<PAGE> 1
As Filed Pursuant to Rule 424(b)(2)
Registration No. 333-20133
PROSPECTUS SUPPLEMENT
(To Prospectus Dated March 14, 1997)
$250,000,000
STAR BANC CORPORATION
[STAR BANC LOGO]
MEDIUM-TERM NOTES, SERIES A
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
The Star Banc Corporation (the "Company") may from time to time offer pursuant
to this Prospectus Supplement its Medium-Term Notes, Series A (the "Notes"),
with an aggregate initial public offering price or purchase price of up to
$250,000,000 (or the equivalent thereof in one or more foreign or composite
currencies), subject to reduction as a result of the sale of other securities
under the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part or under a Registration Statement to which
this Prospectus Supplement and the accompanying Prospectus relate. The Notes
will be unsecured obligations of the Company and will rank on a parity with all
other unsecured and unsubordinated indebtedness of the Company. Unless otherwise
specified in the applicable Pricing Supplement, each Note will mature on a
Business Day nine months or more from its date of issue (the "Stated Maturity"),
which maturity date may be subject to extension at the option of the Company.
Each Note may also be subject to redemption at the option of the Company, or to
repayment at the option of the Holder, prior to maturity. The Notes may bear
interest at a fixed rate (a "Fixed Rate Note"), which may be zero in the case of
certain discount notes, or at a floating rate (a "Floating Rate Note")
determined by reference to LIBOR, the CD Rate, the Commercial Paper Rate, the
Federal Funds Rate, the Treasury Rate, the Prime Rate, the CMT Rate, the
Eleventh District Cost of Funds Rate or any other Base Rate, as selected by the
purchaser and agreed to by the Company, adjusted by the Spread or Spread
Multiplier, if any, applicable to such Note. Unless otherwise indicated,
interest on each Fixed Rate Note will be payable semiannually in arrears on each
March 1 and September 1 (each an "Interest Payment Date") and at Stated
Maturity. A Note may be issued as an amortizing note (an "Amortizing Note") on
which a portion or all the principal amount is payable prior to Stated Maturity
in accordance with a schedule, by application of a formula, or by reference to
an index. A Note may be issued as an indexed note (an "Indexed Note") on which
the amount of any interest payment will be determined by reference to the level
of a specific index as defined on the applicable Pricing Supplement. The
Specified Currency (as defined below) interest rate or interest rate formula,
reset provisions, Issue Price, Stated Maturity, Interest Payment Dates,
redemption, repayment and extension provisions and certain other terms with
respect to each Note will be established at the time of issuance and set forth
in a pricing supplement to this Prospectus Supplement (a "Pricing Supplement").
If the Notes are to be denominated in one or more foreign currencies or currency
units (each a "Specified Currency") then the provisions with respect thereto
(including authorized denominations) and currency exchange rate information will
be set forth in the applicable Pricing Supplement. Each Note will be represented
by a Global Security registered in the name of a nominee of The Depository Trust
Company, as Depositary (a "Book-Entry Note"). Beneficial interests in Global
Securities representing Book-Entry Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary and its
participants. Book-Entry Notes will not be issuable as Certificated Notes except
under the circumstances described herein.
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 THE PROSPECTUS, THIS PROSPECTUS SUPPLEMENT OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO THE
PUBLIC(1) COMMISSION(2) COMPANY(2)(3)
<S> <C> <C> <C>
Per Note......................................... 100.000% .125% - .875% 99.875% - 99.125%
Total(4)......................................... $250,000,000 $312,500 - $249,687,500 -
$2,187,500 $247,812,500
</TABLE>
- --------------------------------------------------------------------------------
(1) Unless otherwise specified in the applicable Pricing Supplement, the price
to public will be 100% of the principal amount.
(2) The Company will pay to Salomon Brothers Inc, BancAmerica Securities, Inc.,
Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette
Securities Corporation, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Morgan Stanley & Co. Incorporated (collectively, the
"Agents") a commission (or grant a discount) of from .125% to .875% of the
principal amount of any Note, depending upon its Stated Maturity up to 40
years, sold through the Agents. Commissions on Notes with a maturity of 40
years or more will be negotiated at the time of sale.
(3) Before deduction of expenses payable by the Company estimated at $474,000,
including reimbursement of certain expenses of the Agents.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
The Notes are being offered on a continuous basis by the Company through the
Agents, which have agreed to use their reasonable efforts to solicit orders to
purchase the Notes. The Company may also sell Notes at a discount to an Agent
for its own account or for resale to one or more purchasers at varying prices
related to prevailing market prices at the time of resale or, if set forth in
the applicable Pricing Supplement, at a fixed public offering price, as
determined by such Agent. In addition, such Agent may offer Notes purchased by
it as principal to other dealers. Unless otherwise specified in the applicable
Pricing Supplement, any Note purchased by an Agent as principal will be
purchased at 100% of the principal amount thereof less a percentage equal to the
commission applicable to an agency sale of a Note of identical maturity. The
Notes will not be listed on any securities exchange, and there can be no
assurance that the maximum amount of Notes offered by this Prospectus Supplement
will be sold or that there will be a secondary market for the Notes. The Company
reserves the right to withdraw, cancel or modify the offer made hereby without
notice. The Company or the Agents may reject any order to purchase Notes,
whether or not solicited, in whole or in part. See "Plan of Distribution".
SALOMON BROTHERS INC
BANCAMERICA SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
The date of this Prospectus Supplement is March 18, 1997.
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY
BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
S-2
<PAGE> 3
COMPANY DESCRIPTION
The Company is organized under the laws of the State of Ohio and maintains
its executive offices in Cincinnati, Ohio. The Company is a bank holding company
(under the Bank Holding Company Act of 1956, as amended (the "BHCA")) registered
with the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), and accordingly, is subject to regulation and examination by the
Federal Reserve Board.
As a result of a 1993 and 1996 restructuring of certain of its Ohio and
Indiana banks, the Company presently directly holds one wholly-owned national
bank subsidiary: Star Bank, N.A. (the "Bank"). Through the Bank and its 260
banking offices, the Company engages in the commercial banking and trust
business and provides a full range of consumer, wholesale, commercial, trust and
investment products (including, but not limited to, deposits, individual
retirement accounts ("IRAs"), and mutual funds) and investment services in Ohio,
Kentucky and Indiana. The Bank offers corporate loans, commercial leasing,
commercial and residential mortgages, real estate construction lending, and a
variety of consumer loan products (including installment loans, credit cards and
retail leasing). None of the foregoing types of loans exceeds 30% of the Bank's
diversified loan portfolio. The Bank also offers cash management and
international trade services to commercial clients.
The Company has expanded significantly by acquisition in the last five
years. Recently, the Company, in three separate transactions, purchased 24
branch offices in the Columbus, Ohio area, 47 branch offices in the Cleveland
and Akron, Ohio areas, and 28 additional branches in the Cleveland, Ohio area;
and, on July 26, 1996, the Bank acquired five additional branches in Indiana.
Most recently, the Bank entered into an Agreement to acquire seven branch
offices in the Southwestern Ohio area from Amerifirst Bank, N.A. This
transaction is expected to close in the first quarter of 1997. The Company
continues to explore other acquisition opportunities in its market area.
The Company's other active subsidiaries include: Miami Valley Insurance
Company, an Arizona company engaged solely in the business of issuing credit
life and accident and health insurance in connection with the lending activities
of the Company's Ohio and Indiana branch offices; First National Cincinnati
Company, a subsidiary of the Bank that owns and operates the Company's
headquarters building; and Star Banc Finance, Inc., a consumer finance company
regulated by the Federal Reserve Board that offers a broad mix of credit
products and services, including direct and indirect auto loans, second
mortgages and personal loans.
PRICING SUPPLEMENT
Provisions of each transaction will be more fully described in a Pricing
Supplement to this Prospectus Supplement and the accompanying Prospectus.
Inconsistencies will be as described in the Pricing Supplement.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Debt Securities set forth in the Prospectus,
to which description reference is hereby made.
GENERAL
The Notes will be issued under a Senior Debt Indenture dated March 1, 1997
with Mellon Bank, N.A. as Trustee. At the date of this Prospectus Supplement,
the Notes to be offered pursuant to this Prospectus Supplement are limited to an
aggregate initial public offering price or purchase price of up to $250,000,000
or the equivalent thereof in one or more foreign or composite currencies, which
amount is subject to reduction as a result of the sale of other securities under
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part or under a Registration
S-3
<PAGE> 4
Statement to which this Prospectus Supplement and the accompanying Prospectus
relate. The aggregate amount of Notes may be increased from time to time to such
larger amount as may be authorized by the Company. The U.S. dollar equivalent of
the public offering price or purchase price of a Note having a Specified
Currency other than U.S. dollars will be determined on the basis of the noon
buying rate in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Market Exchange Rate") for such Specified Currency on the applicable issue
date. Such determination will be made by the Company or its agent, as exchange
rate agent for both series of Notes (the "Exchange Rate Agent"). The Notes will
be unsecured, will constitute part of the Senior Indebtedness of the Company and
will rank pari passu with all other senior unsecured debt of the Company.
