575 24,029 17,781 12,302 6,848
SELECTED MORTGAGE DATA
Mortgage originations.. 3,803,631 2,419,012 3,559,310 2,812,962 4,273,933 3,441,347 1,926,841
Total mortgage loans
serviced.............. 10,875,458 9,684,199 10,301,914 8,818,502 7,922,299 5,470,505 2,990,808
PERFORMANCE RATIOS(3)
Return on average
equity................ 19.47% 22.92% 22.60% 23.91% 24.91% 26.51% 16.93%
Return on average
assets................ 1.80 2.40 2.28 2.43 2.15 1.97 1.30
Net interest margin.... 4.88 5.02 4.93 5.03 5.19 5.10 4.49
ASSET QUALITY RATIOS
Allowance for possible
loan losses to loans.. 1.06% 1.08% 1.12% 1.25% 1.29% 1.53% 1.26%
Nonperforming loans to
loans................. 0.61 0.61 0.58 0.90 1.38 1.68 0.54
Allowance for possible
loan losses to
nonperforming loans... 1.74 1.78 1.93 1.39 0.94 0.91 2.34
Nonperforming assets to
total loans........... 0.70 0.71 0.65 1.06 1.62 2.20 0.65
Net loan losses to
average loans(3)...... 0.29 0.59 0.57 0.41 0.65 0.50 0.41
Provision for loan
losses to average
loans(3).............. 0.75 0.82 0.83 0.62 0.68 0.98 0.63
CAPITAL RATIOS
Average equity to
average assets........ 9.24% 10.46% 10.07% 10.17% 8.62% 7.45% 7.67%
Tier 1 risk-based
capital ratio......... 12.16 13.45 13.80 18.31 14.97 15.59 12.56
Total risk-based
capital ratio......... 12.90 14.15 14.49 19.18 15.68 16.50 13.24
Leverage ratio......... 8.62 10.47 10.57 10.82 9.63 8.48 8.23
RATIO OF EARNINGS TO
FIXED CHARGES(4)
Including interest on
deposits.............. 1.89x 2.24x 2.14x 2.70x 2.53x 2.10x 1.52x
Excluding interest on
deposits.............. 2.64 3.80 3.37 4.53 3.99 3.20 2.72
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Capital Trust will use the gross proceeds received from the sale of the Preferred Securities to purchase Subordinated Debentures from the Company. The Company intends to use the net proceeds from the sale of the Subordinated Debentures to reduce certain short-term borrowings of the Company having an average maturity under one year and for which interest rates during 1996 ranged from approximately 5.5% to 8.25%. Following such repayment, additional funds will be available to the Company for borrowing under such facilities, which amounts may be used by the Company from time to time for general corporate purposes.
Capital Trust will be treated, for financial reporting purposes, as a subsidiary of the Company and, accordingly, the accounts of Capital Trust will be included in the consolidated financial statements of the Company. The Preferred Securities will be presented as a separate line item in the consolidated balance sheet of the Company under the caption "Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures," and appropriate disclosures about the Preferred Securities, the Guarantee and the Subordinated Debentures will be included in the notes to consolidated financial statements.
All future reports of the Company filed under the Exchange Act will (a) present the Trust Securities issued by Capital Trust on the balance sheet as a separate line-item entitled "Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures," (b) include in a footnote to the financial statements disclosure that the sole assets of Capital Trust are the Subordinated Debentures (including the outstanding principal amount, interest rate and maturity date of such Subordinated Debentures), and (c) include in a footnote to the financial statements disclosure that the Company owns all of the Common Securities of Capital Trust, the sole assets of Capital Trust are the Subordinated Debentures, and the back-up obligations, in the aggregate constitute a full and unconditional guarantee by the Company of the obligations of Capital Trust under the Preferred Securities.
The following table sets forth (i) the consolidated capitalization of the Company at September 30, 1996, and (ii) the consolidated capitalization of the Company giving effect to the issuance of the Preferred Securities hereby offered by Capital Trust and application by the Company of the net proceeds from the corresponding sale of the Subordinated Debentures to Capital Trust, as if the sale of the Preferred Securities had been consummated on September 30, 1996, and assuming the Underwriters' over-allotment option was not exercised.
