-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fZmhsnK3VI0O4xsycwVfLklOnFNTcCMm75rARu+ml2R/gBG7Iy0LhkignExFA/ss CQ13NYH5zxvyqLUWH8+gfQ== 0000893220-95-000496.txt : 19950803 0000893220-95-000496.hdr.sgml : 19950803 ACCESSION NUMBER: 0000893220-95-000496 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950802 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANTA CORP CENTRAL INDEX KEY: 0000096638 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 231462070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-60419 FILM NUMBER: 95558207 BUSINESS ADDRESS: STREET 1: 650 NAAMANS RD STREET 2: BRANDYWINE CORP CTR CITY: CLAYMONT STATE: DE ZIP: 19703 BUSINESS PHONE: 2156574000 MAIL ADDRESS: STREET 1: BRANDYWINE CORPORATE CENTER STREET 2: 650 NAAMANS ROAD CITY: CLAYMONT STATE: DE ZIP: 19703 FORMER COMPANY: FORMER CONFORMED NAME: TSO FINANCIAL CORP DATE OF NAME CHANGE: 19880306 FORMER COMPANY: FORMER CONFORMED NAME: TEACHERS SERVICE ORGANIZATION INC DATE OF NAME CHANGE: 19850812 424B2 1 ADVANTA CORP. PREL. PROS. SUPPLEMNT DATED 8/2/95 1 Pursuant to Rule 424(b)(2) Registration No. 33-60419 THIS PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AND IS SUBJECT TO COMPLETION OR AMENDMENT. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED AUGUST 2, 1995 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 17, 1995 2,500,000 Depositary Shares [ADVANTA LOGO] Corp. Each Representing a One-Hundredth Interest in a Share of % Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS)(SM*)) ------------------ Advanta Corp. (the "Company") is hereby offering for sale 2,500,000 depositary shares (the "Depositary Shares"), each representing a one-hundredth interest in a share of Stock Appreciation Income Linked Securities (SAILS)(SM*), or SAILS(SM*) ("SAILS"). The SAILS will be deposited with the Depositary (as defined herein). Each Depositary Share will entitle its holder, through the Depositary, to all proportional rights and preferences of the SAILS represented thereby (including dividend, voting, redemption, conversion and liquidation rights). The Depositary Shares are evidenced by the Depositary Receipts (as defined herein). See "Description of Depositary Shares." The SAILS constitute a series of the Company's Class B Preferred Stock, designated as % Convertible Class B Preferred Stock, Series 1995. The annual dividend payment applicable to each of the Depositary Shares is $ (being one-hundredth of the annual dividend of $ payable with respect to each share of the SAILS). Dividends will be cumulative from the date of issue and will be payable quarterly in arrears, on each , , , and , commencing , 1995. The liquidation preference applicable to each of the Depositary Shares (being one-hundredth of the liquidation preference payable with respect to each share of the SAILS) is equal to the sum of (i) the price per Depositary Share to the public shown below and (ii) the amount of accrued and unpaid dividends applicable thereto. On (the "Mandatory Conversion Date"), unless either previously redeemed by the Company or converted at the option of the holder, each share of the SAILS will automatically convert into 100 shares of Class B Common Stock, par value $.01 per share, of the Company (the "Class B Common Stock") (equivalent to a rate of one share of Class B Common Stock for each Depositary Share), subject to adjustment in certain events, and the right to receive an amount in cash or, at the Company's option, Class B Common Stock equal in value to all accrued and unpaid dividends thereon as set forth herein. The SAILS (and the related Depositary Shares) are not redeemable prior to . At any time and from time to time on or after until immediately prior to the Mandatory Conversion Date, the Company may redeem any or all of the outstanding SAILS (and the related Depositary Shares). Upon any such redemption, each holder will receive, in exchange for each of the Depositary Shares so redeemed, a number of shares of Class B Common Stock equal in value to the result obtained by dividing (x) the sum of (i) $ , declining after as set forth herein to $ until the Mandatory Conversion Date, and (ii) all accrued and unpaid dividends applicable thereto (the "Call Price") by (y) the Current Market Price (as defined herein) on the applicable date of determination, but in no event shall a holder receive less than of a share of Class B Common Stock in exchange for each Depositary Share so redeemed. At any time prior to the Mandatory Conversion Date, unless previously redeemed, each share of the SAILS (and thereby each of the Depositary Shares) is convertible, at the option of the holder, into Class B Common Stock at the rate of shares of Class B Common Stock for each share of SAILS (equivalent to a rate of of a share of Class B Common Stock for each Depositary Share) and a conversion price of $ per share of Class B Common Stock (the "Conversion Price"), subject to adjustment in certain events. The number of shares of Class B Common Stock that a holder will receive upon redemption, and the value of the shares received upon conversion, will vary depending on the market price of the Class B Common Stock from time to time, all as set forth herein. The per share value of the Class B Common Stock received by holders of Depositary Shares may be more or less than the amount paid for each of the Depositary Shares offered hereby, due to fluctuations in the market price of the Class B Common Stock. For a detailed discussion of the terms of the Depositary Shares, see "Description of Depositary Shares." The Company intends to make application to have the Depositary Shares approved for listing on the Nasdaq National Market under the symbol " ". On August , 1995, the last reported sale price of the Class B Common Stock on the Nasdaq National Market was $ per share. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Price to Discounts and Proceeds to Public(1) Commissions Company(1)(2) ---------------- ---------------- ---------------- Per Depositary Share......................... $ $ $ Total(3)..................................... $ $ $
(1) Plus accrued dividends, if any, from the date of issue. (2) Before deduction of expenses payable by the Company estimated at $ . (3) The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus Supplement, to purchase a maximum of 375,000 additional Depositary Shares to cover over-allotments of Depositary Shares. If the option is exercised in full, the total Price to Public will be $ , Underwriting Discounts and Commissions will be $ and Proceeds to Company will be $ . ------------------ The Depositary Shares are offered by the several Underwriters when, as and if issued by the Company, delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that delivery of the Depositary Shares will be made on or about August , 1995. *CS First Boston, Inc. has filed applications with the United States Patent and Trademark Office for the registration of the Stock Appreciation Income Linked Securities (SAILS) and SAILS servicemarks. CS First Boston Salomon Brothers Inc Merrill Lynch & Co. William Blair & Company The date of this Prospectus Supplement is August , 1995. 2 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE DEPOSITARY SHARES OR THE CLASS B COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT. S-2 3 PROSPECTUS SUPPLEMENT SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Prospectus Supplement, in the accompanying Prospectus and in the documents incorporated by reference therein. Unless otherwise indicated, all numbers of shares of SAILS and Depositary Shares appearing in this Prospectus Supplement are presented assuming no exercise of the Underwriters' over-allotment option. The Company's operations are conducted through its subsidiaries. The term the "Company" as used in this Prospectus Supplement refers to Advanta Corp., a Delaware corporation, and its subsidiaries, unless the context requires otherwise. THE COMPANY The Company is a highly focused direct marketer of select consumer financial services. The Company primarily originates and services credit cards and mortgage loans. Other businesses include small ticket equipment leasing, credit insurance and deposit products. See "Advanta Corp." in the accompanying Prospectus. At June 30, 1995, assets under management totaled approximately $11 billion. The Company, which has been in the credit card business since 1983, issues gold and standard MasterCard(R) and VISA(R) credit cards nationwide. The Company has built a substantial cardholder base which, as of June 30, 1995, totaled 4.2 million accounts and $7.5 billion in managed receivables. For the six months ended June 30, 1995, approximately 74% of total revenues were derived from credit cards marketed through carefully targeted direct mail campaigns. By focusing primarily on the no fee gold card, the Company has successfully grown to one of the ten largest issuers of gold cards. For the six months ended June 30, 1995, mortgage services contributed approximately 8% of total revenues. The Company believes that its targeted marketing strategy and its emphasis on satisfying customers have enabled it to attract and retain a portfolio of credit card accounts with a loss ratio which, based on reports published by MasterCard(R) and VISA(R), has been below industry averages for the past three years. As of the date of this Prospectus Supplement, Colonial National Bank USA ("Colonial National"), a wholly owned subsidiary of the Company, originates substantially all of the Company's credit card receivables and bank deposits. With customers in all 50 states, the Company's credit card portfolio is geographically diversified. The Company believes that, for more than a decade, its growth strategy has resulted in growth rates in operating earnings and managed assets in excess of industry averages and that it is well-positioned in terms of strategy, management experience and capacity to continue to grow. The Company's subsidiary, Advanta Mortgage Corp. USA, originates, purchases, securitizes and services non-conforming credit first and second mortgage loans for itself and for Colonial National's "Advanta Mortgage USA" Division. Loan production is generated through a centralized direct origination center, a broker network serviced by selected sales locations, and correspondent relationships. Approximately 75% of the managed portfolio is secured by first mortgages and the balance is secured by second mortgages. At June 30, 1995, the Company managed $1.5 billion of mortgage receivables. The Company's subsidiary, Advanta Business Services Corp. ("ABS"), formerly Advanta Leasing Corp., engages primarily in non-cancelable financing leases of equipment, including computers, security systems, copiers and telephone systems, primarily to professionals and small businesses. At June 30, 1995, ABS managed a portfolio of $317 million of net lease receivables. In the third quarter of 1994, ABS began marketing business credit cards. Through unaffiliated insurance carriers, the Company offers credit life, disability and unemployment insurance to its credit cardholders and credit life insurance and a limited life/disability/unemployment insurance product to its mortgage loan customers. S-3 4 RECENT DEVELOPMENTS In June 1995, the Company and The Royal Bank of Scotland entered into a joint venture agreement to establish a new company, RBS Advanta, which will issue credit cards in the United Kingdom. The Company and The Royal Bank of Scotland intend that the new credit card operation, to be based in Edinburgh, will offer Visa(R) and MasterCard(R) credit cards to consumers in the United Kingdom that will seek to offer a better value than what is generally available in that market today. On July 20, 1995, the Company announced record quarterly earnings for the second quarter of 1995 with net income of $33.4 million and earnings per share of $.80, increases of 30% and 27%, respectively, over the $25.8 million and $.63 per share results reported for the second quarter of 1994. Earnings for the six months ended June 30, 1995 were also records and totaled $64.2 million or $1.54 per share, increases of 27% and 25%, respectively, over the $50.7 million or $1.23 per share reported for the first half of 1994. Highlights for the second quarter of 1995 include growth of 67% in managed credit card receivables from $4.5 billion at June 30, 1994 to $7.5 billion at June 30, 1995; a decline in the net charge-off rate on managed credit card receivables to 2.5%, compared to 2.7% in the second quarter of 1994; the addition of over 450,000 new credit card accounts during the second quarter of 1995 compared to 344,000 in the second quarter of 1994; and an increase in the managed net interest margin for the second quarter of 1995 to 5.96% from 5.94% in the first quarter of 1995, although this ratio did decline from 6.95% in the comparable period of 1994. During the second quarter of 1995, rapid growth in new credit card business with low introductory rates decreased average yields compared to the second quarter of 1994. S-4 5 SELECTED FINANCIAL DATA ADVANTA CORP. AND SUBSIDIARIES The following table contains selected consolidated financial data for Advanta Corp. and its subsidiaries for the five years ended December 31, 1994 and the six-month periods ended June 30, 1995 and June 30, 1994. The financial data for each of the years ended December 31, 1990 through 1994 have been derived from audited financial statements. The financial data for the six months ended June 30, 1995 and June 30, 1994 have been derived from unaudited financial statements and reflect, in the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information for such interim periods. Results for the interim periods are not necessarily indicative of results to be expected for the full year. The summary below should be read in conjunction with the Consolidated Financial Statements of the Company and the related Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations which are contained in each of the Company's Annual Reports on Form 10-K for the years ended December 31, 1990 through 1994. See "Incorporation of Certain Information by Reference" in the accompanying Prospectus.