The Notes will consist of Registered Notes, and will be offered on a
continuous basis. Notes will be issued in fully registered form only, without
coupons. Each Note will be issued initially as either a Book-Entry Note or, if
specified in the applicable Pricing Supplement, a Certificated Note. Except as
set forth in the Prospectus under "Description of Debt Securities -- Temporary
Global Securities", Book-Entry Notes will not be issuable as Certificated Notes.
See "Book-Entry System" below.
Unless otherwise specified in the applicable Pricing Supplement, the
authorized denominations of Notes denominated in U.S. dollars, will be $1,000
and any larger amount that is an integral multiple of $1,000, and the authorized
denominations of Notes having a Specified Currency other than U.S. dollars, will
be the approximate equivalents thereof in the Specified Currency.
Unless otherwise specified in the applicable Pricing Supplement, each Note
will mature on a Business Day nine months or more from its date of issue, as
selected by the purchaser and agreed to by the Company, which maturity date may
be subject to extension at the option of the Company. Each Note may also be
subject to redemption at the option of the Company, or repayment at the option
of the Holder, prior to its Stated Maturity. Each Floating Rate Note will mature
on an Interest Payment Date for such Note.
The Pricing Supplement relating to a Note will describe the following
terms: (i) the Specified Currency for such Note; (ii) whether such Note is a
Fixed Rate Note, a Floating Rate Note, an Amortizing Note and/or an Indexed
Note; (iii) the price (expressed as a percentage of the aggregate principal
amount or face amount thereof) at which such Note will be issued (the "Issue
Price"); (iv) the date on which such Note will be issued (the "Original Issue
Date"); (v) the date of the Stated Maturity; (vi) if such Note is a Fixed Rate
Note, the rate per annum at which such Note will bear interest, if any, and
whether and the manner in which such rate may be changed prior to its Stated
Maturity; (vii) if such Note is a Floating Rate Note, the Base Rate, the Initial
Interest Rate, the Interest Reset Period or the Interest Reset Dates, the
Interest Payment Dates, and, if applicable, the Index Maturity, the Maximum
Interest Rate, the Minimum Interest Rate, the Spread or Spread Multiplier (all
as defined below), and any other terms relating to the particular method of
calculating the interest rate for such Note and whether and the manner in which
such Spread or Spread Multiplier may be changed prior to Stated Maturity; (viii)
whether such Note is an Original Issue Discount Note (as defined below); (ix) if
such Note is an Amortizing Note, the terms for repayment prior to Stated
Maturity; (x) if such Note is an Indexed Note, in the case of an Indexed Rate
Note, the manner in which the amount of any interest payment will be determined
or, in the case of an Indexed Principal Note, its Face Amount and the manner in
which the principal amount payable at Stated Maturity will be determined; (xi)
whether such Note may be redeemed at the option of the Company, or repaid at the
option of the Holder, prior to Stated Maturity as described under "Optional
Redemption, Repayment and Repurchase" below and, if so, the provisions relating
to such redemption or repayment, including, in the case of an Original Issue
Discount Note or Indexed Note, the information necessary to determine the amount
due upon redemption or repayment; (xii) whether such Note is subject to an
optional extension beyond its Stated Maturity as described under "Extension of
Maturity" below; and (xiii) any other terms of such Note not inconsistent with
the provisions of the Indenture under which such Note will be issued.
S-4
<PAGE> 5
"Business Day" with respect to any Note means any day, other than a
Saturday or Sunday, that is not a legal holiday or a day on which banking
institutions are authorized or obligated by law or executive order to be closed
(a) in the City of New York or (b) if the Specified Currency for such Note is
other than U.S. dollars, the financial center of the country issuing such
Specified Currency (which, in the case of ECU, shall be Brussels, Belgium) and
if such Note is a LIBOR Note (as defined below), a London Banking Day. "London
Banking Day" with respect to any Note means any day on which dealings in
deposits in the Specified Currency of such Note are transacted in the London
interbank market.
A "basis point" or "bp" equals one one-hundredth of a percentage point.
PAYMENT OF PRINCIPAL AND INTEREST
The principal of and any premium and interest on each Note are payable by
the Company in the Specified Currency for such Note. If the Specified Currency
for a Note is other than U.S. dollars, the Company will (unless otherwise
specified in the applicable Pricing Supplement) arrange to convert all payments
in respect of such Note into U.S. dollars in the manner described in the
following paragraph. The Holder of a Note having a Specified Currency other than
U.S. dollars may (if the applicable Pricing Supplement and such Note so
indicate) elect to receive all payments in respect of such Note in the Specified
Currency by delivery of a written notice to the Trustee for such Note not later
than fifteen calendar days prior to the applicable payment date, except under
the circumstances described under "Currency Risks -- Payment Currency" below.
Such election will remain in effect until revoked by written notice to such
Trustee received not later than fifteen calendar days prior to the applicable
payment date.
In the case of a Note having a Specified Currency other than U.S. dollars,
the amount of any U.S. dollar payment in respect of such Note will be determined
by the Exchange Rate Agent based on the highest firm bid quotation expressed in
U.S. dollars received by the Exchange Rate Agent at approximately 11:00 a.m.,
New York City time, on the second Business Day preceding the applicable payment
date (or, if no such rate is quoted on such date, the last date on which such
rate was quoted), from three (or, if three are not available, then two)
recognized foreign exchange dealers in The City of New York (one of which may be
the Agent and another of which may be the Exchange Rate Agent) selected by the
Exchange Rate Agent, for the purchase by the quoting dealer, for settlement on
such payment date, of the aggregate amount of such Specified Currency payable on
such payment date in respect of all Notes denominated in such Specified
Currency. All currency exchange costs will be borne by the Holders of such Notes
by deductions from such payments. If no such bid quotations are available, such
payments will be made in such Specified Currency, unless such Specified Currency
is unavailable due to the imposition of exchange controls or to other
circumstances beyond the Company's control, in which case such payments will be
made as described under "Currency Risks -- Payment Currency" below.
Unless otherwise specified in the applicable Pricing Supplement, U.S.
dollar payments of interest on Notes (other than interest payable at Stated
Maturity) will be made, except as provided below, by check mailed to the
Registered Holders of such Notes (which, in the case of Global Securities
representing Book-Entry Notes, will be a nominee of the Depositary); provided,
however, that, in the case of a Note issued between a Regular Record Date and
the related Interest Payment Date, unless otherwise specified in the related
Pricing Supplement, interest for the period beginning on the Original Issue Date
for such Note and ending on such Interest Payment Date shall be paid on the next
succeeding Interest Payment Date to the Registered Holder of such Note on the
related Regular Record Date. A Holder of $10,000,000 (or the equivalent thereof
in a Specified Currency other than U.S. dollars) or more in aggregate principal
amount of Notes of like tenor and term shall be entitled to receive such U.S.
dollar payments by wire transfer of immediately available funds, but only if
appropriate wire transfer instructions have been received in writing by the
Trustee for such Notes not later than fifteen calendar days prior to the
applicable Interest Payment Date. Simultaneously with the election by any Holder
to receive payments in a Specified Currency other than U.S. dollars (as provided
above), such Holder shall provide appropriate wire transfer instructions to the
Trustee for such Notes. Unless otherwise specified in the applicable Pricing
Supplement, principal and any premium and interest payable at the Stated
Maturity of a Note will
S-5
<PAGE> 6
be paid in immediately available funds upon surrender of such Note at the
corporate trust office or agency of the Trustee for such Note in The City of New
York.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Discount Note is declared to be due and payable immediately,
the amount of principal due and payable with respect to such Note shall be
limited to the aggregate principal amount (or face amount, in the case of an
Indexed Principal Note) of such Note multiplied by the sum of its Issue Price
(expressed as a percentage of the aggregate principal amount) plus the original
issue discount amortized from the date of issue to the date of declaration,
which amortization shall be calculated using the "interest method" (computed in
accordance with generally accepted accounting principles in effect on the date
of declaration).
The Regular Record Date with respect to any Interest Payment Date for a
Floating Rate Note or for an Indexed Rate Note shall be the date (whether or not
a Business Day) fifteen calendar days immediately preceding such Interest
Payment Date, and for a Fixed Rate Note (unless otherwise specified in the
applicable Pricing Supplement) shall be the March 15 or September 15 (whether or
not a Business Day) immediately preceding such Interest Payment Date.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Original Issue Date, or
from the last Interest Payment Date to which interest has been paid or duly
provided for, at the rate per annum stated in the applicable Pricing Supplement
until the principal amount thereof is paid or made available for payment, except
as described below under "Subsequent Interest Periods" and "Extension of
Maturity", and except that if so specified in the applicable Pricing Supplement,
the rate of interest payable on certain Fixed Rate Notes may be subject to
adjustment from time to time as described in such Pricing Supplement. Unless
otherwise set forth in the applicable Pricing Supplement, interest on each Fixed
Rate Note will be payable semiannually in arrears on each March 1 and September
1 (each such day being an "Interest Payment Date") and at Stated Maturity. If an
Interest Payment Date with respect to any Fixed Rate Note would otherwise be a
day that is not a Business Day, such Interest Payment Date shall not be
postponed; provided, however, that any payment required to be made in respect of
such Note on a date (including the day of Stated Maturity) that is not a
Business Day for such Note need not be made on such date, but may be made on the
next succeeding Business Day with the same force and effect as if made on such
date, and no additional interest shall accrue as a result of such delayed
payment. Each payment of interest in respect of an Interest Payment Date shall
include interest accrued through the day before such Interest Payment Date.