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
SHORT-TERM DEBT:
Total short-term debt payable..................... $ 359,513 $317,604
=========== ===========
LONG-TERM DEBT:
Total long-term debt payable...................... $ 19,515 $ 19,515
----------- -----------
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE
COMPANY'S SUBORDINATED DEBENTURES:(1)
Guaranteed preferred beneficial interests in the
Company's subordinated debentures................ $ -- $ 43,750
Less expenses relating to the issuance of the
Preferred Securities............................. -- (1,841)
----------- -----------
Net proceeds received from the sale of
guaranteed preferred beneficial interests in
the Company's subordinated debentures.......... $ -- $ 41,909
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock; no par value-- authorized 50,000
shares; none issued.............................. $ -- $ --
Common Stock; no par value-- authorized 40,000,000
shares; 11,701,040 shares, including 339,564 in
treasury......................................... 29,965 29,965
Unrealized loss on investment securities.......... (11) (11)
Retained earnings................................. 87,882 87,882
Treasury Stock.................................... (5,225) (5,225)
----------- -----------
Total shareholders' equity...................... 112,611 112,611
----------- -----------
Total capitalization............................ $ 132,126 $ 174,035
=========== ===========
CAPITAL RATIOS:
Shareholders' equity to total assets.............. 9.69% 9.69%
Leverage ratio(2)(3)(4)........................... 8.62% 11.50%
Risk-based capital ratios(3)(4)
Tier 1 capital to risk-weighted assets.......... 12.16% 16.22%
Total risk-based capital to risk-weighted
assets......................................... 12.90% 16.96%
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Prospective investors should carefully consider, together with the other information contained and incorporated by reference in this Prospectus, the following risk factors before purchasing the Preferred Securities offered hereby. Prospective investors should note, in particular, that this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Act of 1934, as amended (the "Exchange Act"), and that actual results could differ materially from those contemplated by such statements. These considerations are not intended to represent a complete list of the general or specific risks that may affect the Preferred Securities, the Subordinated Debentures or the Company and Capital Trust. It should be recognized that other risks may be significant, presently or in the future.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued for the benefit of the holders of Preferred Securities and under the Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company. At September 30, 1996, the consolidated outstanding Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company was approximately $379.0 million. The right of the Company to participate in any distribution of assets of any of its subsidiaries upon such subsidiary's liquidation or reorganization or otherwise (and thus the ability of holders of the Preferred Securities to benefit indirectly from such distribution) is subject to the prior claims of creditors of that subsidiary, except to the extent that the Company may itself be recognized as a creditor of that subsidiary. The Subordinated Debentures, therefore, will be effectively subordinated to all existing and future liabilities of the subsidiaries and holders of Subordinated Debentures and Preferred Securities should look only to the assets of the Company for payments on the Subordinated Debentures. Neither the Indenture, the Guarantee nor the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior Debt, Subordinated Debt and Additional Senior Obligations, that may be incurred by the Company. See "Description of the Guarantee--Status of the Guarantee" and "Description of the Subordinated Debentures--Subordination."
The ability of Capital Trust to pay amounts due on the Preferred Securities is solely dependent upon the Company making payments on the Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest on the Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each Extended Interest Payment Period; provided that no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of any such deferral, quarterly Distributions on the Preferred Securities by Capital Trust will be deferred (and the amount of Distributions to which holders of the Preferred Securities are entitled will accumulate additional Distributions thereon at the rate of 9.25% per annum, compounded quarterly from the relevant payment date for such Distributions) during any such Extended Interest Payment Period. During any such Extended Interest Payment Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock (other than the reclassification of any class of the Company's capital stock into another class of capital stock), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Prior to the termination of any such Extended Interest Payment Period, the Company may further defer the payment of interest; provided that no Extended
Should an Extended Interest Payment Period occur, each holder of Preferred Securities will be required to accrue and recognize income (in the form of original issue discount) in respect of its pro rata share of the interest accruing on the Subordinated Debentures held by Capital Trust for United States federal income tax purposes. A holder of Preferred Securities must, as a result, include such income in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash related to such income from Capital Trust if the holder disposes of the Preferred Securities prior to the record date for the payment of the related Distributions. See "Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount."
The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. Should the Company elect, however, to exercise such right in the future, the market price of the Preferred Securities is likely to be adversely affected. A holder that disposes of its Preferred Securities during an Extended Interest Payment Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. As a result of the existence of the Company's right to defer interest payments, the market price of the Preferred Securities may be more volatile than the market prices of other securities on which original issue discount accrues that are not subject to such optional deferrals.