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, -------------------------- -------------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ----------- ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SUMMARY OF OPERATIONS Net interest income(1).......... $ 34,282 $ 37,690 $ 70,381 $ 78,644 $ 73,176 $ 73,990 $ 62,964 Noninterest revenues............ 245,072 187,286 395,808 255,580 193,144 133,357 85,894 Net operating revenues(2)....... 279,354 206,624 447,837 334,224 266,320 207,347 139,948 Provision for credit losses..... 17,508 22,263 34,198 29,802 47,138 55,461 42,411 Operating expenses(1)........... 162,012 123,034 266,784 181,167 142,082 112,567 83,917 Income before income taxes and extraordinary items........... 99,834 79,679 165,207 123,255 77,100 39,319 22,530 Income before extraordinary items......................... 64,183 50,681 106,063 77,920 48,037 25,165 15,095 Net income...................... 64,183 50,681 106,063 76,647 48,037 25,165 15,095 PER COMMON SHARE DATA Income before extraordinary items......................... $ 1.54 $ 1.23 $ 2.58 $ 1.95 $ 1.38 $ 0.81 $ 0.53 Net income...................... 1.54 1.23 2.58 1.92 1.38 0.81 0.53 FINANCIAL CONDITION -- YEAR END Investments and money market instruments................... $ 669,162 $ 517,360 $ 671,661 $ 542,222 $ 521,567 $ 270,267 $ 187,631 Gross receivables Owned......................... 1,867,800 1,329,740 1,964,444 1,277,305 998,244 1,273,420 1,129,493 Securitized................... 7,502,826 4,603,381 6,190,793 3,968,856 2,721,726 1,573,164 980,856 Managed....................... 9,370,626 5,933,121 8,155,237 5,246,161 3,719,970 2,846,584 2,110,349 Total assets Owned......................... 3,058,098 2,191,842 3,113,048 2,140,195 1,775,067 1,716,350 1,450,942 Managed....................... 10,560,924 6,795,223 9,303,841 6,109,051 4,496,793 3,289,514 2,431,798 Deposits........................ 1,097,581 1,041,005 1,159,358 1,254,881 1,204,486 1,205,035 1,052,322 Long-term debt.................. 780,078 424,716 666,033 368,372 173,668 112,609 80,990 Stockholders' equity............ 510,848 389,218 441,690 342,741 174,870 118,859 70,895 Stockholders' equity and long-term debt................ 1,290,926 813,934 1,107,723 711,113 348,538 231,468 151,885
S-5 6
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, --------------- --------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 ----- ----- ----- ----- ----- ----- ----- (UNAUDITED) SELECTED FINANCIAL RATIOS Return on average assets............................... 4.35% 4.53% 4.47% 3.91% 2.82% 1.63% 1.09% Return on average equity............................... 26.78 27.49 26.97 27.50 33.32 27.09 23.28 Equity/Owned assets.................................... 16.70 17.76 14.27 16.01 9.85 6.93 4.88 Dividend payout........................................ 9.55 8.94 9.24 9.56 7.69 7.85 6.90 Owned net interest margin.............................. 2.95 4.07 3.67 4.85 5.07 5.68 5.48 Managed net interest margin(3)......................... 5.95 7.15 6.72 7.77 8.05 7.54 6.70 Allowance for credit losses at period end as a percentage of gross owned receivables................ 2.1 3.8 2.1 2.4 4.0 2.9 2.8 Allowance for credit losses at period end as a percentage of impaired assets........................ 110.2 103.1 96.1 138.6 127.4 92.4 73.9 Impaired assets at period end as a percentage of gross owned receivables.................................... 1.9 3.7(4) 2.2 1.8 3.2 3.1 3.8 Owned net charge-offs as a percentage of average gross receivables.......................................... 2.3 2.3 2.6 2.4 3.9 4.0 3.4 Risk-based capital ratios of Colonial National(5): Tier I............................................... 7.45 7.44 7.95 7.19 9.84 6.84 7.08 Tier I and II........................................ 12.14 12.44 12.04 12.06 11.12 8.35 8.59 Leverage ratio....................................... 7.62 6.56 8.15 6.03 7.57 6.79 6.57 Ratio of earnings to fixed charges..................... 2.34x 2.84x 2.71x 2.52x 1.81x 1.36x 1.20x Ratio of earnings to combined fixed charges and preferred stock dividends............................ 2.34 2.84 2.71 2.52 1.81 1.35 1.20
- --------------- (1) Financial data for the years ended December 31, 1993, 1992, 1991 and 1990 reflect the reclassification of the amortization of credit card net deferred origination costs from net interest income to operating expenses. (2) Excludes gains on sales of credit card accounts in 1990 and 1994. (3) Combination of owned interest earning assets/interest-bearing liabilities and securitized credit card assets/liabilities. (4) In 1994, the Company repurchased nonperforming assets from its securitized mortgage portfolios. (5) See "Regulation -- Colonial National" in the accompanying Prospectus for a description of this subsidiary of the Company. S-6 7 THE OFFERING Securities.................... Depositary Shares, each representing a one-hundredth interest in a share of SAILS and entitling the holder to that portion of all the rights, preferences and percentages of a share of SAILS (including dividend, voting, conversion and liquidation rights and preferences represented thereby). The SAILS constitute a series of the Company's Class B Preferred Stock, designated as % Convertible Class B Preferred Stock, Series 1995, and rank prior to the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock") and Class B Common Stock as to payment of dividends and distribution of assets upon liquidation. The SAILS (and the related Depositary Shares) will automatically convert into shares of Class B Common Stock on (the "Mandatory Conversion Date"), and the Company has the option to redeem the SAILS (and the related Depositary Shares), in whole or in part, at any time and from time to time on or after and prior to the Mandatory Conversion Date at the Call Price (as defined herein), payable in shares of Class B Common Stock. In addition, the SAILS (and the related Depositary Shares) are convertible into shares of Class B Common Stock at the option of the holder at any time prior to the Mandatory Conversion Date as set forth below. Dividends..................... Holders of Depositary Shares will be entitled to receive annual cumulative dividends at a rate per annum of % of the initial price to the public thereof (equivalent to a rate of $ per annum for each of the Depositary Shares, being one-hundredth of the annual dividend rate of $ payable with respect to each of the SAILS), from the date of initial issuance, payable quarterly in arrears on each , , and or, if any such date is not a business day, on the next succeeding business day, commencing , 1995. See "Description of SAILS -- Dividends" and "Description of Depositary Shares--Dividends and Other Distributions." Mandatory Conversion.......... On the Mandatory Conversion Date, unless previously redeemed or converted, each share of the SAILS (and the related Depositary Shares) will automatically convert into (i) shares of Class B Common Stock at the rate described below, subject to adjustment upon certain events as described herein, and (ii) at the option of the Company, the right to receive either (A) cash in an amount equal to all accrued and unpaid dividends thereon or (B) a number of shares of Class B Common Stock having a value (based on the Current Market Price (as defined in "Description of SAILS--Optional Redemption")) equal to such accrued and unpaid dividends. The SAILS will convert into Class B Common Stock at the rate of 100 shares of Class B Common Stock for each share of the SAILS (equivalent to a rate of one share of Class B Common Stock for each Depositary Share). The per share value of the Class B Common Stock that will be received by holders of Depositary Shares upon their mandatory conversion may be more or less than the price to the public of each of the Depositary Shares offered hereby because of fluctuations in the market price S-7 8 of the Class B Common Stock. See "Description of SAILS--Mandatory Conversion," "Description of Depositary Shares--Conversion and Call Provisions" and "Description of Depositary Shares--Dividends and Other Distributions." Optional Redemption........... The SAILS (and the related Depositary Shares) are not redeemable prior to . At any time and from time to time on or after until immediately prior to the Mandatory Conversion Date, the Company may redeem any or all of the outstanding SAILS (and thereby the related Depositary Shares). Upon any such redemption, each holder of a Depositary Share will receive, in exchange for each of the Depositary Shares so redeemed, the number of shares of Class B Common Stock equal in value to the result obtained by dividing (A) the sum of (i) $ (equivalent to $ for each share of SAILS), declining after as set forth herein to $ (equivalent to $ for each share of SAILS), until the Mandatory Conversion Date, and (ii) all accrued and unpaid dividends applicable thereto (the "Call Price"), by (B) the Current Market Price on the applicable date of determination, but in no event will such holder receive less than of a share of Class B Common Stock, subject to adjustment upon certain events as described herein. The number of shares of Class B Common Stock to be delivered in payment of the redemption price will be determined on the basis of the Current Market Price of the Class B Common Stock prior to the announcement of the redemption, and the market price of the Class B Common Stock may vary between the date of such determination and the subsequent delivery of such shares. See "Description of SAILS--Optional Redemption" and "Description of Depositary Shares--Conversion and Call Provisions." Conversion at the Option of the Holder.................. At any time prior to the Mandatory Conversion Date, unless previously redeemed, each of the SAILS is convertible at the option of the holder thereof into shares of Class B Common Stock (equivalent to a rate of of a share of Class B Common Stock for each Depositary Share), equivalent to a conversion price of $ per share of Class B Common Stock (the "Conversion Price"), subject to adjustment upon certain events as described herein. The per share value of Class B Common Stock that will be received by holders of Depositary Shares upon their optional conversion may be more or less than the price to the public of each of the Depositary Shares offered hereby because of fluctuations in the market price of the Class B Common Stock. The right of holders to convert SAILS (and the related Depositary Shares) called for redemption will terminate immediately prior to the close of business on any redemption date with respect to such SAILS. See "Description of SAILS--Conversion at the Option of the Holder" and "Description of Depositary Shares--Dividends and Other Distributions". S-8 9 Enhanced Dividend Yield: Less Equity Appreciation Than Class B Common Stock........ Dividends will accrue on the SAILS (and thereby the related Depositary Shares) at the rate of % per annum, a higher rate than the rate at which dividends are currently paid on the Class B Common Stock. The opportunity for equity appreciation afforded by an investment in the Depositary Shares is less than that afforded by an investment in the Class B Common Stock because the Conversion Price is higher than the per share price to the public of the Depositary Shares, and the Company may, at its option, redeem the SAILS (and thereby the Depositary Shares) at any time on or after and prior to the Mandatory Conversion Date, and may be expected to do so if, among other circumstances, the Current Market Price of the Class B Common Stock exceeds the Call Price. In such event, a holder will receive for each of the Depositary Shares held less than one share of Class B Common Stock, but in no event will such holder receive less than of a share of Class B Common Stock (subject to adjustment upon certain events as described herein). A holder may also surrender for conversion any Depositary Shares called for redemption up to the close of business on any applicable redemption date, and a holder that so elects to convert will receive of a share of Class B Common Stock (subject to adjustment upon certain events as described herein) for each of the Depositary Shares held. The per share value of the Class B Common Stock received by holders of Depositary Shares may be more or less than the per share amount paid for the Depositary Shares offered hereby because of fluctuations in the market price of the Class B Common Stock. See "Description of SAILS--Enhanced Dividend Yield; Less Equity Appreciation than Class B Common Stock" and "Description of Depositary Shares--Dividends and Other Distributions." Voting Rights................. The holders of SAILS (and the related Depositary Shares) will not have voting rights except as required by law and except as follows: (i) in the event that dividends on the SAILS (and thereby the related Depositary Shares) or any other series of Preferred Stock (as defined herein) with like voting rights are in arrears and unpaid for six quarterly dividend periods, and in certain other circumstances, the holders of SAILS (voting separately as a class with holders of all other series of outstanding Preferred Stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote, on the basis of votes for each share of the SAILS (equivalent to of a vote for each of the Depositary Shares), for the election of two Directors of the Company, such Directors to be in addition to the number of Directors constituting the Board of Directors immediately prior to the accrual of such right, and (ii) the holders of SAILS will have voting rights with respect to certain alterations of the Company's Certificate of Incorporation and certain other matters, voting on the same basis or separately as a series. The holders of Depositary Shares will be entitled to direct the voting of the shares of SAILS S-9 10 represented thereby. See "Description of SAILS--Voting Rights" and "Description of