Interest on Fixed Rate Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
FLOATING RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, each
Floating Rate Note will bear interest from its Original Issue Date to the first
Interest Reset Date (such period, the "Initial Interest Period") for such Note
at the Initial Interest Rate set forth on the face thereof and in the applicable
Pricing Supplement. The interest rate on such Note for each Interest Reset
Period (as defined below) (and for the Initial Interest Period if so specified
in the applicable Pricing Supplement) will be determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any. The "Spread" is the number of basis
points that may be specified in the applicable Pricing Supplement as being
applicable to such Note, and the "Spread Multiplier" is the percentage that may
be specified in the applicable Pricing Supplement as being applicable to such
Note, except in each case as described below under "Subsequent Interest Periods"
and "Extension of Maturity", and except that if so specified in the applicable
Pricing Supplement, the Spread or Spread Multiplier on certain Floating Rate
Notes may be subject to adjustment from time to time as described in such
Pricing Supplement. The applicable Pricing Supplement will designate one of the
following Base Rates as applicable to a Floating Rate Note: (i) LIBOR (a "LIBOR
Note"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate Note"), (iii)
the Treasury Rate (a "Treasury Rate Note"), (iv) the Prime Rate (a "Prime Rate
Note"), (v) CMT Rate (a "CMT Note"), (vi) the Federal Funds Rate (a
S-6
<PAGE> 7
"Federal Funds Rate Note"), (vii) the CD Rate (a "CD Rate Note"), (viii) the
Eleventh District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate
Note") or (ix) such other Base Rate as is set forth in such Pricing Supplement
and in such Note. The "Index Maturity" for any Floating Rate Note is the period
of maturity of the instrument or obligation from which the Base Rate is
calculated. "H.15(519)" means the publication entitled "Statistical Release
H.15(519), 'Selected Interest Rates"', or any successor publication, published
by the Board of Governors of the Federal Reserve System. "Composite Quotations"
means the daily statistical release entitled "Composite 3:30 p.m. Quotations for
U.S. Government Securities" published by the Federal Reserve Bank of New York.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following (in each case expressed as a rate per
annum on a simple interest basis): (i) a maximum limitation, or ceiling, on the
rate at which interest may accrue during any interest period ("Maximum Interest
Rate") and (ii) a minimum limitation, or floor, on the rate at which interest
may accrue during any interest period ("Minimum Interest Rate"). In addition to
any Maximum Interest Rate that may be applicable to any Floating Rate Note, the
interest rate on a Floating Rate Note will in no event be higher than the
maximum rate permitted by applicable law, as the same may be modified by United
States law of general application. The Notes will be governed by the law of the
State of New York and, under such law as of the date of this Prospectus
Supplement, the maximum rate of interest under provisions of the penal law, with
certain exceptions, is 25% per annum on a simple interest basis. Such maximum
rate of interest only applies to obligations that are less than $2,500,000.
Unless otherwise specified in the Pricing Supplement, the Trustee will be
the "Calculation Agent". Upon request of the holder of any Floating Rate Note,
the Calculation Agent will provide the interest rate then in effect and, if
determined, the interest rate will become effective as a result of a
determination for the next Interest Reset Date with respect to such Floating
Rate Note. Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date", if applicable, pertaining to any Interest Determination Date
will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day or (ii) the Business Day immediately preceding the applicable
Interest Payment Date or Stated Maturity, as the case may be.
The interest rate on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing Supplement, the
Interest Reset Dates will be, in the case of Floating Rate Notes that reset
daily, each Business Day; in the case of Floating Rate Notes (other than
Treasury Rate Notes) that reset weekly, Wednesday of each week; in the case of
Treasury Rate Notes that reset weekly, Tuesday of each week (except as provided
below under "Treasury Rate Notes"); in the case of Floating Rate Notes that
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes that reset quarterly, the third Wednesday of March, June, September and
December of each year; in the case of Floating Rate Notes that reset
semiannually, the third Wednesday of each of two months of each year specified
in the applicable Pricing Supplement; and, in the case of Floating Rate Notes
that reset annually, the third Wednesday of one month of each year specified in
the applicable Pricing Supplement. If an Interest Reset Date for any Floating
Rate Note would otherwise be a day that is not a Business Day, such Interest
Reset Date shall be postponed to the next succeeding Business Day, except that,
in the case of a LIBOR Note, if such Business Day is in the next succeeding
calendar month, such Interest Reset Date shall be the immediately preceding
Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest that goes into effect on any Interest Reset Date shall be determined
on a date (the "Interest Determination Date") preceding such Interest Reset
Date, as further described below. Unless otherwise specified in the applicable
Pricing Supplement the Interest Determination Date pertaining to an Interest
Reset Date for a CD Rate Note or any Floating Rate Note for which the interest
rate is determined with reference to the CD Rate (the "CD Rate Interest
Determination Date"), for a Commercial Paper Rate Note or any Floating Rate Note
for which the interest rate is determined with reference to the Commercial Paper
Rate (the "Commercial Paper Rate Interest Determination Date"), for a Federal
Funds Rate Note or any Floating
S-7
<PAGE> 8
Rate Note for which the interest rate is determined with reference to the
Federal Funds Rate (the "Federal Funds Rate Interest Determination Date"), or
for a Prime Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Prime Rate (the "Prime Rate Interest
Determination Date"), or for a CMT Rate Note or any Floating Rate Note for which
the interest rate is determined with reference to the CMT Rate (the "CMT Rate
Interest Determination Date"), will be the second Business Day preceding the
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a LIBOR Note or any Floating Rate Note for which the interest
rate is determined with reference to LIBOR (the "LIBOR Rate Interest
Determination Date") will be the second London Business Day immediately
preceding the Interest Reset Date with respect to such Note. The Interest
Determination Date pertaining to an Interest Reset Date for an Eleventh District
Cost of Funds Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Eleventh District Cost of Funds Rate (the
"Eleventh District Cost of Funds Rate Interest Determination Date") will be the
last working day of the month immediately preceding the applicable Interest
Reset Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of
San Francisco") publishes the Index (as defined below). The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate Note
or any Floating Rate Note for which the interest rate is determined with
reference to the Treasury Rate (the "Treasury Rate Interest Determination Date")
will be the day of the week on which Treasury bills (as defined below) would
normally be auctioned in the week in which such Interest Reset Date falls.
Treasury bills are usually sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is usually held on the
following Tuesday, except that such auction may be held on the preceding Friday.
If, as the result of a legal holiday, an auction is so held on the preceding
Friday, such Friday will be the Treasury Rate interest Determination Date
pertaining to an Interest Reset Date occurring in the next succeeding week. If
an auction date shall fall on a day which would otherwise be an Interest Reset
Date for a Treasury Rate Note, then such Interest Reset Date shall instead be
the first Business Day immediately following such auction date. The Interest
Determination Date pertaining to a Floating Rate Note the interest rate of which
is determined by reference to two or more Interest Rate Bases will be the most
recent Business Day which is at least two Business Days prior to the applicable
Interest Reset Date for such Floating Rate Note on which each Interest Rate
Basis is determinable. Each Interest Rate Basis will be determined on such date,
and the applicable interest rate will take effect on the applicable Interest
Reset Date.
Unless otherwise specified in the applicable Pricing Supplement, interest
payable in respect of Floating Rate Notes shall be the accrued interest from and
including the Original Issue Date or the last date to which interest has been
paid, as the case may be, to but excluding the applicable Interest Payment Date.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Note (or, in the case of a Floating
Rate Note that is an Indexed Principal Note, its Face Amount) by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which accrued
interest is being calculated. Unless otherwise specified in the applicable
Pricing Supplement the interest factor (expressed as a decimal calculated to
seven decimal places without rounding) for each such day is computed by dividing
the interest rate in effect on such day by 360, in the case of LIBOR Notes,
Prime Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes,
Eleventh District Cost of Funds Rate Notes, and CD Rate Notes or by the actual
number of days in the year, in the case of CMT Rate Notes or Treasury Rate
Notes. For purposes of making the foregoing calculation, the interest rate in
effect on any Interest Reset Date will be the applicable rate as reset on such
date.
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation of the rate of interest on a Floating
Rate Note will be rounded, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward, and
all currency amounts used in or resulting from such calculation on Floating Rate
Notes will be rounded to the nearest one-hundredth of a unit (with .005 of a
unit being rounded upward).