TAX EVENT OR INVESTMENT COMPANY EVENT; REDEMPTION
The Company has the right to redeem the Subordinated Debentures in whole (but not in part) within 180 days following the occurrence of a Tax Event or Investment Company Event (whether occurring before or after March 31, 2002), and, therefore, cause a mandatory redemption of the Preferred Securities. The exercise of such right is subject to the Company having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve.
"Tax Event" means the receipt by Capital Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) Capital 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 Subordinated Debentures, (ii) interest payable by the Company on the Subordinated Debentures is not, or, within 90 days of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, or (iii) Capital Trust is, or will be within 90 days of the date of the opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. The Company must request and receive an opinion with regard to such matters within a reasonable period of time after the Company becomes aware of the possible occurrence of any of the events described in clauses (i) through (iii) above.
"Investment Company Event" means the receipt by Capital Trust of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or
See "Risk Factors--Proposed Tax Legislation" for a discussion of certain legislative proposals that, if adopted, could give rise to a Tax Event, which may permit the Company to cause a redemption of the Preferred Securities prior to March 31, 2002.
SHORTENING OR EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES
The Company has the right, at any time, to shorten the maturity of the Subordinated Debentures to a date not earlier than March 31, 2002. The exercise of such right is subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company also has the right to extend the maturity of the Subordinated Debentures (whether or not Capital Trust is terminated and the Subordinated Debentures are distributed to holders of the Preferred Securities) to a date no later than March 31, 2046, the 49th anniversary of the initial issuance of the Preferred Securities. Such right may only be exercised, however, if at the time such election is made and at the time of such extension (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in default in the payment of any interest or principal on the Subordinated Debentures, and (iii) Capital Trust is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated. See "Description of the Subordinated Debentures--General."
RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities, to the extent not paid by Capital Trust, (i) any accrued and unpaid Distributions required to be paid on the Preferred Securities, to the extent that Capital Trust has funds available therefor at such time, (ii) the Redemption Price (as defined herein) with respect to any Preferred Securities called for redemption, to the extent that Capital Trust has funds available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of Capital Trust (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all of the Preferred Securities), the lesser of (a) the amount of the Liquidation Distribution (as defined herein), to the extent Capital Trust has funds available therefor at such time, and (b) the amount of assets of Capital Trust remaining available for distribution to holders of the Preferred Securities in liquidation of Capital Trust. The holders of not less than a majority in Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against Capital Trust, the Guarantee Trustee or any other Person (as defined in the Guarantee). If the Company were to default on its obligation to pay amounts payable under the Subordinated Debentures, Capital Trust would lack funds for the payment of Distributions or amounts payable on redemption of the Preferred Securities or otherwise, and, in such event, holders of Preferred Securities would not be able to rely upon the Guarantee for such amounts. In the event, however, that a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest on or principal of the Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Preferred Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such holder (a "Direct Action"). The exercise by the Company of its right, as described herein, to defer the payment of interest on the Subordinated Debentures does not constitute a Debenture Event of Default. In connection with such Direct Action, the Company will have a right of set-off under the Indenture to the extent of any payment made by the Company to such holder of Preferred Securities in the Direct Action. Except as described herein, holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Subordinated Debentures or assert
NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES
Holders of Preferred Securities will have no voting rights except in limited circumstances relating only to the modification of the Preferred Securities and the exercise of the rights of Capital Trust as holder of the Subordinated Debentures and the Guarantee. Holders of Preferred Securities will not be entitled to vote to appoint, remove or replace the Property Trustee or the Delaware Trustee, as such voting rights are vested exclusively in the holder of the Common Securities (except upon the occurrence of certain events described herein). The Property Trustee, the Administrative Trustees and the Company may amend the Trust Agreement without the consent of holders of Preferred Securities to ensure that Capital Trust will be classified for United States federal income tax purposes as a grantor trust even if such action adversely affects the interests of such holders. See "Description of the Preferred Securities--Voting Rights; Amendment of Trust Agreement" and "Description of the Preferred Securities--Removal of Capital Trust Trustees."