Depositary Shares--Voting of SAILS." Liquidation Preference and Ranking..................... The SAILS (and the related Depositary Shares) will rank prior to the Class A Common Stock, the Class B Common Stock and other classes of capital stock of the Company ranking junior to the SAILS as to payment of dividends and distribution of assets upon liquidation and will rank pari passu with the Company's outstanding Class A Preferred Stock, par value $1,000 per share (the "Class A Preferred Stock"). The liquidation preference of each of the SAILS is an amount equal to the sum of (i) the per share price to the public of the Depositary Shares shown on the cover page of this Prospectus Supplement multiplied by 100 (in the case of the Depositary Shares, such preference to be equivalent to the per share price to the public) and (ii) all accrued and unpaid dividends thereon. See "Description of SAILS--Dividends" and "Description of SAILS--Liquidation Rights" and "Description of Depositary Shares." Nasdaq National Market Symbol of Class B Common Stock ...... ADVNB. Listing....................... The Company intends to make application to have the Depositary Shares approved for listing on the Nasdaq National Market under the symbol " ". Use of Proceeds............... The net proceeds to the Company from the sale of the Depositary Shares offered hereby are expected to be used to support future growth, and for general corporate purposes. See "Use of Proceeds." S-10 11 USE OF PROCEEDS Substantially all of the proceeds from the sale of the Depositary Shares offered hereby are expected to be used by the Company to support future growth, and for general corporate purposes. PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Class A Common Stock and Class B Common Stock are listed on the Nasdaq National Market and traded under the symbols "ADVNA" and "ADVNB," respectively. The following table sets forth, for the periods indicated, (i) the high and low sales prices for the Class A Common Stock and the Class B Common Stock as reported on the Nasdaq National Market, and (ii) the dividends declared on the Class A Common Stock and the Class B Common Stock.
PRICE RANGE ------------------ HIGH LOW DIVIDENDS ------- ------- --------- CLASS B COMMON STOCK Fiscal Year Ended December 31, 1993 First Quarter.............................................. $25.33 $16.00 $.040 Second Quarter............................................. 26.50 20.17 .050 Third Quarter.............................................. 36.50 25.33 .050 Fourth Quarter............................................. 38.50 25.00 .060 Fiscal Year Ended December 31, 1994 First Quarter.............................................. $33.25 $26.00 $.060 Second Quarter............................................. 37.50 28.75 .060 Third Quarter.............................................. 34.75 26.50 .060 Fourth Quarter............................................. 30.50 23.25 .080 Fiscal Year Ending December 31, 1995 First Quarter.............................................. $32.25 $24.50 $.080 Second Quarter............................................. 38.75 30.75 .080 Third Quarter (through July 31)............................ CLASS A COMMON STOCK Fiscal Year Ended December 31, 1993 First Quarter.............................................. $29.33 $19.00 $.033 Second Quarter............................................. 32.50 24.17 .042 Third Quarter.............................................. 41.50 29.83 .042 Fourth Quarter............................................. 46.75 29.25 .050 Fiscal Year Ended December 31, 1994 First Quarter.............................................. $36.00 $26.50 $.050 Second Quarter............................................. 41.75 30.50 .050 Third Quarter.............................................. 37.50 28.25 .050 Fourth Quarter............................................. 33.50 24.25 .067 Fiscal Year Ending December 31, 1995 First Quarter.............................................. $34.75 $25.50 $.067 Second Quarter............................................. 42.50 33.00 .067 Third Quarter (through July 31)............................
For a recent closing sales price for the Class B Common Stock, as reported on the Nasdaq National Market, see the cover page of this Prospectus Supplement. As of July 31, 1995, the approximate number of holders of record of the Class A Common Stock and Class B Common Stock was and , respectively. S-11 12 The Company has paid cash dividends on the Class A Common Stock each year since 1989 and on the Class B Common Stock since its original issuance in 1992. The Company intends to continue the payment of dividends, although future dividend payments will depend upon the Company's level of earnings, financial requirements and other relevant factors, including dividend restrictions contained in the Company's debt instruments. CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of June 30, 1995 and as adjusted to give effect to the sale by the Company of the 2,500,000 Depositary Shares (equivalent to 25,000 shares of SAILS) offered hereby.
JUNE 30, 1995 --------------------------- ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) Long-term Debt................................................... $ 780,078 $ 780,078 Stockholders' Equity: Class A Preferred Stock, $1,000 par value; 1,010 shares authorized, issued and outstanding...................................... 1,010 1,010 Class B Preferred Stock, $.01 par value; authorized 1,000,000 shares -- SAILS............................................. 0 Class A Common Stock, $.01 par value; authorized 200,000,000 shares; issued and outstanding 17,441,924 shares............ 174 174 Class B Common Stock, $.01 par value; authorized 200,000,000 shares; issued and outstanding 23,805,822 shares............ 238 238 Additional paid in capital, net................................ 182,966 Retained earnings, net......................................... 326,712 326,712 Less: Treasury Stock at cost, 10,431 shares of Class B Common Stock in 1995............................................... (252) (252) ---------- ----------- Total stockholders' equity............................. 510,848 ---------- ----------- Total Capitalization............................................. $1,290,926 $ ========= ===========
DESCRIPTION OF SAILS The SAILS are a separate series of Class B Preferred Stock of the Company designated as % Convertible Class B Preferred Stock, Series 1995. The following summary of the terms of the SAILS does not purport to be complete and is subject to and qualified in its entirety by reference to all of the provisions of the form of Certificate of Designations, Preferences, Rights and Limitations relating to the SAILS (the "Certificate of Designations"), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus Supplement is a part. Each of the Depositary Shares represents beneficial ownership of one-hundredth of a share of SAILS and entitles the owner to that proportion of all the rights, preferences and privileges of the SAILS represented thereby. See "Description of Depositary Shares." The SAILS will not be listed on any exchange, and the Company does not expect that there will be any trading market for the shares of SAILS except as represented by the Depositary Shares. DIVIDENDS Holders of SAILS (and thereby the Depositary Shares) will be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, cash dividends from the date of initial issuance of the SAILS at the rate per annum of % of the initial per share price to the public (equivalent to $ per annum or $ per quarter for each of the SAILS and $ per annum or $ per quarter for each of the related Depositary Shares), payable quarterly in arrears on each , , and or, if any such date is not a business day, on the next succeeding business day; provided, however, that with respect to any dividend period during which a S-12 13 redemption occurs, the Company may, at its option, declare accrued dividends to, and pay such dividends on, the date fixed for redemption, in which case such dividends would be payable in cash to the holders of SAILS as of the record date for such dividend payment and would not be included in the calculation of the related Call Price as described under "-- Optional Redemption" below. The first dividend period will be from the date of initial issuance of the SAILS to but excluding , and the first dividend will be payable on . Dividends will cease to accrue in respect of the SAILS on (the "Mandatory Conversion Date") or on the date of their earlier conversion or redemption. Dividends will be payable to holders of record on such record dates, not less than 10 nor more than 60 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Dividends payable on the SAILS for any period less than a full quarterly dividend period will be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period less than one month. Dividends on the SAILS will accrue whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Accrued but unpaid dividends on the SAILS will accumulate as of the dividend payment date on which they first become payable, but no interest will accrue on accumulated but unpaid dividends on the SAILS. The SAILS (and thereby the Depositary Shares) will rank on a parity, both as to payment of dividends and distribution of assets upon liquidation, with the Class A Preferred Stock and any future Preferred Stock issued by the Company that by its terms ranks pari passu with the SAILS. As long as any of the SAILS are outstanding, no dividends (other than dividends payable in shares of, or warrants, rights or options exercisable for or convertible into shares of, Class B Common Stock or any other capital stock of the Company ranking junior to the SAILS as to the payment of dividends and the distribution of assets upon liquidation ("Junior Stock") and cash in lieu of fractional shares in connection with any such dividend) will be paid or declared in cash or otherwise, nor will any other distribution be made (other than a distribution payable in Junior Stock and cash in lieu of fractional shares in connection with any such distribution), on any Junior Stock unless (i) full dividends on Preferred Stock (including the SAILS) that does not constitute Junior Stock ("Parity Preferred Stock") have been paid, or declared and set aside for payment, for all dividend periods terminating at or before the date of such Junior Stock dividend or distribution payment to the extent such dividends are cumulative; (ii) dividends in full for the current quarterly dividend period have been paid, or declared and set aside for payment, on all Parity Preferred Stock to the extent such dividends are cumulative; (iii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement and sinking funds, if any, for any Parity Preferred Stock; and (iv) the Company is not in default on any of its obligations to redeem any Parity Preferred Stock. In addition, as long as any of the SAILS are outstanding, no shares of any Junior Stock may be purchased, redeemed or otherwise acquired by the Company or any of its subsidiaries (except in connection with: (i) a reclassification or exchange of any Junior Stock through the issuance of other Junior Stock; (ii) the purchase, redemption or other acquisition of any Junior Stock with any Junior Stock and, in either case, cash in lieu of fractional shares in connection therewith; or (iii) the acquisition by the Company of Junior Stock from former employees of the Company, without payment to such individuals, as the result of forfeiture of such shares which had been issued to such individuals pursuant to incentive compensation, or otherwise issued as restricted shares, subject to forfeiture upon termination of employment), nor may any funds be set aside or made available for any sinking fund for the purchase, redemption or other acquisition of any Junior Stock, unless: (a) full dividends on Parity Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating at or before the date of such purchase or redemption to the extent such dividends are cumulative; (b) dividends in full for the current quarterly dividend period have been paid, or declared and set aside for payment, on all Parity Preferred Stock to the extent such dividends are cumulative; (c) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement and sinking funds, if any, for any Parity Preferred Stock; and (d) the Company is not in default on any of its obligations to redeem any Parity Preferred Stock. S-13 14 Subject to the provisions described above, such dividends or other distributions (payable in cash, property or Junior Stock) as may be determined by the Board of Directors may be declared and paid on the shares of any Junior Stock from time to time and Junior Stock may be purchased, redeemed or otherwise acquired by the Company or any of its subsidiaries from time to time. In the event of the declaration and payment of any such dividends or other distributions, the holders of such Junior Stock will be entitled, to the exclusion of holders of any Parity Preferred Stock, to share therein according to their respective interests. As long as any of the SAILS are outstanding, dividends or other distributions may not be declared or paid on any shares of Parity Preferred Stock (other than dividends or other distributions payable in Junior Stock and cash in lieu of fractional shares in connection therewith), and the Company may not purchase, redeem or otherwise acquire any shares of Parity Preferred Stock (except with any Junior Stock and cash in lieu of fractional shares in connection therewith), unless either: (i) (a) full dividends on all shares of Parity Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating at or before the date of such Parity Preferred Stock dividend, distribution, purchase, redemption or other acquisition payment to the extent such dividends are cumulative; (b) dividends in full for the current quarterly dividend period have been paid, or declared and set aside for payment, on all shares of Parity Preferred