S-8
<PAGE> 9
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
that reset daily, weekly or monthly, on the third Wednesday of each month or on
the third Wednesday of March, June, September and December of each year, as
specified in the applicable Pricing Supplement; in the case of Floating Rate
Notes that reset quarterly, on the third Wednesday of March, June, September,
and December of each year; in the case of Floating Rate Notes that reset
semiannually, on the third Wednesday of each of two months of each year
specified in the applicable Pricing Supplement; and, in the case of Floating
Rate Notes that reset annually, on the third Wednesday of one month of each year
specified in the applicable Pricing Supplement (each such day being an "Interest
Payment Date"). If an Interest Payment Date with respect to any Floating Rate
Note would otherwise be a day that is not a Business Day, such Interest Payment
Date shall be postponed to the next succeeding Business Day, except that, in the
case of a LIBOR Note, if such Business Day is in the next succeeding calendar
month, such Interest Payment Date shall be the immediately preceding Business
Day.
CD RATE NOTES
Each CD Rate Note will bear interest for each Interest Reset Period at the
interest rate calculated with reference to the CD Rate and the Spread or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any, specified in such Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "CD
Rate" for each Interest Reset Period shall be the rate on the CD Rate Interest
Determination Date for negotiable certificates of deposit having the Index
Maturity designated in the applicable Pricing Supplement as published in
H.15(519) under the heading "CDs (Secondary Market)". In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date pertaining to such CD Rate Interest Determination Date, then the "CD Rate"
for such CD Rate Interest Reset Period will be the rate on such CD Rate Interest
Rate Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Certificates of Deposit". If by 3:00
p.m., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the "CD Rate" for
such Interest Reset Period will be calculated by the Calculation Agent for such
CD Rate Note and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Interest
Determination Date of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York selected by the Calculation
Agent for such CD Rate Note for negotiable certificates of deposit of major
United States money center banks of the highest credit standing (in the market
for negotiable certificates of deposit) with a remaining maturity closest to the
Index Maturity designated in the Pricing Supplement in an amount that is
representative for a single transaction in that market at that time; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "CD Rate" for such
Interest Reset Period will be the same as the CD Rate for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the Initial Interest Rate).
COMMERCIAL PAPER RATE NOTES
Each Commercial Paper Rate Note will bear interest for each Interest Reset
Period at the interest rate calculated with reference to the Commercial Paper
Rate and the Spread or Spread Multiplier, if any, specified in such Note and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Commercial Paper Rate" for each Interest Reset Period will be determined by the
Calculation Agent for such Commercial Paper Rate Note as of the Commercial Paper
Rate Interest Determination Date and shall be the Money Market Yield (as defined
below) on such Commercial Paper Rate Interest Determination Date of the rate for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519) under the heading
"Commercial Paper". In the event that such rate is
S-9
<PAGE> 10
not published prior to 3:00 p.m., New York City time, on the Calculation Date
(as defined below) pertaining to such Commercial Paper Rate Interest
Determination Date, then the "Commercial Paper Rate" for such Interest Reset
Period shall be the Money Market Yield on such Commercial Paper Rate Interest
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper". If by 3:00 p.m., New York City time, on such Calculation Date such rate
is not yet published in either H.15(519) or Composite Quotations, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
City time, on such Commercial Paper Rate Interest Determination Date of three
leading dealers of commercial paper in The City of New York selected by the
Calculation Agent for such Commercial Paper Rate Note for commercial paper of
the specified Index Maturity placed for an industrial issuer whose bonds are
rated "AA" or the equivalent by a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "Commercial Paper
Rate" for such Interest Reset Period will be the same as the Commercial Paper
Rate for the immediately preceding Interest Reset Period (or, if there was no
such Interest Reset Period, the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = ------------------- X 100
360 - (DXM)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
FEDERAL FUNDS RATE NOTES
Each Federal Funds Rate Note will bear interest for each Interest Reset
Period at the interest rate calculated with reference to the Federal Funds Rate
and the Spread or Spread Multiplier, if any, specified in such Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective rate
on the Federal Funds Rate Interest Determination Date for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)". In the
event that such rate is not published prior to 3:00 p.m., New York City time, on
the Calculation Date pertaining to such Interest Determination Date, the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on such
Interest Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". If by 3:00 p.m., New York City time, on
such Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Federal Funds Rate" for such Interest Reset
Period will be calculated by the Calculation Agent and will be the arithmetic
mean of the rates prior to 9:00 a.m., New York City time, on such Interest
Determination Date of the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in The City of New York
selected by the Calculation Agent, provided, that if the brokers selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Federal
Funds/Effective Rate will be the Federal Funds/Effective Rate in effect on such
Federal Funds Interest Determination Date.
LIBOR NOTES
Each LIBOR Note will bear interest for each Interest Reset Period at the
interest rate (calculated with reference to LIBOR and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any specified in such Note and in the applicable Pricing
Supplement.
S-10
<PAGE> 11
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
will be determined by the Calculation Agent in accordance with the following
provisions:
(i) With respect to any Interest Determination Date relating to a
LIBOR Note or any Floating Rate Note for which the interest is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be, as specified, in the applicable Pricing Supplement, either: (a) the
arithmetic mean of the offered rates for deposits in the Index Currency (as
defined below) having the Index Maturity designated in the applicable
Pricing Supplement, commencing on the second London Banking Day immediately
following that LIBOR Interest Determination Date, which appear on the
Reuters Screen LIBO Page as of 11:00 a.m., London time, on that LIBOR
Interest Determination Date, if at least two such offered rates appear on
the Reuters Screen LIBO Page, unless such Reuters Screen LIBO Page by its
terms provides only for a single rate, in which case such single rate shall
be used ("LIBOR Reuters"), or (b) the rate for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Business Day immediately
following that LIBOR Interest Determination Date, which appears on the
Telerate Page 3750 as of 11:00 a.m., London time, on that LIBOR Interest
Determination Date ("LIBOR Telerate"). "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major banks
for the applicable Index Currency). "Telerate Page 3750" means the display
designated as page "3750" on the Dow Jones Telerate Service (or such other
page as may replace the 3750 page on that service or such other service or
services as may be nominated by the British Bankers' Association for the
purpose of displaying London interbank offered rates of major banks for the
applicable Index Currency). If neither LIBOR Reuters nor LIBOR Telerate is
specified in the applicable Pricing Supplement, LIBOR for the applicable
Index Currency will be determined as if LIBOR Telerate (and, if the U.S.
dollar is the Index Currency, page 3750) had been specified. If fewer than
two offered rates appear on the Reuters Screen LIBO Page (unless, as
aforesaid, only a single rate is required), or if no rate appears on the
Telerate Page 3750, as applicable, LIBOR in respect of that LIBOR Interest
Determination Date will be determined as if the parties had specified the
rate described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates (unless, as aforesaid, only a single rate is
required) appear on the Reuters Screen LIBO Page, as specified in (i)(a)
above, or on which no rate appears on Telerate Page 3750, as specified in
(i)(b) above, as applicable, LIBOR will be determined on the basis of the
rates at which deposits in the Index Currency having the Index Maturity
designated in the applicable Pricing Supplement are offered at
approximately 11:00 a.m., London time, on that LIBOR Interest Determination
Date by four major banks in the London interbank market selected by the
Calculation Agent ("Reference Banks") to prime banks in the London
interbank market, commencing on the second London Banking Day immediately
following that LIBOR Interest Determination Date and in a principal amount
that is representative for a single transaction in such Index Currency in
such market at such time. The Calculation Agent will request the principal
London office of each of the Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, LIBOR in respect of
that LIBOR Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR in respect of
that LIBOR Interest Determination Date will be the arithmetic mean of the
rates quoted at approximately 11:00 a.m., in the Principal Financial Center
for the country of the Index Currency, on the LIBOR Interest Determination
Date by three major banks in such Principal Financial Center (which may
include affiliates of the Agents) selected by the Calculation Agent for
loans in the Index Currency to leading European banks, having the Index
Maturity designed in the applicable Pricing Supplement commencing on the
second London Banking Day immediately following such LIBOR Interest
Determination Date and in a principal amount that is representative for a
single transaction in such Index Currency in such market at such time;
provided, however, that if the banks selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR with
respect to such LIBOR Interest Determination Date will be the rate of LIBOR
in effect on such LIBOR Interest Determination Date.
S-11
<PAGE> 12
"Index Currency" means the currency specified in the applicable Pricing
Supplement as the currency for which LIBOR shall be calculated. If no such
currency is specified in the applicable Pricing Supplement, the Index Currency
shall be U.S. dollars.