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes that would, among other things, generally deny corporate issuers a deduction for interest in respect of certain debt obligations issued on or after December 7, 1995 (the "Proposed Legislation") if such debt obligations have a maximum term in excess of 20 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint statement (the "Joint Statement") indicating their intent that certain legislative proposals initiated by the Clinton administration, including the Proposed Legislation, that may be adopted by either of the tax-writing committees of Congress would have an effective date that is no earlier than the date of "appropriate Congressional action." In addition, subsequent to the publication of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials concurring with the views expressed in the Joint Statement (the "Democrat Letters"). Based upon the Joint Statement and the Democrat Letters, it is expected that if the Proposed Legislation were to be enacted, such legislation would not apply to the Subordinated Debentures. There can be no assurances, however, that the effective date guidance contained in the Joint Statement and the Democrat Letters will be incorporated into the Proposed Legislation, if enacted, or that other legislation enacted after the date hereof will not otherwise adversely affect the ability of the Company to deduct the interest payable on the Subordinated Debentures. There can, therefore, be no assurance that a Tax Event will not occur. A Tax Event would permit the Company, upon approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, to cause a redemption of the Preferred Securities before, as well as after, March 31, 2002. See "Description of the Subordinated Debentures--Redemption or Exchange--Tax Event Redemption or Investment Company Event Redemption" and "Certain Federal Income Tax Consequences--Effect of Proposed Changes in Tax Laws."
REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES
The Company has the right at any time to dissolve, wind-up or terminate Capital Trust and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities in exchange therefor in liquidation of Capital Trust. The exercise of such right is subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company will have the right, in certain circumstances, to redeem the Subordinated Debentures in whole or in part, in lieu of a distribution of the Subordinated Debentures by Capital Trust, in which event Capital Trust will redeem the Trust Securities on a pro rata basis to the same extent as the Subordinated Debentures are
Under current United States federal income tax law, a distribution of Subordinated Debentures upon the dissolution of Capital Trust would not be a taxable event to holders of the Preferred Securities. If, however, Capital Trust is characterized as an association taxable as a corporation at the time of the dissolution of Capital Trust, the distribution of the Subordinated Debentures may constitute a taxable event to holders of Preferred Securities. Moreover, upon occurrence of a Tax Event, a dissolution of Capital Trust in which holders of the Preferred Securities receive cash may be a taxable event to such holders. See "Certain Federal Income Tax Consequences--Receipt of Subordinated Debentures or Cash Upon Liquidation of Capital Trust."
There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities upon a dissolution or liquidation of Capital Trust. The Preferred Securities or the Subordinated Debentures, may, therefore, trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Subordinated Debentures, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debentures and should carefully review all the information regarding the Subordinated Debentures contained herein.
If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of Capital Trust, the Company will use its best efforts to list the Subordinated Debentures on the Nasdaq National Market or such stock exchanges, if any, on which the Preferred Securities are then listed.
TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES
The Preferred Securities may trade at prices that do not fully reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder of Preferred Securities that disposes of its Preferred Securities between record dates for payments of Distributions (and consequently does not receive a Distribution from Capital Trust for the period prior to such disposition) will nevertheless be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income and to add such amount to its adjusted tax basis in its pro rata share of the underlying Subordinated Debentures deemed disposed of. Such holder will recognize a capital loss to the extent the selling price (which may not fully reflect the value of accrued but unpaid interest) is less than its adjusted tax basis (which will include all accrued but unpaid interest). Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences-- Disposition of Preferred Securities."
There is no current public market for the Preferred Securities. Although application has been made to have the Preferred Securities approved for quotation on the Nasdaq National Market, there can be no assurance that an active public market will develop for the Preferred Securities or that, if such market develops, the market price will equal or exceed the public offering price set forth on the cover page of this Prospectus. The public offering price for the Preferred Securities has been determined through negotiations between the Company and the Underwriters. Prices for the Preferred Securities will be determined in the marketplace and may be influenced by many factors, including prevailing interest rates, the liquidity of the market for the Preferred Securities, investor perceptions of the Company and general industry and economic conditions.
PREFERRED SECURITIES ARE NOT INSURED
The Preferred Securities are not insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or by any other governmental agency.