Stock to the extent such dividends are cumulative; (c) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement and sinking funds, if any, for any shares of Parity Preferred Stock; and (d) the Company is not in default on any of its obligations to redeem any shares of Parity Preferred Stock; or (ii) with respect to the payment of dividends only, any such dividends will be declared and paid pro rata so that the amounts of any dividends declared and paid on each share of the SAILS and each other share of Parity Preferred Stock will in all cases bear to each other the same ratio that accrued dividends (including any accumulation with respect to unpaid dividends for prior dividend periods, if such dividends are cumulative) on each share of the SAILS and on each of such shares of Parity Preferred Stock bear to each other. MANDATORY CONVERSION Unless previously either redeemed, as described under "Optional Redemption" below, or converted at the option of the holder into Class B Common Stock as described under "Conversion at the Option of the Holder" below, on the Mandatory Conversion Date each share of the SAILS (and the related Depositary Shares) will automatically convert into (i) shares of Class B Common Stock at the Common Equivalent Rate (as defined below) in effect on such date and (ii) the right to receive, at the option of the Company, either (a) cash in an amount equal to all accrued and unpaid dividends thereon or (b) a number of shares of Class B Common Stock having a value (based on the Current Market Price (as defined herein) as of the second day immediately preceding the Mandatory Conversion Date) equal to such accrued and unpaid dividends (in each case, other than previously declared dividends payable to a holder of record as of a date prior to the Mandatory Conversion Date) to but excluding the Mandatory Conversion Date, whether or not declared, out of funds legally available for the payment of dividends. Such mandatory conversion shall be subject to the right of the Company to redeem the SAILS on or after , and before the Mandatory Conversion Date, as described under "Optional Redemption" below, and subject to the conversion of the SAILS at the option of the holder at any time before the Mandatory Conversion Date, as described under "Conversion at the Option of the Holder" below. The "Common Equivalent Rate" is initially 100 shares of Class B Common Stock for each share of the SAILS (equivalent to one share of Class B Common Stock for each of the Depositary Shares), subject to adjustment as described under "Conversion Adjustments" below. Upon issuance of the Class B Common Stock on conversion, the SAILS (and thereby the related Depositary Shares) shall cease to be outstanding on the Mandatory Conversion Date. Because the market price of the Class B Common Stock is subject to fluctuations, the per share value of the Class B Common Stock that will be received by holders of the Depositary Shares upon the mandatory conversion of the SAILS may be more or less than the price to the public of each of the Depositary Shares offered hereby. In addition, the number of shares of Class B Common Stock that may be delivered, at the option of the Company, in payment of accrued and unpaid dividends on the SAILS will be determined on the basis of the Current Market Price of the Class B Common Stock prior to the Mandatory Conversion Date, and S-14 15 the market price of the Class B Common Stock may vary between the date of such determination and the subsequent delivery of such shares. OPTIONAL REDEMPTION The SAILS (and thereby the related Depositary Shares) are not redeemable by the Company before . At any time and from time to time on or after that date until immediately before the Mandatory Conversion Date, the Company will have the right to redeem the outstanding SAILS (and thereby the related Depositary Shares), in whole or in part. Upon any such redemption, the Company will deliver to the holder thereof in exchange for each of the Depositary Shares so redeemed the greater of: (i) the number of shares of Class B Common Stock determined by dividing the applicable Call Price (as described below) in effect on the redemption date by the Current Market Price of the Class B Common Stock (subject to adjustment as described below), determined as of the second trading day immediately preceding the Notice Date (as defined below), and (ii) of a share of Class B Common Stock (subject to adjustment in the same manner that the Optional Conversion Rate (as defined below) is adjusted). Dividends will cease to accrue on the SAILS on the date fixed for their redemption. The Call Price of each of the Depositary Shares is the sum of (i) $ ($ for each share of SAILS) on and after to and including ; $ ($ for each share of SAILS) on and after to and including ; $ ($ for each share of SAILS) on and after to and including ; $ ($ for each share of SAILS) on and after to and including ; and $ (being the per share price to the public of the Depositary Shares appearing on the cover page of this Prospectus Supplement) ($ for each share of SAILS) on and after to and including ; and (ii) all accrued and unpaid dividends thereon to but not including the date fixed for redemption (other than previously declared dividends payable to a holder of record as of a prior date). The "Current Market Price" per share of the Class B Common Stock on any date of determination means the lesser of (i) the average of the closing sale prices of the Class B Common Stock as reported on the Nasdaq National Market for the 15 consecutive trading days ending on and including such date of determination and (ii) the closing sale price of the Class B Common Stock as reported on the Nasdaq National Market for such date of determination; provided, however, that, with respect to any redemption of SAILS (and thereby the related Depositary Shares), if any event resulting in an adjustment as described under "Conversion Adjustments" below occurs during the period beginning on the first day of such 15-day period and ending on the applicable redemption date, the Current Market Price as determined pursuant to the foregoing will be appropriately adjusted to reflect the occurrence of such event. The "Notice Date" with respect to any notice given by the Company in connection with a redemption of the SAILS means the date on which first occurs either the public announcement of such redemption or the commencement of mailing of such notice to the holders of the SAILS. The number of shares of Class B Common Stock that may be delivered in payment of the redemption price will be determined on the basis of the Current Market Price of the Class B Common Stock prior to the announcement of the redemption, and the market price of the Class B Common Stock may vary between the date of such determination and the subsequent delivery of shares. If fewer than all the outstanding SAILS are to be called for redemption, the SAILS so called will be selected by the Company by lot or pro rata (as nearly as may be) or by any other method determined by the Board of Directors in its sole discretion to be equitable. The Company will provide notice of any redemption of SAILS to holders of record of the SAILS to be called for redemption not less than 15 nor more than 60 days before the date fixed for redemption. Accordingly, the earliest Notice Date for any call for redemption of SAILS will be , . Any such notice will be provided by mail, sent to the holders of record of SAILS to be redeemed. On and after the redemption date, all rights of the holders of the SAILS called for redemption will terminate except the right to receive the redemption price (unless the Company defaults on the payment of the redemption price). A public announcement of any call for redemption will be made by the Company before, or at the time of, the mailing S-15 16 of such notice of redemption. For a description of notices to holders of Depositary Shares, see "Description of Depositary Shares--Record Date." Each holder of SAILS called for redemption must surrender the certificates evidencing such SAILS to the Company at the place designated in the notice of redemption and will thereupon be entitled to receive certificates for shares of Class B Common Stock and cash for any fractional share amount as described under "Fractional Shares" below. For further discussion of the optional redemption of the Depositary Shares, see "Description of Depositary Shares--Conversion and Call Provisions" and "--Record Date." CONVERSION AT THE OPTION OF THE HOLDER The SAILS (and thereby the Depositary Shares) are convertible, in whole or in part, at the option of the holders thereof, at any time before the Mandatory Conversion Date, unless previously redeemed, into shares of Class B Common Stock at a rate of shares of Class B Common Stock for each of the SAILS (equivalent to a rate of of a share of Class B Common Stock for each of the Depositary Shares) (the "Optional Conversion Rate"), subject to adjustment as described under "Conversion Adjustments" below, equivalent to a conversion price of $ per share of Class B Common Stock, before conversion adjustments (the "Conversion Price"). The per share value of Class B Common Stock that holders of Depositary Shares will receive upon their optional conversion may be more or less than the price to the public of each of the Depositary Shares offered hereby because of fluctuations in the market price of the Class B Common Stock. The right to convert SAILS (and thereby the Depositary Shares) called for redemption will terminate immediately before the close of business on the date of such redemption. Conversion of SAILS at the option of the holder may be effected by delivering certificates evidencing such SAILS, together with written notice of conversion and a proper assignment of such certificates to the Company or in blank, to the office of the transfer agent for the SAILS or to any other office or agency maintained by the Company for that purpose and otherwise in accordance with conversion procedures established by the Company. Each optional conversion will be deemed to have been effected immediately before the close of business on the date on which the foregoing requirements have been satisfied. The conversion will be at the Optional Conversion Rate in effect at such time and on such date. Holders of SAILS at the close of business on a record date for any payment of declared dividends will be entitled to receive the dividends payable on those SAILS on the corresponding dividend payment date notwithstanding the optional conversion of those SAILS following such record date and before such dividend payment date. Except as provided above, upon any optional conversion of SAILS, the Company will make no payment of or allowance for unpaid dividends, whether or not in arrears, on such SAILS, or for previously declared dividends or distributions on the shares of Class B Common Stock issued upon such conversion. The Depositary Shares may be voluntarily converted by the holders thereof upon the same terms and conditions (including those as to notice) as the shares of SAILS represented by such Depositary Shares, adjusted to reflect the fact that 100 Depositary Shares are the equivalent of one share of SAILS. See "Description of Depositary Shares--Conversion and Call Provisions." ENHANCED DIVIDEND YIELD; LESS EQUITY APPRECIATION THAN CLASS B COMMON STOCK Dividends on the SAILS (and thereby the Depositary Shares) will accrue at a higher rate than the rate at which dividends are currently paid on the Class B Common Stock. The opportunity for equity appreciation afforded by an investment in the Depositary Shares is less than that afforded by an investment in the Class B Common Stock because the Conversion Price is higher than the per share price to the public of the Depositary Shares and the Company, at its option, may redeem the SAILS (and thereby the Depositary Shares) at any time on or after and before the Mandatory Conversion Date, and may be expected to do so if, among other circumstances, the Current Market Price of the Class B Common Stock exceeds the Call Price. In such event, a holder will receive for each Depositary Share less than one share of Class B Common Stock, but in no S-16 17 event will a holder receive less than of a share of Class B Common Stock. A holder may also surrender for conversion any SAILS (and thereby the Depositary Shares) called for redemption up to the close of business on the redemption date, and a holder so electing to convert will receive shares of Class B Common Stock for each share of the SAILS so converted (equivalent to of a share of Class B Common Stock for each of the Depositary Shares). The per share value of Class B Common Stock received by holders of the Depositary Shares may be more or less than the initial price to the public of the Depositary Shares offered hereby because of fluctuations in the market price of the Class B Common Stock. As a result of these provisions, holders of the SAILS (and thereby the Depositary Shares) will realize no equity appreciation if the Current Market Price of the Class B Common Stock is below the Conversion Price, and less than all of such appreciation if the Current Market Price of the Class B Common Stock is above the Conversion Price. Conversely, if the Current Market Price of the Class B Common Stock is less than the initial per share price to the public of the Depositary Shares, the holders will realize a corresponding decline in the value of the Depositary Shares. CONVERSION ADJUSTMENTS The Common Equivalent Rate and the Optional Conversion Rate are each subject to adjustment as appropriate in certain circumstances, including if the Company (i) pays a stock dividend or makes a distribution with respect to the Class B Common Stock in shares of the Class B Common Stock; (ii) subdivides or splits the outstanding Class B Common Stock; (iii) combines the outstanding Class B Common Stock into a smaller number of shares; (iv) issues by reclassification of the shares of Class B Common Stock any shares of the