TREASURY RATE NOTES
Each Treasury Rate Note will bear interest for each Interest Reset Period
at the interest rate calculated with reference to the Treasury Rate and the
Spread or Spread Multiplier, if any, specified in such Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" for each Interest Reset Period will be the rate for the auction
held on the Treasury Rate Interest Determination Date for such Interest Reset
Period of direct obligations of the United States ("Treasury securities") having
the Index Maturity specified in the applicable Pricing Supplement, as such rate
shall be published in H.15(519) under the heading "U.S. Government
Securities -- Treasury bills -- auction average (investment)" or, in the event
that such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date pertaining to such Treasury Rate Interest Determination Date,
the auction average rate (expressed as a bond equivalent on the basis of a year
of 365 or 366 days, as applicable, and applied on a daily basis) on such
Treasury Rate Interest Determination Date as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury securities having the specified Index Maturity are not published or
reported as provided above by 3:00 p.m., New York City time, on such Calculation
Date, or if no such auction is held on such Treasury Rate Interest Determination
Date, then the "Treasury Rate" for such Interest Reset Period shall be
calculated by the Calculation Agent for such Treasury Rate Note and shall be a
yield to maturity (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 p.m., New York City
time, on such Treasury Rate Interest Determination Date, of three leading
primary United States government securities dealers selected by such Calculation
Agent for the issue of Treasury securities with a remaining maturity closest to
the specified Index Maturity; provided, however, that if the dealers selected as
aforesaid by such Calculation Agent are not quoting bid rates as mentioned in
this sentence, then the "Treasury Rate" for such Interest Reset Period will be
the same as the Treasury Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the Initial Interest
Rate).
PRIME RATE NOTES
Each Prime Rate Note will bear interest at the interest rate calculated
with reference to the Prime Rate and the Spread or Spread Multiplier, if any
specified in such Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "Prime
Rate" means, with respect to any Prime Rate Interest Determination Date, the
rate on such date as published in H.15(519) under the heading "Bank Prime Loan."
In the event that such rate is not published by 3:30 p.m., New York City time,
on the Calculation Date pertaining to such Prime Rate Interest Determination
Date, then the Prime Rate will be determined by the Calculation Agent and will
be the arithmetic mean of the rates of interest publicly announced by each bank
that appears on the Reuters Screen USPRIME1 Page (as defined below) as such
bank's prime rate or base lending rate as in effect for that Prime Rate Interest
Determination Date. "Reuters Screen USPRIME1" means the display designated as
page "USPRIME1" on the Reuters Monitor Money Rates Service (or such other page
as may replace the USPRIME1 page on that service for the purpose of displaying
prime rates or base lending rates of major United States banks). If fewer than
four such rates but more than one such rate appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, the Prime Rate
shall be determined by the Calculation Agent and will be the arithmetic mean of
the prime rates quoted on the basis of actual number of days in the year divided
by 360 as of the close of business on such Prime Rate Interest Determination
Date by at least two major money center banks in New York City selected by the
Calculation Agent (after consulting with the Company). If fewer than two such
rates appear on the Reuters Screen USPRIME1 Page, the Prime Rate will be
determined by the Calculation Agent and will be the arithmetic mean of the prime
rates furnished in New York City by three
S-12
<PAGE> 13
substitute banks or trust companies organized and doing business under the laws
of the United States, or any State thereof, in each case having total equity
capital of at least U.S. $500,000,000 and being subject to supervision or
examination by Federal or State authority, selected by the Calculation Agent
(after consulting with the Company) to provide such rate or rates; provided,
however, that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, the Prime Rate will remain the Prime Rate in effect on such Prime
Rate Interest Determination Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified on the face of the CMT Rate Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Rate Interest Determination Date, the rate
displayed on the Designated CMT Telerate Page under the caption ". . . Treasury
Constant Maturities . . . Federal Reserve Board Release H.15. . . . Mondays
Approximately 3:45 P.M.," under the column for the Designated CMT Maturity Index
(as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate
on such CMT Interest Determination Date and (ii) if the Designated CMT Telerate
Page is 7052, the rate for the week, or the month, as applicable, ended
immediately preceding the week in which the related CMT Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 P.M., New York City time, on the related Interest Calculation
Date, then the CMT Rate for such CMT Interest Determination Date will be such
treasury constant maturity rate for the Designated CMT Maturity Index as
published in H.15(519). If such rate is no longer published, or if not published
by 3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate for such CMT Interest Determination Date will be such Treasury Constant
Maturity Rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the CMT Interest
Determination Date with respect to such Interest Reset Date as may then be
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in the relevant H.15(519). If such information is not
provided by 3:00 P.M., New York City time, on the related Calculation Date, then
the CMT Rate for the CMT Rate Interest Determination Date will be calculated by
the Calculation Agent and will be a yield to maturity, based on the arithmetic
mean of the secondary market closing offer side prices as of approximately 3:30
P.M., New York City time, on the CMT Rate Interest Determination Date reported,
according to their written records, by three leading primary United States
government securities dealers (each, a "Reference Dealer") in The City of New
York selected by the Calculation Agent (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury Notes") with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such CMT Rate
Treasury Note quotations, the CMT Rate for such CMT Rate Interest Determination
Date will be calculated by the Calculation Agent and will be a yield to maturity
based on the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 P.M., New York City time, on the CMT Rate Interest
Determination Date of three Reference Dealers in The City of New York (from five
such Reference Dealers selected by the Calculation Agent and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury Notes with an original maturity of the number of years that is the next
highest to the Designated CMT Maturity Index and a remaining term to maturity
closest to the Designated CMT Maturity Index in an amount of at least $100
million. If three or four (and not five) of such Reference Dealers are quoting
as described above, then the CMT Rate will be based on the arithmetic mean of
the offer prices obtained and neither the highest nor lowest of such
S-13
<PAGE> 14
quotes will be eliminated; provided, however, that if fewer than three Reference
Dealers selected by the Calculation Agent are quoting as described herein, the
CMT Rate will be the CMT Rate in effect on such CMT Rate Interest Determination
Date. If two Treasury Notes with an original maturity as described in the third
preceding sentence have remaining terms to maturity equally close to the
Designated CMT Maturity Index, the quotes for the Treasury Rate Notes with the
shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)) for the
purpose of displaying Treasury Constant Maturities as reported in H.15 (519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 2 years.
ELEVENTH DISTRICT COST OF FUNDS RATE NOTES
Each Eleventh District Cost of Funds Rate Note will bear interest at
interest rates calculated with reference to the Eleventh District Cost of Funds
Rate and the Spread or Spread Multiplier, if any, specified on the face of the
Eleventh District Cost of Funds Rate Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Eleventh
District Cost of Funds Rate" means, with respect to any Eleventh District Cost
of Funds Rate Interest Determination Date the rate equal to the monthly weighted
average cost of funds for the calendar month immediately preceding the month in
which such Eleventh District Cost of Funds Rate Interest Determination Date
falls, as set forth under the caption "11th district" on Telerate Page 7058 (as
defined below) as of 11:00 a.m., San Francisco time, on such Eleventh District
Cost of Funds Rate Interest Determination Date. If such rate does not appear on
Telerate Page 7058 on any related Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate on such Eleventh
District Cost of Funds Rate Interest Determination Date shall be the monthly
weighted average cost of funds paid by member institutions of the Eleventh
Federal Home Loan Bank District that was most recently announced (the "Index")
by the FHLB of San Francisco as such cost of funds for the calendar month
immediately preceding the date of such announcement. If the FHLB of San
Francisco fails to announce such rate for the calendar month immediately
preceding such Eleventh District Cost of Funds Rate Interest Determination Date,
then the Eleventh District Cost of Funds Rate determined as of such Eleventh
District Cost of Funds Rate Interest Determination Date shall be the Eleventh
District Cost of Funds Rate in effect on such Eleventh District Cost of Funds
Rate Interest Determination Date.
"Telerate Page 7058" means the display designated as page "7058" on the Dow
Jones Telerate Service (or such other page as may replace the 7058 page on that
service for the purpose of displaying the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District).
SUBSEQUENT INTEREST PERIODS
The Pricing Supplement relating to each Note will indicate whether the
Company has the option to reset the interest rate (in the case of a Fixed Rate
Note) with respect to such Note or the Spread or Spread Multiplier (in the case
of a Floating Rate Note) with respect to such Note and, if so, the date or dates
on which such interest rate or such Spread or Spread Multiplier, as the case may
be, may be reset (each an "Optional Reset Date").
S-14
<PAGE> 15
The Company shall notify the Trustee for a Note whether or not it intends
to exercise such option with respect to such Note at least 45 but not more than
60 calendar days prior to an Optional Reset Date for such Note. Not later than
40 calendar days prior to such Optional Reset Date, the Trustee for such Note
will mail to the Holder of such Note a notice (the "Reset Notice"), first class,
postage prepaid, indicating whether the Company has elected to reset the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) and if so, (i) such new
interest rate or such new Spread or Spread Multiplier, as the case may be; and
(ii) the provisions, if any, for redemption during the period from such Optional
Reset Date to the next Optional Reset Date or, if there is no such next Optional
Reset Date, to the Stated Maturity of such Note (each such period a "Subsequent
Interest Period"), including the date or dates on which or the period or periods
during which and the price or prices at which such redemption may occur during
such Subsequent Interest Period.
Notwithstanding the foregoing, not later than 20 calendar days prior to an
Optional Reset Date for a Note, the Company may, at its option, revoke the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) provided for in the Reset
Notice with respect to such Optional Reset Date and establish a higher interest
rate (in the case of a Fixed Rate Note) or a higher Spread or Spread Multiplier
(in the case of a Floating Rate Note) for the Subsequent Interest Period
commencing on such Optional Reset Date by causing the Trustee for such Note to
mail notice of such higher interest rate or higher Spread or Spread Multiplier,
as the case may be, first class, postage prepaid, to the Holder of such Note.