The Preferred Securities will be issued pursuant to the terms of the Trust Agreement. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act. The Property Trustee, State Street Bank and Trust Company, will act as indenture trustee for the Preferred Securities under the Trust Agreement for purposes of complying with the provisions of the Trust Indenture Act. The terms of the Preferred Securities will include those stated in the Trust Agreement and those made part of the Trust Agreement by the Trust Indenture Act. The following summary of the material terms and provisions of the Preferred Securities and the Trust Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Agreement, the Trust Act, and the Trust Indenture Act. Wherever particular defined terms of the Trust Agreement are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Trust Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of Capital Trust, will issue the Trust Securities. All of the Common Securities will be owned by the Company. The Preferred Securities will represent preferred undivided beneficial interests in the assets of Capital Trust and the holders thereof will be entitled to a preference in certain circumstances with respect to Distributions and amounts payable on redemption or liquidation over the Common Securities, as well as other benefits as described in the Trust Agreement. The Trust Agreement does not permit the issuance by Capital Trust of any securities other than the Trust Securities or the incurrence of any indebtedness by Capital Trust.
The Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Common Securities, except as described under "-- Subordination of Common Securities." Legal title to the Subordinated Debentures will be held by the Property Trustee in trust for the benefit of the holders of the Trust Securities. The Guarantee executed by the Company for the benefit of the holders of the Preferred Securities will be a guarantee on a subordinated basis with respect to the Preferred Securities, but will not guarantee payment of Distributions or amounts payable on redemption or liquidation of such Preferred Securities when Capital Trust does not have funds on hand available to make such payments. State Street Bank and Trust Company, as Guarantee Trustee, will hold the Guarantee for the benefit of the holders of the Preferred Securities. See "Description of the Guarantee."
DISTRIBUTIONS
PAYMENT OF DISTRIBUTIONS. Distributions on each Preferred Security will be payable at the annual rate of 9.25% of the stated Liquidation Amount of $25, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, to the holders of the Preferred Securities on the relevant record dates (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). The record date will be the 15th day of the month in which the relevant Distribution Date occurs. Distributions will accumulate from the date of original issuance. The first Distribution Date for the Preferred Securities will be March 31, 1997. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distributions payable on such date will be made on the next succeeding day that is a Business Day (and without any additional Distributions, interest or other payment in respect of any such delay) with the same force and effect as if made on the date such payment was originally due and payable. "Business Day" means any day other than a Saturday or a Sunday, or a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or a day on which the corporate trust office of the Property Trustee or the Debenture Trustee is closed for business.
The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures.
SOURCE OF DISTRIBUTIONS. The funds of Capital Trust available for distribution to holders of its Preferred Securities will be limited to payments under the Subordinated Debentures in which Capital Trust will invest the proceeds from the issuance and sale of its Trust Securities. See "Description of the Subordinated Debentures." Distributions will be paid through the Property Trustee who will hold amounts received in respect of the Subordinated Debentures in the Property Account for the benefit of the holders of the Trust Securities. If the Company does not make interest payments on the Subordinated Debentures, the Property Trustee will not have funds available to pay Distributions on the Preferred Securities. The payment of Distributions (if and to the extent Capital Trust has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed by the Company. See "Description of the Guarantee."
Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the register of holders of the Preferred Securities on the relevant record dates, which date will be the 15th day of the month in which the relevant Distribution Date occurs. Subject to any applicable laws and regulations and the provisions of the Trust Agreement, each such payment will be made as described above under "--Distributions--Payment of Distributions."
REDEMPTION OR EXCHANGE
GENERAL. The Subordinated Debentures will mature on March 31, 2027. The Company will have the right to redeem the Subordinated Debentures (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event, in each case subject to receipt of prior approval by the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. The Company will not have the right to purchase the Subordinated Debentures, in whole or in part, from Capital Trust until after March 31,
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in part, of any Subordinated Debentures, whether at Stated Maturity or upon earlier redemption as provided in the Indenture, the proceeds from such repayment or redemption will be applied by the Property Trustee to redeem a Like Amount (as defined herein) of the Trust Securities, upon not less than 30 nor more than 60 days notice, at a redemption price (the "Redemption Price") equal to the aggregate Liquidation Amount of such Trust Securities plus accumulated but unpaid Distributions thereon to the date of redemption (the "Redemption Date"). See "Description of the Subordinated Debentures--Redemption or Exchange." If less than all of the Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds from such repayment or redemption will be allocated to the redemption of the Trust Securities pro rata.