Class B Common Stock; (v) issues certain rights or warrants to all holders of the Class B Common Stock; or (vi) pays a dividend or distributes to all holders of the Class B Common Stock evidences of its indebtedness, cash or other assets (including capital stock of the Company other than the Class B Common Stock but excluding any cash dividends or distributions, other than Extraordinary Cash Distributions (as defined below), and dividends referred to in clause (i) above). In addition, the Company will be entitled (but will not be required) to make upward adjustments in the Common Equivalent Rate, the Optional Conversion Rate and the Call Price as the Company, in its discretion, determines to be advisable, in order that any stock dividend, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction that could be treated as any of the foregoing transactions under Section 305 of the Internal Revenue Code of 1986, as amended) hereafter made by the Company to its stockholders will not be taxable. "Extraordinary Cash Distribution" means, with respect to any consecutive 12-month period, all cash dividends and cash distributions on the Class B Common Stock during such period (other than cash dividends and cash distributions for which a prior adjustment to the Common Equivalent Rate and Optional Conversion Rate was previously made) to the extent such dividends and distributions exceed, on a per share of Class B Common Stock basis, 10% of the average daily per share closing price of the Class B Common Stock over such period. All adjustments to the Common Equivalent Rate and the Optional Conversion Rate will be calculated to the nearest 1/100th of a share of Class B Common Stock. No adjustment in the Common Equivalent Rate or the Optional Conversion Rate will be required unless such adjustment would require an increase or decrease of at least one percent therein; provided, however, that any adjustments that, by reason of the foregoing, are not required to be made will be carried forward and taken into account in any subsequent adjustment. All adjustments will be made successively. Whenever the Common Equivalent Rate, the Optional Conversion Rate and/or the Call Price are adjusted as provided in the preceding paragraph, the Company will file with the transfer agent for the shares of SAILS a certificate with respect to such adjustment, make a prompt public announcement thereof and mail a notice to holders of the SAILS providing specified information with respect to such adjustment. At least 10 business days before taking any action that could result in certain adjustments in the Common Equivalent Rate and the Optional Conversion Rate, the Company will notify each holder of SAILS concerning such proposed action. S-17 18 ADJUSTMENT FOR CERTAIN CONSOLIDATIONS OR MERGERS In case of (i) any consolidation or merger to which the Company is a party (other than a merger or consolidation in which the Company is the surviving or continuing corporation and in which the shares of Class B Common Stock outstanding immediately before the merger or consolidation remain unchanged), (ii) any sale or transfer to another corporation of the property of the Company as an entirety or substantially as an entirety or (iii) any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), the SAILS, after consummation of such transaction, will be subject to (A) conversion at the option of the holders thereof into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Class B Common Stock into which such SAILS might have been converted immediately before consummation of such transaction, (B) conversion on the Mandatory Conversion Date into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Class B Common Stock into which such SAILS would have been converted if the conversion on the Mandatory Conversion Date had occurred immediately before the date of consummation of such transaction, plus the right to receive cash in an amount equal to all accrued and unpaid dividends on such SAILS (other than previously declared dividends to a holder of record as of a prior date), and (C) redemption on any redemption date in exchange for the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Class B Common Stock that would have been issuable at the Call Price in effect on such redemption date upon a redemption of the SAILS immediately before consummation of such transaction, assuming that, if the Notice Date for such redemption is not before such transaction, the Notice Date had been the date of such transaction; and assuming in each case that such holder of shares of Class B Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction (provided that, if the kind or amount of securities, cash or other property receivable upon consummation of such transaction is not the same for each non-electing share, then the kind and amount of securities, cash or other property receivable upon consummation of such transaction for each non-electing share will be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). The kind and amount of securities into or for which the SAILS will be convertible or redeemable after consummation of such transaction will be subject to adjustment as described under "Conversion Adjustments" above following the date of consummation of such transaction. The Company may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. FRACTIONAL SHARES No fractional shares of Class B Common Stock will be issued upon redemption or conversion of the SAILS. In lieu of any fractional share otherwise issuable to any holder in respect of the aggregate number of SAILS held by that holder that are redeemed or converted on any redemption date or upon mandatory conversion or any optional conversion, such holder will be entitled to receive an amount in cash equal to the same fraction of (i) the Current Market Price of the Class B Common Stock, determined as of the second trading day immediately preceding the Notice Date, in the case of redemption, or (ii) the Closing Price (as defined in the Certificate of Designations) of the Class B Common Stock determined (A) as of the fifth trading day immediately preceding the Mandatory Conversion Date, in the case of mandatory conversion, or (B) as of the second trading day immediately preceding the effective date of conversion, in the case of an optional conversion by a holder. LIQUIDATION RIGHTS In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company, and subject to the rights of holders of any other series of Preferred Stock, the holders of outstanding SAILS (and thereby the related Depositary Shares) are entitled to a liquidation preference. The holders of outstanding SAILS are entitled to receive an amount equal to the per share price to the public of the Depositary Shares shown on the cover page of this Prospectus Supplement multiplied by 100 and the holders of Depositary Shares are entitled to receive an amount equal to the initial per share price to the public of the Depositary S-18 19 Shares, in each case plus accrued and unpaid dividends thereon, out of the assets of the Company available for distribution to stockholders, before any distribution of assets is made to holders of the Class A Common Stock and the Class B Common Stock or other Junior Stock upon liquidation, dissolution or winding up. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company are insufficient to permit the payment of the full preferential amounts payable with respect to the SAILS and all other series of Parity Preferred Stock, the holders of the SAILS and of all other series of Parity Preferred Stock will share ratably in any distribution of assets of the Company in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of the SAILS will not be entitled to any further participation in any distribution of assets by the Company. A consolidation or merger of the Company with or into one or more other corporations (whether or not the Company is the corporation surviving such consolidation or merger), or a sale, lease or exchange of all or substantially all of the assets of the Company will not be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company. VOTING RIGHTS The holders of SAILS will not have any voting rights except as required by law and except as set forth below. In the event that dividends on the SAILS or any other series of Preferred Stock with like voting rights are in arrears and unpaid for six quarterly dividend periods, the holders of the SAILS (voting separately as a class with holders of all other series of Preferred Stock upon which like voting rights have been conferred and are exercisable), with each share of the SAILS entitled to votes on this and other matters in which Preferred Stock votes as a group (equivalent to of a vote per Depositary Share), will be entitled to vote for the election of two Directors(the "Preferred Stock Directors"), such Directors to be in addition to the number of Directors constituting the Board of Directors immediately before the accrual of such right. Such right, when vested, will continue until all dividends in arrears and payable on the SAILS and such other series of Preferred Stock have been paid in full and the right of any other series of Preferred Stock to exercise voting rights, separate from the Class B Common Stock, to elect Preferred Stock Directors of the Company terminates or has terminated, and, when so paid and any such termination occurs or has occurred, such right of the holders of the SAILS will cease. The term of office of any Director elected by the holders of the SAILS and such other series will terminate on the earlier of (i) the next annual meeting of stockholders at which a successor has been elected and qualified or (ii) the termination of the right of holders of the SAILS and such other series of Preferred Stock to vote for such Directors. The holders of Depositary Shares will be entitled to direct the voting of the shares of SAILS represented thereby. See "Description of Depositary Shares -- Voting of SAILS." In addition, the approval of the holders of at least 66 2/3 percent of the SAILS then outstanding will be required by the Company to: (i) amend, alter or repeal any of the provisions of the Certificate of Incorporation or By-Laws of the Company so as to affect adversely the powers, preferences or rights of the holders of SAILS then outstanding or reduce the minimum time for any required notice to which the holders of SAILS then outstanding may be entitled (an amendment of the Certificate of Incorporation to authorize or create, or to increase the authorized amount of, Class B Common Stock or other Junior Stock or any Parity Preferred Stock (including "blank check" Preferred Stock) being deemed not to affect adversely the powers, preferences or rights of the holders of the SAILS); (ii) authorize or create, or increase the authorized amount of, any stock of any class, or any security convertible into capital stock of any class, ranking prior to the SAILS either as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Company; or (iii) merge or consolidate with or into any other corporation, unless each holder of SAILS immediately preceding such merger or consolidation receives or continues to hold in the resulting corporation the same number of shares, with substantially the same rights and preferences, as correspond to the SAILS so held. Notwithstanding the provisions summarized in the preceding paragraph, no such approval described therein of holders of the SAILS will be required if, at or before the time when such amendment, alteration, or repeal is to take effect or when the authorization, creation or increase of any such prior stock or security is to S-19 20 be made, or when such consolidation or merger is to take effect, as the case may be, provision is made for the redemption of all of the SAILS at the time outstanding. The shares of Class B Common Stock into which the SAILS (and the related Depositary Shares) are convertible have limited voting rights as more fully described under "Description of Class B Common Stock of Advanta--Class B Common Stock--General" in the accompanying Prospectus. TRANSFER AGENT AND REGISTRAR Chemical Mellon Shareholder Services will act as transfer agent and registrar for, and paying agent for the payment of dividends on, the SAILS. MISCELLANEOUS Upon issuance, the SAILS will be fully paid and nonassessable. Holders of the SAILS have no preemptive rights. The Company will at all times reserve and keep available out of the authorized and unissued Class B Common Stock, solely for issuance upon the conversion or redemption of SAILS, such number of shares of Class B Common Stock as will from time to time be issuable upon the conversion or redemption of all of the SAILS then outstanding. SAILS that are redeemed for, or converted into, Class B Common Stock of the Company or otherwise reacquired by the Company will resume the status of authorized and unissued shares of Class B Preferred Stock, undesignated as to series, and will be available for subsequent issuance. S-20 21 DESCRIPTION OF DEPOSITARY SHARES The following summary of the terms and provisions of the Depositary Shares does not purport to be complete and is subject to, and qualified in its entirety by, the Deposit Agreement (as defined below) which contains the form of the Depositary Receipt (as defined below). Each Depositary Share represents one-hundredth of a share of SAILS deposited under the Deposit Agreement, dated as of August , 1995 (the "Deposit Agreement"), among the Company, Chemical Mellon Shareholder Services, as depositary (including any successor, the "Depositary"), and the holders from time to time of depositary receipts executed and delivered thereunder (the "Depositary Receipts"). Subject to the terms of the Deposit Agreement, each owner of a Depositary Share is entitled, proportionately, to all the rights, preferences and privileges of the shares of SAILS represented thereby (including dividend, voting, conversion, and liquidation rights), and subject to all of the limitations of the shares of SAILS represented thereby, contained