Such notice shall be irrevocable. All Notes with respect to which the interest
rate or Spread or Spread Multiplier is reset on an Optional Reset Date will bear
such higher interest rate (in the case of Fixed Rate Notes) or higher Spread or
Spread Multiplier (in the case of Floating Rate Notes), whether or not tendered
for repayment.
The Holder of a Note will have the option to elect repayment of such Note
by the Company on each Optional Reset Date at a price equal to the principal
amount thereof, plus interest accrued to such Optional Reset Date. In order for
a Note to be repaid on an Optional Reset Date, the Holder thereof must follow
the procedures set forth below under "Optional Redemption, Repayment and
Repurchase" for optional repayment, except that the period for delivery of such
Note or notification to the Trustee for such Note shall be at least 25 but not
more than 35 calendar days prior to such Optional Reset Date, and except that a
Holder who has tendered a Note for repayment pursuant to a Reset Notice may, by
written notice to the Trustee for such Note, revoke any such tender for
repayment until the close of business on the tenth day prior to such Optional
Reset Date.
AMORTIZING NOTES
The Company may from time to time offer Notes ("Amortizing Notes") on which
a portion or all the principal amount is payable prior to Stated Maturity in
accordance with a schedule, by application of a formula, or by reference to an
Index (as defined below). Further information concerning additional terms and
conditions of any Amortizing Notes, including terms for repayment thereof, will
be set forth in the applicable Pricing Supplement.
INDEXED NOTES
The Company may from time to time offer Notes ("Indexed Notes") on which
certain or all interest payments (in the case of an "Indexed Rate Note"), and/or
the principal amount payable at Stated Maturity or earlier redemption or
retirement (in the case of an "Indexed Principal Note"), is determined by
reference to the principal amount of such Notes (or, in the case of an Indexed
Principal Note, to the amount designated in the applicable Pricing Supplement as
the "Face Amount" of such Indexed Note) and by reference to prices, changes in
prices, or differences between prices, of securities, currencies, intangibles,
goods, articles or commodities or by such other objective price, economic or
other measures as are described in the applicable Pricing Supplement (the
"Index"). A description of the Index used in any determination of an interest or
principal payment, and the method or formula by which interest or principal
payments will be determined by reference to such Index, will be set forth in the
applicable Pricing Supplement.
S-15
<PAGE> 16
In the case of a Fixed Rate Note, Floating Rate Note or Indexed Rate Note
that is also an Indexed Principal Note, the amount of any interest payment will
be determined by reference to the Face Amount of such Indexed Note unless
specified otherwise in the applicable Pricing Supplement. In the case of an
Indexed Principal Note, the principal amount payable at Stated Maturity or any
earlier redemption or repayment of the Indexed Note may be different from the
Face Amount.
If the determination of the Index on which any interest payment or the
principal amount of an Indexed Note is calculated or announced by a third party,
which may be Salomon Brothers Inc or an affiliate of the Company, and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Note was issued and permitted
changes described in the applicable Pricing Supplement), then such Index shall
be calculated for purposes of such Indexed Note by another third party selected
by the Company, which may be Salomon Brothers Inc or an affiliate of the
Company, subject to the same conditions and controls as applied to the original
third party. If for any reason such Index cannot be calculated on the same basis
and subject to the same conditions and controls as applied to the original third
party, then the indexed interest payments, if any, or any indexed principal
amount of such Indexed Note shall be calculated in the manner set forth in the
applicable Pricing Supplement. Any determination of such third party shall in
the absence of manifest error be binding on all parties.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note will indicate whether the
Company has the option to extend the Stated Maturity of such Note for one or
more periods of whole years from one to five (each an "Extension Period") up to
but not beyond the date (the "Final Maturity") set forth in such Pricing
Supplement.
The Company may exercise such option with respect to a Note by notifying
the Trustee for such Note at least 45 but not more than 60 calendar days prior
to the old Stated Maturity of such Note. Not later than 40 calendar days prior
to the old Stated Maturity of such Note, the Trustee for such Note will mail to
the Holder of such Note a notice (the "Extension Notice"), first class, postage
prepaid. The Extension Notice will set forth (i) the election of the Company to
extend the Stated Maturity of such Note; (ii) the new Stated Maturity; (iii) in
the case of a Fixed Rate Note, the interest rate applicable to the Extension
Period or, in the case of a Floating Rate Note, the Spread or Spread Multiplier
applicable to the Extension Period; and (iv) the provisions, if any, for
redemption during the Extension Period, including the date or dates on which or
the period or periods during which and the price or prices at which such
redemption may occur during the Extension Period. Upon the mailing by such
Trustee of an Extension Notice to the Holder of a Note, the Stated Maturity of
such Note shall be extended automatically, and, except as modified by the
Extension Notice and as described in the next paragraph, such Note will have the
same terms as prior to the mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 20 calendar days prior to the
old Stated Maturity of such Note, the Company may, at its option, revoke the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) provided for in the Extension
Notice for such Note and establish a higher interest rate (in the case of a
Fixed Rate Note) or a higher Spread or Spread Multiplier (in the case of a
Floating Rate Note) for the Extension Period, by causing the Trustee for such
Note to mail notice of such higher interest rate or higher Spread or Spread
Multiplier, as the case may be, first class, postage prepaid, to the Holder of
such Note. Such notice shall be irrevocable. All Notes with respect to which the
Stated Maturity is extended will bear such higher interest rate (in the case of
Fixed Rate Notes) or higher Spread or Spread Multiplier (in the case of Floating
Rate Notes) for the Extension Period, whether or not tendered for repayment.
If the Company extends the Stated Maturity of a Note, the Holder of such
Note will have the option to elect repayment of such Note by the Company on the
old Stated Maturity at a price equal to the principal amount thereof, plus
interest accrued to such date. In order for a Note to be repaid on the old
Stated Maturity once the Company has extended the Stated Maturity thereof, the
Holder thereof must follow the
S-16
<PAGE> 17
procedures set forth below under "Optional Redemption, Repayment and Repurchase"
for optional repayment, except that the period for delivery of such Note or
notification to the Trustee for such Note shall be at least 25 but not more than
35 days prior to the old Stated Maturity and except that a Holder who has
tendered a Note for repayment pursuant to an Extension Notice may, by written
notice to the Trustee for such Note, revoke any such tender for repayment until
the close of business on the tenth day before the old Stated Maturity.
OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be redeemed prior to its Stated Maturity or that such Note will be
redeemable at the option of the Company, in whole or in part, and the date or
dates (each an "Optional Redemption Date") on which such Note may be redeemed
and the price (the "Redemption Price") at which (together with accrued interest
to such Optional Redemption Date) such Note may be redeemed on each such
Optional Redemption Date. The Company may exercise such option with respect to a
Note by notifying the Trustee for such Note at least 45 days prior to any
Optional Redemption Date.
Unless otherwise specified in the applicable Pricing Supplement, not more
than 60 days prior to the date of redemption, such Trustee shall mail notice of
such redemption, first class, postage prepaid, to the Holder of such Note. In
the event of redemption of a Note in part only, a new Note or Notes for the
unredeemed portion thereof shall be issued to the Holder thereof upon the
cancellation thereof. The Notes will not be subject to any sinking fund.
The Pricing Supplement relating to each Note will also indicate whether the
Holder of such Note will have the option to elect repayment of such Note by the
Company prior to its Stated Maturity, and, if so, such Pricing Supplement will
specify the date or dates on which such Note may be repaid (each an "Optional
Repayment Date") and the price (the "Optional Repayment Price") at which,
together with accrued interest to such Optional Repayment Date, such Note may be
repaid on each such Optional Repayment Date.
In order for a Note to be repaid, the Trustee for such Note must receive,
at least 30 but not more than 45 days prior to an Optional Repayment Date, (i)
such Note with the form entitled "Option to Elect Repayment" on the reverse
thereof duly completed, or (ii) a telegram, telex, facsimile transmission or
letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder of such Note, the
principal amount of such Note to be repaid, the certificate number or a
description of the tenor and terms of such Note, a statement that the option to
elect repayment is being exercised thereby and a guarantee that the Note to be
repaid with the form entitled "Option to Elect Repayment" on the reverse of the
Note duly completed will be received by such Trustee not later than five
Business Days after the date of such telegram, telex, facsimile transmission or
letter. If the procedure described in clause (ii) of the preceding sentence is
followed, then such Note and form duly completed must be received by such
Trustee by such fifth Business Day. Any tender of a Note by the Holder for
repayment (except pursuant to a Reset Notice or an Extension Notice) shall be
irrevocable. The repayment option may be exercised by the Holder of a Note for
less than the entire principal amount of such Note provided that the principal
amount of such Note remaining outstanding after repayment is an authorized
denomination. Upon such partial repayment, such Note shall be cancelled and a
new Note or Notes for the remaining principal amount thereof shall be issued in
the name of the Holder of such repaid Note.