DISTRIBUTION OF SUBORDINATED DEBENTURES. Subject to the Company having received prior approval of the Federal Reserve if so required under applicable capital guidelines or policies of the Federal Reserve, the Company will have the right at any time to dissolve, wind-up or terminate Capital Trust and, after satisfaction of the liabilities of creditors of Capital Trust as provided by applicable law, cause the Subordinated Debentures to be distributed to the holders of Trust Securities in liquidation of Capital Trust. See "--Liquidation Distribution Upon Termination."
TAX EVENT REDEMPTION OR INVESTMENT COMPANY EVENT REDEMPTION. If a Tax Event or an Investment Company Event in respect of the Trust Securities occurs and is continuing, the Company has the right to redeem the Subordinated Debentures in whole (but not in part) and thereby cause a mandatory redemption of such Trust Securities in whole (but not in part) at the Redemption Price within 180 days following the occurrence of such Tax Event or Investment Company Event. In the event a Tax Event or an Investment Company Event in respect of the Trust Securities has occurred and the Company does not elect to redeem the Subordinated Debentures and thereby cause a mandatory redemption of such Trust Securities or to liquidate Capital Trust and cause the Subordinated Debentures to be distributed to holders of such Trust Securities in liquidation of Capital Trust as described below under "--Liquidation Distribution Upon Termination," such Preferred Securities will remain outstanding and Additional Interest (as defined herein) may be payable on the Subordinated Debentures.
"Additional Interest" means the additional amounts as may be necessary in order that the amount of Distributions then due and payable by Capital Trust on the outstanding Trust Securities will not be reduced as a result of any additional taxes, duties and other governmental charges to which Capital Trust has become subject as a result of a Tax Event.
"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 Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture, which will be used to pay the Redemption Price of such Trust Securities, and (ii) with respect to a distribution of Subordinated Debentures to holders of Trust Securities in connection with a dissolution or liquidation of Capital Trust, Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Subordinated Debentures are distributed. Each Subordinated Debenture distributed pursuant to clause (ii) above will carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Subordinated Debenture.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
After the liquidation date fixed for any distribution of Subordinated Debentures for Preferred Securities (i) such Preferred Securities will no longer be deemed to be outstanding, and (ii) any certificates representing Preferred Securities will be deemed to represent the Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Preferred Securities, and bearing accrued and unpaid interest in an amount
There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities if a dissolution and liquidation of Capital Trust were to occur. The Preferred Securities that an investor may purchase, or the Subordinated Debentures that an investor may receive on dissolution and liquidation of Capital Trust, may, therefore, trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of the Subordinated Debentures. Redemptions of the Preferred Securities will be made and the Redemption Price will be payable on each Redemption Date only to the extent that Capital Trust has funds on hand available for the payment of such Redemption Price. See "--Subordination of Common Securities."
If Capital Trust gives a notice of redemption in respect of its Preferred Securities, then the Property Trustee, to the extent funds are available, will irrevocably deposit with the paying agent for the Preferred Securities funds sufficient to pay the aggregate Redemption Price and will give the paying agent for the Preferred Securities irrevocable instructions and authority to pay the Redemption Price to the holders thereof upon surrender of their certificates evidencing such Preferred Securities. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Preferred Securities called for redemption will be payable to the holders of such Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption will have been given and funds deposited as required, then upon the date of such deposit, all rights of the holders of such Preferred Securities so called for redemption will cease, except the right of the holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price, and such Preferred Securities will cease to be outstanding. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any additional Distribution, interest or other payment in respect of any such delay) with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of Preferred Securities called for redemption is improperly withheld or refused and not paid either by Capital Trust, or by the Company pursuant to the Guarantee, Distributions on such Preferred Securities will continue to accrue at the then applicable rate, from the Redemption Date originally established by Capital Trust for such Preferred Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. See "Description of the Guarantee."
Subject to applicable law (including, without limitation, United States federal securities law) and further provided, that the Company has not and is not continuing to exercise its right to defer interest payments, the Company or its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any distribution of Subordinated Debentures to holders of Preferred Securities will be made to the applicable recordholders thereof as they appear on the register for the Preferred Securities on the relevant record date, which date will be the date 15 days prior to the Redemption Date or liquidation date, as applicable.