in the Certificate of Designations and summarized under "Description of SAILS." The principal executive office of Chemical Mellon Shareholder Services is located at 85 Challenger Road, Overpeck Centre, Ridgefield Park, New Jersey. The Depositary Shares are evidenced by Depositary Receipts. Copies of the Deposit Agreement, the form of which is filed as an exhibit to the Registration Statement of which this Prospectus Supplement forms a part, are available for inspection at the Corporate Office (as defined in the Deposit Agreement) of the Depositary. EXECUTION AND DELIVERY OF DEPOSITARY RECEIPTS Immediately following the issuance of the shares of SAILS by the Company, the shares of SAILS will be deposited by the Company with the Depositary, which will then execute and deliver the Depositary Receipts to the Underwriters. Depositary Receipts will be executed and delivered evidencing only whole Depositary Shares. WITHDRAWAL OF SAILS Upon surrender of Depositary Receipts at the Corporate Office of the Depositary, the owner of the Depositary Shares evidenced thereby is entitled to delivery at such office of certificates evidencing the number of shares of SAILS (but only in whole shares of SAILS) represented by such Depositary Receipts. If the Depositary Receipts delivered by the holders evidence a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of SAILS to be withdrawn, the Depositary will at the same time deliver to such holder a new Depositary Receipt or Receipts evidencing such excess number of Depositary Shares. In no event will fractional shares of SAILS (or cash in lieu thereof) be distributed by the Depositary. Consequently, a holder of a Depositary Receipt representing a fractional share of SAILS would be able to liquidate his position only by sale of the Depositary Shares evidenced thereby to a third party (in a public trading market transaction or otherwise) unless the Depositary Shares are redeemed by the Company or converted by the holder. The Company does not expect that there will be any public trading market for the shares of SAILS except as represented by the trading market for the Depositary Shares. CONVERSION AND CALL PROVISIONS Mandatory Conversion or Call. As described under "Description of SAILS--Mandatory Conversion" and "--Optional Redemption," the shares of SAILS are subject to mandatory conversion into shares of Class B Common Stock on the Mandatory Conversion Date, and to the right of the Company to call the shares of SAILS, at the Company's option, for redemption. The Depositary Shares are subject to mandatory conversion or call upon substantially the same terms and conditions (including as to notice to the owners of Depositary Shares) as the shares of SAILS, except that the number of shares of Class B Common Stock received upon mandatory conversion or redemption of each Depositary Share will be equal to the number of shares of Class B Common Stock received upon mandatory conversion or redemption of each share of SAILS divided by 100. If fewer than all of the Depositary Shares are to be redeemed, the Depositary Shares to be redeemed shall be selected by lot or pro rata or by any other equitable method determined by the Depositary to be consistent S-21 22 with the method determined by the Board of Directors with respect to the shares of SAILS. If fewer than all of the Depositary Shares evidenced by a Depositary Receipt are called for redemption, the Depositary will deliver to the holder of such Depositary Receipt upon its surrender to the Depositary, together with the redemption payment, a new Depositary Receipt evidencing the Depositary Shares evidenced by such prior Depositary Receipt and not called for redemption. Conversion at the Option of the Holder. As described under "Description of SAILS--Conversion at the Option of the Holder," the shares of SAILS may be converted, in whole or in part, into shares of Class B Common Stock at the option of the holder of shares of SAILS at any time prior to the Mandatory Conversion Date, unless previously redeemed. The Depositary Shares may, at the option of holders thereof, be converted into shares of Class B Common Stock upon substantially the same terms and conditions as the shares of SAILS, except that the number of shares of Class B Common Stock received upon conversion of each Depositary Share will be equal to the number of shares of Class B Common Stock received upon conversion of each share of SAILS divided by 100. To effect such an optional conversion, a holder of Depositary Shares must deliver Depositary Receipts evidencing the Depositary Shares to be converted, together with a written notice of conversion and a proper assignment of the Depositary Receipts to the Company or in blank, to the Depositary or its agent. Each optional conversion of Depositary Shares shall be deemed to have been effected immediately prior to the close of business on the date on which all of the foregoing requirements shall have been satisfied. The conversion shall be at the Optional Conversion Rate in effect at such time and on such date, adjusted to reflect the fact that 100 Depositary Shares are the equivalent of one share of SAILS. Shares of SAILS may be converted in part so long as such shares are held by the Depositary pursuant to the Deposit Agreement. A share of SAILS delivered to a holder of Depositary Receipts other than the Depositary upon surrender of Depositary Receipts may be converted in whole but not in part. If only a portion of the Depositary Shares evidenced by a Depositary Receipt is to be converted, a new Depositary Receipt or Receipts will be issued for any Depositary Shares not converted. No fractional shares of Class B Common Stock will be issued upon conversion or redemption of Depositary Shares, and, if such conversion or redemption would otherwise result in a fractional share of Class B Common Stock being issued, an amount will be paid in cash as described in "Description of SAILS--Fractional Shares" or as set forth in the Deposit Agreement. After the date fixed for conversion or redemption, the Depositary Shares that are converted or called for redemption will no longer be deemed to be outstanding and all rights of the holders of such Depositary Shares will cease, except the right to receive the Class B Common Stock and amounts payable on such conversion or redemption and any money or other property to which the holders of such Depositary Shares were entitled upon such conversion or redemption, upon surrender to the Depositary of the Depositary Receipt or Receipts evidencing such Depositary Shares. DIVIDENDS AND OTHER DISTRIBUTIONS The Depositary will distribute all cash dividends or other cash distributions in respect of the shares of SAILS to the record holders of Depositary Shares in proportion, insofar as practicable, to the number of Depositary Shares owned by such holders. In the event of a distribution other than cash in respect of the shares of SAILS, the Depositary will distribute property received by it to the record holders of Depositary Shares in proportion, insofar as practicable, to the number of Depositary Shares owned by such holders, unless the Depositary determines that it is not feasible to make such distribution, in which case the Depositary may, with the approval of the Company, adopt such method as it deems equitable and practicable for the purpose of effecting such distribution, including sale (at public or private sale) of such property and distribution of the net proceeds from such sale to such holders. The amount distributed in any of the foregoing cases will be reduced by any amount required to be withheld by the Company or the Depositary on account of taxes. S-22 23 RECORD DATE Whenever (i) any cash dividend or other cash distribution shall become payable, any distribution other than cash shall be made, or any rights, preferences or privileges shall be offered with respect to the shares of SAILS, or (ii) the Depositary shall receive notice of any meeting at which holders of shares of SAILS are entitled to vote or of which holders of shares of SAILS are entitled to notice or of any election on the part of the Company to call for redemption any shares of SAILS, the Depositary shall in each such instance fix a record date (which shall be the same date as the record date for the shares of SAILS) for the determination of the holders of Depositary Shares (x) who shall be entitled to receive such dividend, distribution, rights, preferences, or privileges or the net proceeds of the sale thereof, (y) who shall be entitled to give instructions for the exercise of voting rights at any such meeting or to receive notice of such meeting or (z) who shall be subject to such redemption, subject to the provisions of the Deposit Agreement. VOTING OF SAILS Upon receipt of notice of any meeting at which holders of shares of SAILS are entitled to vote, the Depositary will mail the information contained in such notice of meeting to the record holders of Depositary Shares. Each record holder of Depositary Shares on the record date (which will be the same date as the record date for the shares of SAILS) will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the number of shares of SAILS represented by such holder's Depositary Shares. The Depositary will endeavor, insofar as practicable, to vote the number of shares of SAILS represented by such Depositary Shares in accordance with such instructions, and the Company has agreed to take all reasonable action which may be deemed necessary by the Depositary in order to enable the Depositary to do so. The Depositary will abstain from voting shares of SAILS to the extent it does not receive specific written voting instructions from the holders of Depositary Shares representing such shares of SAILS. AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT The form of Depositary Receipts and any provision of the Deposit Agreement may at any time be amended by agreement between the Company and the Depositary. However, any amendment that imposes any fees, taxes or other charges payable by holders of Depositary Shares (other than taxes and other governmental charges, fees, and other expenses payable by such holders as stated under "Charges of Depositary"), or that otherwise prejudices any substantial existing right of holders of Depositary Shares, will not take effect as to outstanding Depositary Shares until the expiration of 90 days after notice of such amendment has been mailed to the record holders of outstanding Depositary Shares. Every holder of Depositary Shares at the time any such amendment becomes effective shall be deemed to consent and agree to such amendment and to be bound by the Deposit Agreement, as so amended. In no event may any amendment impair the right of any owner of Depositary Shares, subject to the conditions specified in the Deposit Agreement, upon surrender of the Depositary Receipts evidencing such Depositary Shares, to receive shares of SAILS or, upon conversion or redemption of the shares of SAILS, an interest in which is represented by the Depositary Shares, to receive shares of Class B Common Stock, and in each case any money or other property represented thereby, except in order to comply with mandatory provisions of applicable law. Whenever so directed by the Company, the Depositary will terminate the Deposit Agreement after mailing notice of such termination to the record holders of all Depositary Shares then outstanding at least 30 days prior to the date fixed in such notice for such termination. The Depositary may likewise terminate the Deposit Agreement if at any time 45 days shall have expired after the Depositary shall have delivered to the Company a written notice of its election to resign and a successor depositary shall not have been appointed and accepted its appointment. If any Depositary Shares are then outstanding after the date of termination, the Depositary thereafter will discontinue the transfer of Depositary Shares, will suspend the distribution of dividends to the holders thereof, and will not give any further notices (other than notice of such termination) or perform any further acts under the Deposit Agreement except as provided below and except that the Depositary will continue (i) to collect dividends on the shares of SAILS and any other distributions with S-23 24 respect thereto and (ii) to deliver the shares of SAILS together with such dividends and distributions and the net proceeds of any sales of rights, preferences, privileges, or other property, without liability for interest thereon, in exchange for Depositary Shares surrendered. At any time after the expiration of two years from the date of termination, the Depositary may sell the shares of SAILS then held by it at public or private sale, at such place or places and upon such terms as it deems proper and may thereafter hold the net proceeds of any such sale, together with any money and other property then held by it, without liability for interest thereon, for the pro rata benefit of the holders of Depositary Shares which have not been surrendered. The Company does not intend to terminate the Deposit Agreement or to permit the resignation of the Depositary without appointing a successor depositary. In the event the Deposit Agreement is terminated (whether by the Company or by the Depositary) and a sufficient number of shares of SAILS remain outstanding, the Company will use its best efforts to cause the shares of SAILS to be split 100 to one (subject to adjustments) (so that each Depositary Share then represents one share of SAILS) and to have the shares of SAILS included for quotation on the Nasdaq National Market (unless the holders of a majority of the outstanding shares of SAILS shall consent to the Company not effecting such listing). CHARGES OF DEPOSITARY The Company will pay all charges of the Depositary, including charges in connection with the initial deposit of the shares of SAILS, the initial execution and delivery of the Depositary Receipts, the distribution of information to the holders of Depositary Shares with respect to matters on which shares of SAILS are entitled to vote, withdrawals of the shares of SAILS by the holders of Depositary Shares, or redemption or conversion of the shares of SAILS, except for taxes (including transfer taxes, if any) and other governmental charges and such other charges as are provided in the Deposit Agreement to be at the expense of holders of Depositary Shares or persons depositing shares of SAILS. GENERAL The Depositary will make available for inspection by holders of Depositary Receipts at its Corporate Office any reports and communications from the Company that are delivered to the Depositary and made generally available to the holders of the shares of SAILS. Neither the Depositary nor the Company will be liable if it is prevented or delayed by law or any circumstance beyond its control from or in performing its obligations under the Deposit Agreement. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion represents the opinion of the Company's counsel, Wolf, Block, Schorr and Solis-Cohen ("Wolf, Block"), as to certain of the material United States federal income tax consequences of the purchase, ownership and disposition of the Depositary Shares (relating to the shares of SAILS). The Company does not intend to seek a ruling from the Internal Revenue Service ("IRS") with respect to any of these tax consequences. This summary is based upon laws, including certain amendments to the Internal Revenue Code of 1986, as amended (the "Code"), that have not yet been subject to definitive interpretation by the IRS or the courts, and upon Treasury Regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). There can be no assurance that future changes in applicable law or administrative and judicial interpretations thereof will not adversely affect the tax consequences summarized herein or that there will not be differences of opinion as to the interpretation of applicable law. Securities having terms closely resembling those of the SAILS (and the related Depositary Shares) have not been the subject of any regulation, ruling or judicial decision currently in effect, and there can be no assurance that the IRS will adopt the positions set forth below. This summary does not discuss all aspects of federal income taxation that may be relevant to a particular holder in light of his or its individual investment circumstances (for example, persons who hold the Depositary Shares as part of a "straddle," "hedging transaction" or "conversion transaction") or to certain types of holders subject to special treatment under the federal income tax laws (for example, banks, life insurance companies, securities brokers and dealers and tax-exempt organizations), nor does it discuss any aspect of state, local or foreign taxation. This S-24 25 summary also assumes that all of the SAILS (and the related Depositary Shares) are or will be held by the holders thereof as capital assets as defined in the Code. This summary does not discuss the tax consequences to a person who is a shareholder, partner, or beneficiary of a holder of the Depositary Shares. In addition, except to the extent discussed below, this summary is generally limited to the federal income tax consequences to a "U.S. Holder." For this purpose, a U.S. Holder is (i) a citizen or resident of the United States, (ii)a corporation or partnership created or organized in the United States or under the laws of the United States or any state thereof, or (iii) an estate or trust whose income is includable in gross income for federal income tax purposes regardless of its source. THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION PURPOSES ONLY. ACCORDINGLY, EACH PROSPECTIVE HOLDER OF THE DEPOSITARY SHARES IS URGED TO CONSULT A TAX ADVISOR WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF THE DEPOSITARY SHARES, AS WELL AS ANY OTHER FEDERAL TAX CONSEQUENCES AND ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION. DIVIDENDS Dividends paid on the SAILS (and thereby the related Depositary Shares) will be taxable as ordinary income to the extent of the Company's current or accumulated earnings and profits. Dividends received by corporations out of such earnings and profits generally will qualify for the 70% dividends-received deduction, so long as the holder had held its Depositary Shares for the requisite period of time (generally more than 45 days) and the Depositary Shares were not acquired with borrowed funds directly attributable to the investment in the Depositary Shares under Section 246A of the Code. Where the dividends-received deduction is available, a portion of the amount deducted may have to be included by a corporation in computing its alternative minimum taxable income for the purpose of ascertaining its liability for alternative minimum tax. Under Section 1059(a) of the Code, a corporate holder of Depositary Shares that receives an "extraordinary dividend" generally will be required, if it has not held the Depositary Shares for more than two years as of the date the dividend was announced, to reduce its tax basis in the Depositary Shares by the portion of the extraordinary dividend that was not taxed because of the dividends-received deduction. The definition of an extraordinary dividend is contained in Section 1059(c) of the Code. In most circumstances, the quarterly dividends on the Depositary Shares, if not in arrears, are not likely to be extraordinary dividends under Section 1059(c) of the Code. In addition, Section 1059(f) of the Code states that any dividend received with respect to "disqualified preferred stock" will be treated as an extraordinary dividend subject to Section 1059(a) of the Code (regardless of the period over which the holder has held the stock). Disqualified preferred stock is any stock preferred as to dividends if (i) the issue price for such stock exceeds its liquidation rights or its stated redemption price, (ii) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future, or (iii) such stock is otherwise structured to avoid the other provisions of Section 1059 and to enable corporate stockholders to reduce tax through a combination of the dividends-received deduction and a loss on the disposition of the stock. The IRS could assert that Section 1059(f) of the Code requires all dividends on the Depositary Shares to be treated as extraordinary because the issue price of the Depositary Shares could exceed the value of the Class B Common Stock issued upon conversion if such Class B Common Stock declines in value after issuance of the Depositary Shares. The IRS has not issued any regulations implementing this provision, although it has express authority to do so, nor has it issued any rulings interpreting the provision. Although the issue is not free from doubt, Wolf, Block does not believe that the provisions of Section 1059(f) should apply to the Depositary Shares. Nevertheless, the IRS could issue regulations that could affect this conclusion and such regulations could be applied retroactively. S-25 26 REDEMPTION PREMIUM Under Section 305 of the Code and related Treasury Regulations, if the redemption price of redeemable preferred stock exceeds its issue price, and such redemption premium is not considered reasonable, such premium may be taxable in certain circumstances as a constructive dividend taken into account by the holder each year, generally in the same manner as original issue discount would be taken into account were the preferred stock treated as a debt instrument for federal income tax purposes. Any such constructive dividends would be subject to the same rules applicable to the stated quarterly dividends, as described in the discussion of "Dividends" above. Such constructive dividends would also be taken into account for purposes of applying the extraordinary dividend rules of Section 1059 of the Code, and the amount or period over which such constructive dividends are taken into account could in certain circumstances cause some or all of the stated quarterly dividends to be treated as extraordinary dividends. The IRS has not issued any regulations implementing this provision, although it has express authority to do so, nor has it issued any rulings interpreting the provision. While the issue is not free from doubt, Wolf, Block believes that no amount should be included in gross income on account of any redemption premium under Section 305 of the Code. Nevertheless, the IRS could issue regulations that could affect this conclusion and such regulations could be applied retroactively. CONVERSION INTO CLASS B COMMON STOCK As a general rule, no gain or loss will be recognized by a stockholder upon the conversion of the SAILS (and thereby the related Depositary Shares) into shares of Class B Common Stock. Income will generally be recognized, however, to the extent Class B Common Stock is received in payment of dividends in arrears. Such income should be treated as dividend income, with the consequences discussed above under "Dividends." In addition, gain or loss may be recognized to the extent that a stockholder receives cash in lieu of fractional shares of Class B Common Stock. Such gain or loss should be capital gain or loss measured by the difference between the cash received for the fractional share interest and the holder's basis in the fractional share interest. Generally, a holder's basis in the Class B Common Stock received upon conversion of the Depositary Shares, other than shares of Class B Common Stock taxed as dividends upon receipt, will equal the adjusted tax basis of the converted Depositary Shares (exclusive of any basis allocable to a fractional share interest) and the holding period of such Class B Common Stock will include the holding period of the converted Depositary Shares. As a general rule, a holder's basis in shares of Class B Common Stock taxed as dividends upon receipt will equal the fair market value thereof and the holding period for such Class B Common Stock will begin on the day following the conversion. ADJUSTMENT OF CONVERSION RATE Certain adjustments (or the failure to make adjustments) to the conversion rate to reflect the Company's issuance of certain rights, warrants, evidences of indebtedness, securities or other assets to holders of Class B Common Stock may result in constructive distributions taxable as dividends to the holders of the Depositary Shares, which may constitute (and may cause other dividends, including regular dividends, to constitute) extraordinary dividends to corporate holders. CALL TREATMENT It is possible that the IRS might assert that the Depositary Shares should be treated for federal income tax purposes as if the purchaser (a) acquired shares of Class B Common Stock and (b) granted to the Company a call on the shares so acquired in exchange for payments equal to the excess of the "dividends" paid on the Depositary Shares over the dividends paid to holders of shares of Class B Common Stock over the period prior to conversion. Such position, if successfully asserted, could, among other things, cause a portion of the stated dividends not to be eligible for the dividends-received deduction. Because (i) the rights embodied in the Depositary Shares do not trade separately and (ii) the terms of the Depositary Shares differ in significant respects from those of the Class B Common Stock, Wolf, Block believes that the Depositary Shares should S-26 27 have the tax consequences set forth in the preceding sections and should not be treated as an equity interest and a separate call, although the IRS could assert a contrary position. BACKUP WITHHOLDING Under the Code, a holder of the Depositary Shares may be subject, under certain circumstances, to "backup withholding" at a 31% rate with respect to dividends thereon or gross proceeds or purchase price received therefor. This withholding generally applies only if the holder (i) fails to furnish his or its social security or other taxpayer identification number ("TIN") within a reasonable time after the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv) fails, under certain circumstances, to provide a certified statement signed under penalty of perjury, that the TIN provided is his or its correct number and that he or it is not subject to backup withholding. Any amount withheld from a payment to a holder under backup withholding rules is allowable as a credit against such holder's federal income tax liability, provided that the required information is furnished to the IRS. Holders of the Depositary Shares should consult their tax advisors as to their qualification for exemption from withholding and the procedure for obtaining such exemption. CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following general discussion is a summary of certain material federal income and estate tax consequences of the purchase, ownership and disposition of the Depositary Shares applicable to Non-U.S. Holders. A "Non-U.S. Holder" is a holder other than a U.S. Holder. For purposes of the withholding tax on dividends discussed below, a non-resident fiduciary of an estate or trust will be considered a Non-U.S. Holder. DIVIDENDS In general, dividends (including any amounts received that are treated as dividends as described above) paid to a Non-U.S. Holder of the Depositary Shares will be subject to federal income tax withholding at a 30% rate unless such rate is reduced by an applicable income tax treaty. Dividends that are effectively connected with such holder's conduct of a trade or business in the United States or, if a tax treaty applies, attributable to a permanent establishment, or, in the case of an individual, a "fixed base," in the United States ("U.S. trade or business income") are generally subject to federal income tax at regular rates, but are not generally subject to the 30% withholding tax if the Non-U.S. Holder files the appropriate Internal Revenue Service form with the payor. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation may also be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be applicable under an income tax treaty. Dividends paid to an address in a foreign country are presumed (absent actual knowledge to the contrary) to be paid to a resident of such country for purposes of the withholding tax discussed above and, under the current interpretation of Treasury Regulations, for purposes of determining the applicability of a tax treaty rate. Under proposed Treasury Regulations not currently in effect, however, a Non-U.S. Holder of the Depositary Shares who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification and other requirements, which would include filing a form that contains the holder's name and address and an official statement by the competent authority in the foreign country (as designated in the applicable tax treaty) attesting to the holder's status as a resident thereof. A Non-U.S. Holder of the Depositary Shares that is eligible for a reduced rate of federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing a claim for a refund with the IRS. DISPOSITION OF THE DEPOSITARY SHARES Non-U.S. Holders generally will not be subject to federal income tax on any gain recognized on a disposition of the Depositary Shares provided that: (i) the gain is not U.S. trade or business income, (ii) the Non-U.S. Holder is not an individual who is present in the United States for 183 or more days in the taxable year of the disposition and who meets certain other requirements, (iii) the Non-U.S. Holder is not subject to S-27 28 tax pursuant to the provisions of the federal tax law applicable to certain United States expatriates, and (iv) either (x) the Company is not a "United States Real Property Holding Company" for federal income tax purposes or (y) the Non-U.S. Holder has not held, directly or indirectly, at any time during the 5-year period ending on the date of disposition, more than 5% of the outstanding Depositary Shares and the Depositary Shares are "regularly traded on an established securities market." Payments in respect of accrued and unpaid dividends that are treated as dividend income will be taxed as provided in the section above entitled "Dividends." FEDERAL ESTATE TAXES In general, an individual who is a Non-U.S. Holder for federal estate tax purposes will incur liability for federal estate tax if the fair market value of the property included in such individual's taxable estate for federal estate tax purposes exceeds the statutory threshold amount. Depositary Shares or shares of Class B Common Stock owned, or treated as owned, by an individual who is a Non-U.S. Holder at the time of death will be included in the individual's taxable estate for federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING The Company must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with respect to, each Non-U.S. Holder. These reporting requirements apply whether or not withholding was reduced or eliminated by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities in the country in which the Non-U.S. Holder resides. Federal backup withholding generally will not apply to dividends paid on the Depositary Shares to a Non-U.S. Holder at an address outside the United States. Non-U.S. Holders will not be subject to information reporting or backup withholding with respect to the payment of proceeds from the disposition of the Depositary Shares effected by the foreign office of a broker; provided, however, that, if the broker is a U.S. person or a "U.S. related person," information reporting (but not backup withholding) would apply unless the broker has documentary evidence in its records as to the Non-U.S. Holder's foreign status, or the Non-U.S. Holder certifies as to its foreign status under penalty of perjury or otherwise establishes an exemption. For this purpose, a "U.S. related person" is (i) a "controlled foreign corporation" for federal income tax purposes, or (ii) a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment (or for the part of such period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a U.S. trade or business. Non-U.S. Holders will be subject to information reporting and backup withholding at a rate of 31% with respect to the payment of proceeds from the disposition of the Depositary Shares effected by, to, or through the United States office of a broker, U.S. or foreign, unless the Non-U.S. Holder certifies as to its foreign status under penalty of perjury or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a credit against such Non-U.S. Holder's federal income tax liability, and any amounts withheld in excess of such Non-U.S. Holder's federal income tax liability would be refunded, provided that the required information is furnished to the IRS. S-28 29 UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated , 1995 (the "Underwriting Agreement"), the underwriters named below (the "Underwriters"), for whom CS First Boston Corporation, Salomon Brothers Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated and William Blair & Company are acting as the representatives (the "Representatives"), have severally agreed to purchase from the Company the following respective numbers of Depositary Shares.
Number of Underwriters Depositary Shares ------------------------------------------------------------- ----------------- CS First Boston Corporation.................................. Salomon Brothers Inc......................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated........... William Blair & Company...................................... ------------- Total.............................................. 2,500,000 =============
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the Depositary Shares offered hereby (other than those Depositary Shares covered by the over-allotment option referred to below) if any are purchased. The Underwriting Agreement provides that, in the event of a default by an Underwriter, in certain circumstances the purchase commitments of the non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company has granted to the Underwriters an option, exercisable by CS First Boston Corporation, expiring at the close of business on the 30th day after the date of the Prospectus Supplement, to purchase up to 375,000 additional Depositary Shares at the initial public offering price, less the underwriting discounts and commissions set forth on the cover page of this Prospectus Supplement. Such option may be exercised only to cover over-allotments in the sale of the Depositary Shares offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional Depositary Shares as it was obligated to purchase pursuant to the Underwriting Agreement. The Company has been advised by the Representatives that the Underwriters propose to offer the Depositary Shares to the public initially at the public offering price set forth on the cover page of this Prospectus Supplement and, through the Representatives, to certain dealers at such price less a concession of $ for each of the Depositary Shares, and that the Underwriters and such dealers may allow a discount of $ for each of the Depositary Shares on sales to certain other dealers. After the initial public offering, the public offering price and concession and discount to dealers may be changed by the Representatives. The Company has agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Company has agreed that, until , it will not, without the prior written consent of CS First Boston Corporation, on behalf of the Underwriters, offer, sell, contract to sell, announce its intention to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any additional shares of its capital stock or S-29 30 securities convertible into or exchangeable for its capital stock, other than to or with the consent of the Underwriters pursuant to the Underwriting Agreement, subject to certain exceptions set forth therein. In connection with this offering, certain Underwriters or their respective affiliates who are qualified market makers on the Nasdaq National Market may engage in "passive market making" in the Class B Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the satisfaction of certain conditions, underwriters and selling group members participating in a distribution that are also Nasdaq market makers in the security being distributed to engage in limited market making transactions during the period when Rule 10b-6A prohibits underwriters and selling group members engaged in passive market making generally from entering a bid or effecting a purchase at a price that exceeds the highest bid for those securities displayed on the Nasdaq National Market by a market maker that is not participating in the distribution. Under Rule 10b-6A, each underwriter or selling group member engaged in passive market making is subject to a daily net purchase limitation equal to 30% of such entity's average daily trading volume during the two full consecutive calendar months immediately preceding the date of filing of the registration statement under the Securities Act pertaining to the security to be distributed. Prior to this offering, there has been no public market for the Depositary Shares. The initial price to the public for the Depositary Shares will be determined by negotiation between the Company and the Representatives and will be based on, among other things, the market price of the Company's Class B Common Stock, the Company's financial and operating history and condition, an assessment of the Company's recent results of operations, its prospects and the prospects for its industry in general, the management of the Company and the market prices for securities of companies in businesses similar to that of the Company. There can be no assurance that an active trading market will develop for the Depositary Shares or that the Depositary Shares will trade in the public market subsequent to the offering at or above the initial public offering price. The Company intends to make application to have the Depositary Shares approved for listing on the Nasdaq National Market. Certain of the Underwriters have performed various investment banking services for the Company for which they have received customary compensation. NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the Depositary Shares in Canada is being made only on a private placement basis exempt from the requirement that the Company prepare and file a prospectus with the securities regulatory authorities in each province where trades of Depositary Shares are effected. Accordingly, any resale of the Depositary Shares in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the Depositary Shares. REPRESENTATIONS OF PURCHASERS Each purchaser of Depositary Shares in Canada who receives a purchase confirmation will be deemed to represent to the Company and the dealer from whom such purchase confirmation is received that (i) such purchaser is entitled under applicable provincial securities laws to purchase such Depositary Shares without the benefit of a prospectus qualified under such securities laws, (ii) where required by law, such purchaser is purchasing as principal and not as agent and (iii) such purchaser has reviewed the text above under "Resale Restrictions." S-30 31 RIGHTS OF ACTION AND ENFORCEMENT The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by section 32 of the Regulation under the Securities Act (Ontario). As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Ontario purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against the issuer or such persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of Depositary Shares to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any Depositary Shares acquired by such purchaser pursuant to this offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #88/5, a copy of which may be obtained from the Company. Only one such report must be filed in respect of Depositary Shares acquired on the same date and under the same prospectus exemption. S-31 32 - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ------------------ TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Prospectus Supplement Summary.......... S-3 Use of Proceeds........................ S-11 Price Range of Common Stock and Dividends............................ S-11 Capitalization......................... S-12 Description of SAILS................... S-12 Description of Depositary Shares....... S-21 Certain Federal Income Tax Consequences......................... S-24 Underwriting........................... S-29 Notice to Canadian Residents........... S-30 PROSPECTUS Available Information.................. 2 Incorporation of Certain Information by Reference............................ 2 Advanta Corp........................... 3 Advanta Capital L.L.C.................. 5 Certain Ratios......................... 5 Regulation............................. 6 Use of Proceeds........................ 9 Description of Debt Securities of Advanta.............................. 9 Description of Class B Preferred Stock of Advanta........................... 16 Description of Class B Common Stock of Advanta.............................. 18 Issuance of Capital Securities of Advanta Upon Conversion or Exchange............................. 21 Description of Securities Warrants of Advanta.............................. 22 Description of Stock Purchase Contracts and Stock Purchase Units of Advanta.............................. 23 Description of Preferred Shares of Advanta Capital...................... 24 Plan of Distribution................... 25 Legal Opinions......................... 26 Experts................................ 26
- ------------------------------------------------------ - ------------------------------------------------------ [ADVANTA LOGO] Corp. 2,500,000 Depositary Shares Each Representing a One-Hundredth Interest In a Share of % Convertible Class B Preferred Stock, Series 1995 (Stock Appreciation Income Linked Securities (SAILS)(SM)) PROSPECTUS SUPPLEMENT CS First Boston Salomon Brothers Inc Merrill Lynch & Co. William Blair & Company - ------------------------------------------------------ [RECYCLE LOGO] Printed on Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----