If a Note is represented by a Global Security, the Depositary's nominee
will be the Holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which
S-17
<PAGE> 18
it holds an interest in a Note in order to ascertain the cut-off time by which
such an instruction must be given in order for timely notice to be delivered to
the Depositary.
Notwithstanding anything in this Prospectus Supplement to the contrary, if
a Note is an Original Issue Discount Note (other than an Indexed Note), the
amount payable on such Note in the event of redemption or repayment prior to its
Stated Maturity shall be the Amortized Face Amount of such Note as of the date
of redemption or the date of repayment, as the case may be. The "Amortized Face
Amount" of a Discount Note shall be the amount equal to (i) the Issue Price set
forth in the applicable Pricing Supplement plus (ii) that portion of the
difference between the Issue Price and the principal amount of such Note that
has accrued at the Yield to Maturity set forth in the Pricing Supplement
(computed in accordance with generally accepted United States bond yield
computation principles) by such date of redemption or repayment, but in no event
shall the Amortized Face Amount of a Discount Note exceed its principal amount.
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the Trustee for cancellation.
BOOK-ENTRY SYSTEM
Upon issuance, and subject to the rules of the Depositary, all Fixed Rate
Book-Entry Notes having the same Original Issue Date and otherwise identical
terms will be represented by a single Global Security. Each Global Security
representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary"), and registered
in the name of a nominee of the Depositary. Book-Entry Notes will not be
exchangeable for Certificated Notes and will not otherwise be issuable as
Certificated Notes.
The Depositary has advised the Company and the Agent as follows: The
Depositary is a limited-purpose trust company organized under New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. The Depositary was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers (including the Agent), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
A further description of the Depositary's procedures with respect to Global
Securities representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities -- Temporary Global Securities". The Depositary
has confirmed to the Company, the Agent and the Trustees that it intends to
follow such procedures.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a Note having a Specified Currency other than U.S. dollars
entails significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and such Specified Currency and the possibility of the imposition or
modification of foreign
S-18
<PAGE> 19
exchange controls with respect to such Specified Currency. Such risks generally
depend on factors over which the Company has no control and which cannot be
readily foreseen, such as economic and political events and the supply of and
demand for the relevant currencies. In recent years, rates of exchange between
the U.S. dollar and certain currencies have been highly volatile, and such
volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations in the rate that may occur during the term of any Note.
Depreciation of the Specified Currency for a Note against the U.S. dollar would
result in a decrease in the effective yield of such Note below its coupon rate
and, in certain circumstances, could result in a substantial loss to the
investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Specified Currency for making payments in respect of Notes denominated in
such currency. At present, the Company has identified the following currencies
in which payments of principal, premium and interest on Notes may be made:
Australian dollars, Canadian dollars, Danish kroner, English pounds sterling,
French francs, German deutsche marks, Italian lire, Japanese yen, New Zealand
dollars, U.S. dollars and ECU. However, the Company may determine at any time to
issue Notes with Specified Currencies other than those listed. There can be no
assurances that exchange controls will not restrict or prohibit payments of
principal, premium or interest in any Specified Currency. Even if there are no
actual exchange controls, it is possible that, on a payment date with respect to
any particular Note, the currency in which amounts then due in respect of such
Note are payable would not be available to the Company. In that event, the
Company will make such payments in the manner set forth under "Description of
Notes -- Payment of Principal and Interest" above.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT DESCRIBE
ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A CURRENCY OTHER THAN
U.S. DOLLARS, AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE
PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN NOTES DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH
NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH
RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers of Notes who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase or holding of, or receipt of payments of principal, premium
or interest in respect of, Notes. Such persons should consult their own advisors
with regard to such matters.
Any Pricing Supplement relating to Notes having a Specified Currency other
than U.S. dollars will contain a description of any material exchange controls
affecting such currency and any other required information concerning such
currency.
PAYMENT CURRENCY
Except as set forth below, if payment in respect of a Note is required to
be made in a Specified Currency other than U.S. dollars and such currency is
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or is no longer used by the government of the
country issuing such currency or for the settlement of transactions by public
institutions of or within the international banking community, then all payments
in respect of such Note shall be made in U.S. dollars until such currency is
again available or so used. The amounts so payable on any date in such currency
shall be converted into U.S. dollars on the basis of the most recently available
Market Exchange Rate for such currency or as otherwise indicated in the
applicable Pricing Supplement. Any payment in respect of such Note made under
such circumstances in U.S. dollars will not constitute an Event of Default under
the Indenture under which such Note shall have been issued.
S-19
<PAGE> 20
If payment in respect of a Note is required to be made in ECU and ECU are
no longer used in the European Monetary System, then all payments in respect of
such Note shall be made in U.S. dollars until ECU are again so used. The amount
of each payment in U.S. dollars shall be computed on the basis of the equivalent
of ECU in U.S. dollars, determined as described below, as of the second Business
Day prior to the date on which such payment is due.
The equivalent of ECU in U.S. dollars as of any date (the "Day of
Valuation") shall be determined by the Trustee for such Note on the following
basis. The component currencies of ECU for this purpose (the "Components") shall
be the currency amounts that were components of ECU as of the last date on which
ECU were used in the European Monetary System. The equivalent of ECU in U.S.
dollars shall be calculated by aggregating the U.S. dollar equivalents of the
Components. The U.S. dollar equivalent of each of the Components shall be
determined by such Trustee or such Exchange Rate Agent, as the case may be, on
the basis of the most recently available Market Exchange Rates for such
Components or as otherwise indicated in the applicable Pricing Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as Components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that currency as a Component shall be replaced
by amounts of such two or more currencies, each of which shall be equal to the
amount of the former component currency divided by the number of currencies into
which that currency was divided.
All determinations referred to above made by the Trustee for the Notes or
the Exchange Rate Agent, as the case may be, shall be at its sole discretion and
shall, in the absence of manifest error, be conclusive for all purposes and
binding on holders of Notes.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than the U.S.
dollar. A 1987 amendment to the Judiciary Law of the State of New York provides,
however, that an action based upon an obligation denominated in a currency other
than U.S. dollars will be rendered in the foreign currency of the underlying
obligation and converted into U.S. dollars at the rate of exchange prevailing on
the date of the entry of the judgment or decree.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of Notes as of the date hereof. Except where
noted, it deals only with Notes held as capital assets and does not deal with
special situations, such as those of dealers in securities or currencies,
financial institutions, life insurance companies, persons holding Notes as part
of a hedging or conversion transaction or straddle or United States Holders (as
defined below) whose "functional currency" is not the U.S. dollar. Furthermore,
the discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. PERSONS CONSIDERING THE PURCHASE,
OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
S-20
<PAGE> 21
UNITED STATES HOLDERS
As used herein, a "United States Holder" of a Note means a holder that is a
citizen or resident of the United States, a corporation or partnership created
or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is subject to
United States federal income taxation regardless of its source. For taxable
years beginning after December 31, 1996, a trust will be a "United States
Holder" of a Note only if the trust is subject to the primary supervision of a
court within the United States and the control of a United States fiduciary as
described in section 7701(a)(30) of the Code. A "Non-United States Holder" is a
holder that is not a United States Holder.
PAYMENTS OF INTEREST
Except as set forth below, interest on a Note will generally be taxable to
a United States Holder as ordinary income from domestic sources at the time it
is paid or accrued in accordance with the United States Holder's method of
accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
The following is a summary of the principal United States federal income
tax consequences of the ownership of Original Issue Discount Notes by United
States Holders. The following discussion does not address Notes providing for
contingent payments other than Notes that bear qualified stated interest.
A Note may be issued for an amount that is less than its stated redemption
price at maturity (the sum of all payments to be made on the Note other than
"qualified stated interest"). The difference between the stated redemption price
at maturity of the Note and its "issue price," if such difference is at least
0.25% of the stated redemption price at maturity multiplied by the number of
complete years to maturity or, in the case of Amortizing Notes, by the weighted
average maturity, will be "original issue discount" ("OID"). Notes issued with
OID will be referred to as "Original Issue Discount Notes."
The "issue price" of each Note in a particular offering will be the first
price at which a substantial amount of that particular offering is sold (other
than to an underwriter, placement agent or wholesaler). "Qualified stated
interest" is stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate or, subject to certain conditions, based on one or more
interest indices. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
In the case of a Note issued with de minimis OID (i.e., discount that is
not treated as OID because it is less than 0.25 percent of the stated redemption
price at maturity multiplied by the number of complete years to maturity or, in
the case of Amortizing Notes, by the weighted average maturity), the United
States Holder generally must include such de minimis OID in income as capital
gain as stated principal payments on the Notes are made in proportion to the
stated principal amount of the Note.
Certain of the Notes may be redeemed or repaid prior to their Stated
Maturity at the option of the Company and/or at the option of the holder.
Original Issue Discount Notes containing such features may be subject to rules
that differ from the general rules discussed herein. Persons considering the
purchase of Original Issue Discount Notes with such features should carefully
examine the applicable Pricing Supplement and should consult their own tax
advisors with respect to such features since the tax consequences with respect
to OID will depend, in part, on the particular terms and features of the Notes.