If less than all of the Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such Trust Securities to be redeemed will be allocated pro rata to the Trust Securities based upon the relative Liquidation Amounts of such classes. The particular Preferred Securities to be redeemed will be selected by the Property Trustee from the outstanding Preferred Securities not previously called for
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 Trust Securities to be redeemed at its registered address. Unless the Company defaults in payment of the redemption price on the Subordinated Debentures, on and after the Redemption Date interest will cease to accrue on such Subordinated Debentures or portions thereof (and Distributions will cease to accrue on the related Preferred Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred Securities and Common Securities, as applicable, will be made pro rata based on the Liquidation Amount of the Preferred Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture Event of Default has occurred and is continuing, no payment of any Distribution on, or Redemption Price of, any of the Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of such Common Securities, will be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all of the outstanding Preferred Securities then called for redemption, will 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 Preferred Securities then due and payable.
In the case of any Event of Default resulting from a Debenture Event of Default, the Company as holder of the Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under the Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Events of Default under the Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee will act solely on behalf of the holders of the Preferred Securities and not on behalf of the Company, as holder of the Common Securities, and only the holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The Company will have the right at any time to dissolve, wind-up or terminate Capital Trust and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities. Such right is subject, however, to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve.
Pursuant to the Trust Agreement, Capital Trust will automatically terminate upon expiration of its term and will terminate earlier on the first to occur of (i) certain events of bankruptcy, dissolution or liquidation of the Company, (ii) the distribution of a Like Amount of the Subordinated Debentures to the holders of its Trust Securities, if the Company, as depositor, has given written direction to the Property Trustee to terminate Capital Trust (which direction is optional and wholly within the discretion of the Company, as depositor), (iii) redemption of all of the Preferred Securities as described under "Description of the Preferred Securities--Redemption or Exchange--Mandatory Redemption," or (iv) the entry of an order for the dissolution of Capital Trust by a court of competent jurisdiction.
Under current United States federal income tax law and interpretations and assuming, as expected, that Capital Trust is treated as a grantor trust, a distribution of the Subordinated Debentures should not be a taxable event to holders of the Preferred Securities. Should there be a change in law, a change in legal interpretation, a Tax Event or other circumstances, however, the distribution could be a taxable event to holders of the Preferred Securities. See "Certain Federal Income Tax Consequences--Receipt of Subordinated Debentures or Cash Upon Liquidation of Capital Trust." If the Company elects neither to redeem the Subordinated Debentures prior to maturity nor to liquidate Capital Trust and distribute the Subordinated Debentures to holders of the Preferred Securities, the Preferred Securities will remain outstanding until the repayment of the Subordinated Debentures.
If the Company elects to liquidate Capital Trust and thereby causes the Subordinated Debentures to be distributed to holders of the Preferred Securities in liquidation of Capital Trust, the Company will continue to have the right to shorten or extend the maturity of such Subordinated Debentures, subject to certain conditions. See "Description of the Subordinated Debentures--General."
LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Preferred Securities in the event of any liquidation of Capital Trust is $25 per Preferred Security plus accrued and unpaid Distributions thereon to the date of payment, which may be in the form of a distribution of such amount in Subordinated Debentures, subject to certain exceptions. See "--Liquidation Distribution Upon Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under the Trust Agreement (an "Event of Default") with respect to the Preferred Securities (whatever the reason for such Event of Default and whether voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of the Subordinated Debentures--Debenture Events of Default"); or
(ii) default by Capital Trust in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or
(iii) default by Capital Trust in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in the Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clauses (ii) or (iii) above), and continuation of such default or breach
(v) the occurrence of certain events of bankruptcy or insolvency with respect to the Property Trustee and the failure by the Company to appoint a successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee will transmit notice of such Event of Default to the holders of the Preferred Securities, the Administrative Trustees and the Company, as depositor, unless such Event of Default has been cured or waived. The Company, as depositor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Preferred Securities will have a preference over the Common Securities upon termination of Capital Trust. See "--Liquidation Distribution Upon Termination." The existence of an Event of Default does not entitle the holders of Preferred Securities to accelerate the maturity thereof.
REMOVAL OF CAPITAL TRUST TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any Trustee may be removed at any time by the holder of the Common Securities. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Preferred Securities. In no event, however, will the holders of the Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Company as the holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee will be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement.
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 part of the Trust Property (as defined in the Trust Agreement) may at the time be located, the Company, as the holder of the Common Securities, will have power to appoint one or more Persons (as defined in the Trust Agreement) either to act as a co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to act as separate trustee of any such Trust Property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such 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 such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural Person may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Trustee is a party, or any Person succeeding to all or substantially all the corporate trust business of such Trustee, will be the successor of such Trustee under the Trust Agreement, provided such Person is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF CAPITAL TRUST
Capital Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except as
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the Guarantee--Amendments and Assignment" and as otherwise required by the Trust Act and the Trust Agreement, the holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the Property Trustee and the Administrative Trustees, without the consent of the holders of the Preferred Securities (i) with respect to acceptance of appointment by a successor trustee, (ii) to cure any ambiguity, correct or supplement any provisions in such Trust Agreement that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement (provided such amendment is not inconsistent with the other provisions of the Trust Agreement), or (iii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as is necessary to ensure that Capital 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 Capital Trust will not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (ii), such action may not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments of such Trust Agreement will become effective when notice thereof is given to the holders of Trust Securities. The Trust Agreement may be amended by the Trustees and the Company with (i) the consent of holders representing not less than a majority in the aggregate Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect Capital Trust's status as a grantor trust for United
The Trustees will not, so long as any Subordinated Debentures are held by the Property Trustee, (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Property Trustee with respect to the Subordinated Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures will be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Debentures, where such consent is required, without, in each case, obtaining the prior approval of the holders of a majority in aggregate Liquidation Amount of all outstanding Preferred Securities; provided, however, that where a consent under the Indenture requires the consent of each holder of Subordinated Debentures affected thereby, no such consent will be given by the Property Trustee without the prior consent of each holder of the Preferred Securities. The Trustees may not revoke any action previously authorized or approved by a vote of the holders of the Preferred Securities except by subsequent vote of the holders of the Preferred Securities. The Property Trustee will notify each holder of Preferred Securities of any notice of default with respect to the Subordinated Debentures. In addition to obtaining the foregoing approvals of the holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees must obtain an opinion of counsel experienced in such matters to the effect that Capital Trust will not be classified as an association taxable as a corporation for United States federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a meeting of holders of Preferred Securities convened for such purpose or pursuant to written consent. The Property Trustee will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of Preferred Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required for Capital Trust to redeem and cancel its Preferred Securities in accordance with the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Company, the Trustees or any affiliate of the Company or any Trustee, will, for purposes of such vote or consent, be treated as if they were not outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities will be made by check mailed to the address of the holder entitled thereto as such address will appear on the register of holders of the Preferred Securities. The paying agent for the Preferred Securities will initially be the Property Trustee and any co-paying agent chosen by the Property Trustee and acceptable to the Administrative Trustees and the Company. The paying agent for the Preferred Securities may resign as paying agent upon 30 days' written notice to the Property Trustee and the Company. In the event that the Property Trustee no longer is the paying agent for the Preferred Securities, the Administrative Trustees will appoint a successor (which must be a bank or trust company acceptable to the Administrative Trustees and the Company) to act as paying agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent for the Preferred Securities. Registration of transfers of Preferred Securities will be effected without charge by or on behalf of Capital Trust, but upon
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in the Trust Agreement and, after such Event of Default, must exercise the same degree of care and skill as a prudent Person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. 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 Preferred Securities are entitled under the Trust Agreement to vote, then the Property Trustee will take such action as is directed by the Company and if not so directed, will take such action as it deems advisable and in the best interests of the holders of the Trust Securities and will have no liability except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the affairs of and to operate Capital Trust in such a way that Capital Trust will not be deemed to be an "investment company" required to be registered under the Investment Company Act or classified as an association taxable as a corporation for United States federal income tax purposes and so that the Subordinated Debentures will be treated as indebtedness of the Company for United States federal income tax purposes. The Company and the Administrative Trustees are authorized, in this connection, to take any action, not inconsistent with applicable law, the certificate of trust of Capital Trust or the Trust Agreement, that the Company and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware.
Concurrently with the issuance of the Preferred Securities, Capital Trust will invest the proceeds thereof, together with the consideration paid by the Company for the Common Securities, in the Subordinated Debentures issued by the Company. The Subordinated Debentures will be issued as unsecured debt under the Indenture, to be dated as of January 17, 1997 ("Indenture"), between the Company and State Street Bank and Trust Company, as trustee (the "Debenture Trustee"). The Indenture will be qualified as an indenture under the Trust Indenture Act. The following summary of the material terms and provisions of the Subordinated Debentures and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture and to the Trust Indenture Act. Wherever particular defined terms of the Indenture are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Indenture has been filed as an exhib