United States Holders of Original Issue Discount Notes with a maturity upon
issuance of more than one year must, in general, include OID in income in
advance of the receipt of some or all of the related cash payments. The amount
of OID includible in income by the initial United States Holder of an Original
Issue Discount Note is the sum of the "daily portions" of OID with respect to
the Note for each day during the taxable year or portion of the taxable year in
which such United States Holder held such Note ("accrued OID"). The daily
portion is determined by allocating to each day in any "accrual period" a pro
rata portion of the OID allocable to that accrual period. The "accrual period"
for an Original Issue Discount Note may be of any length and may vary in length
over the term of the Note, provided that each
S-21
<PAGE> 22
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs on the first day or the final day of an accrual
period. The amount of OID allocable to any accrual period is an amount equal to
the excess, if any, of (a) the product of the Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period) over (b) the sum of any qualified stated
interest allocable to the accrual period. OID allocable to a final accrual
period is the difference between the amount payable at maturity (other than a
payment of qualified stated interest) and the adjusted issue price at the
beginning of the final accrual period. Special rules will apply for calculating
OID for an initial short accrual period. The "adjusted issue price" of a Note at
the beginning of any accrual period is equal to its issue price increased by the
accrued OID for each prior accrual period (determined without regard to the
amortization of any acquisition or bond premium, as described below) and reduced
by any payments (other than qualified stated interest) made with respect to such
Note on or before the first day of the accrual period. Under these rules, a
United States Holder will have to include in income increasingly greater amounts
of OID in successive accrual periods. The Company is required to provide
information returns stating the amount of OID accrued on Notes held of record by
persons other than corporations and other exempt holders.
In the case of an Original Issue Discount Note that is a Floating Rate
Note, both the "yield to maturity" and "qualified stated interest" will be
determined solely for purposes of calculating the accrual of OID as though the
Note will bear interest in all periods at a fixed rate generally equal to the
rate that would be applicable to interest payments on the Note on its date of
issue or, in the case of certain Floating Rate Notes, the rate that reflects the
yield to maturity that is reasonably expected for the Note. Additional rules may
apply if interest on a Floating Rate Note is based on more than one interest
index. Persons considering the purchase of Floating Rate Notes should carefully
examine the applicable Pricing Supplement and should consult their own tax
advisors regarding the United States federal income tax consequences of the
holding and disposition of such Notes.
United States Holders may elect to treat all interest on any Note as OID
and calculate the amount includible in gross income under the constant yield
method described above. For the purposes of this election, interest includes
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. The election is to be made for the taxable
year in which the United States Holder acquired the Note, and may not be revoked
without the consent of the Internal Revenue Service (the "IRS"). United States
Holders should consult with their own tax advisors about this election.
SHORT-TERM NOTES
In the case of Original Issue Discount Notes having a term of one year or
less ("Short-Term Original Issue Discount Notes"), all payments (including all
stated interest) will be included in the stated redemption price at maturity
and, thus, United States Holders will generally be taxable on the discount in
lieu of stated interest. The discount will be equal to the excess of the stated
redemption price at maturity over the issue price of a Short-Term Original Issue
Discount Note, unless the United States Holder elects to compute this discount
using tax basis instead of issue price. An election to compute this discount
using tax basis will apply to all obligations acquired by the holder in or after
the first taxable year to which the election applies and may not be revoked
without the consent of the IRS. In general, individuals and certain other cash
method United States Holders of Short-Term Original Issue Discount Notes are not
required to include accrued discount in their income currently unless they elect
to do so. United States Holders who report income for federal income tax
purposes on the accrual method and certain other United States Holders are
required to accrue discount on such Short-Term Original Issue Discount Notes (as
ordinary income) on a straight-line basis, unless an election is made to accrue
the discount according to a constant yield method based on daily compounding. In
the case of a United States Holder who is not required, and does not elect, to
include discount in income currently, any gain realized on the sale, exchange or
retirement of the Short-Term Original Issue Discount Note will be ordinary
income to the extent of the discount accrued through the date of sale, exchange
or retirement. In addition, a United
S-22
<PAGE> 23
States Holder who does not elect to include accrued discount in income currently
may be required to defer deductions for all or a portion of the United States
Holder's interest expense with respect to any indebtedness incurred or continued
to purchase or carry such Notes.
MARKET DISCOUNT
If a United States Holder purchases a Note other than an Original Issue
Discount Note for an amount that is less than its stated redemption price at
maturity, or an Original Issue Discount Note for an amount that is less than its
"revised issue price" (defined as the sum of the issue price of the Note and the
aggregate amount of the OID includible, if any, without regard to the rules for
acquisition premium discussed below, in the gross income of all previous holders
of the Note), the amount of the difference will be treated as "market discount"
for federal income tax purposes, unless such difference is less than a specified
de minimis amount. Under the market discount rules, a United States Holder will
be required to treat any principal payment on, or any gain on the sale,
exchange, retirement or other disposition of, a Note as ordinary income to the
extent of the market discount which has not previously been included in income
and is treated as having accrued on such Note at the time of such payment or
disposition. In addition, the United States Holder may be required to defer,
until the maturity of the Note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the Stated Maturity of the Note, unless the
United States Holder elects to accrue on a constant interest rate method. A
United States Holder of a Note may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest rate basis),
in which case the rules described above regarding the deferral of interest
deductions and the treatment of principal payments on, or gain on the sale,
exchange, retirement or other disposition of, a Note will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired in or after the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS.
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder who purchases a Note for an amount that is greater
than its adjusted issue price, but equal to or less than the sum of all amounts
payable on the Note after the purchase date (other than payments of qualified
stated interest), will be considered to have purchased such Note at an
"acquisition premium." Under the acquisition premium rules, the amount of OID
which such holder must include in its gross income with respect to such Note for
any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
A United States Holder who purchases a Note for an amount in excess of the
sum of all amounts payable on the note after the purchase date (other than
payments of qualified stated interest) will be considered to have purchased the
Note at a "premium" and will not be required to include any OID in income. A
United States Holder generally may elect to amortize the premium over the
remaining term of the Note on a constant yield method. The amount amortized in
any year will be treated as a reduction of the United States Holder's interest
income from the Note. Bond premium on a Note held by a United States Holder that
does not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the Note. The election to amortize
premium on a constant yield method once made applies to all debt obligations
held or subsequently acquired by the electing United States Holder on or after
the first day of the first taxable year to which the election applies and may
not be revoked without the consent of the IRS.
Proposed Treasury regulations issued on June 27, 1996 would clarify the
treatment of bond premium. Among the provisions contained in the proposed
regulations is a provision that generally provides that premium may be amortized
to offset interest income only as a United States Holder takes the qualified
stated interest into account under the holder's regular accounting method.
Moreover, the
S-23
<PAGE> 24
proposed Treasury regulations generally provide that in the case of instruments
that provide for alternative payment schedules, bond premium is calculated by
assuming that both the issuer and the holder will exercise or not exercise
options in a manner that maximizes the holder's yield. If adopted, the
regulations would be effective for debt instruments acquired on or after the
date 60 days after the date final regulations are published in the Federal
Register. However, if a United States Holder elects to amortize bond premium for
the taxable year containing such effective date, the proposed Treasury
regulations would apply to all the United States Holder's debt instruments held
on or after the first day of that taxable year.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A United States Holder's tax basis in a Note will, in general, be the
United States Holder's cost therefor, increased by OID, market discount or any
discount with respect to a Short-Term Original Issue Discount Note, previously
included in income by the United States Holder and reduced by any amortized
premium and any cash payments on the Note other than qualified stated interest.
Upon the sale, exchange or retirement of a Note, a United States Holder will
recognize gain or loss equal to the difference between the amount realized upon
the sale, exchange or retirement (less any accrued but unpaid qualified stated
interest) and the adjusted tax basis of the Note. Except as described above with
respect to certain Short-Term Original Issue Discount Notes or with respect to
market discount, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Note has been held for more than one year. Under current law, net capital
gains of individuals are, under certain circumstances, taxed at lower rates than
items of ordinary income. The deductibility of capital losses is subject to
limitations.
EXTENSION OF MATURITY, OPTIONAL REDEMPTION AND OPTIONAL REPAYMENT
If so specified in an applicable Pricing Supplement relating to a Note, the
Company may have the option to extend the maturity of a Note. See "Description
of Notes -- Extension of Maturity." The treatment of a United States Holder of
Notes with respect to which such an option has been exercised may depend, in
part, on the terms established for such Notes by the Company pursuant to the
exercise of such option (the "Revised Terms"). Such United States Holder may be
treated for United States federal income tax purposes as having exchanged such
Notes (the "Old Notes") for new Notes with the Revised Terms (the "New Notes").
If the exercise of the option by the Company is not treated as an exchange of
Old Notes for New Notes, no gain or loss will be recognized by a United States
Holder as a result thereof. If the exercise of the option is treated as a
taxable exchange of Old Notes for New Notes, a United States Holder would
generally recognize gain or loss equal to the difference between the issue price
of the New Notes and the holder's tax basis in the Old Notes.
If so specified in an applicable Pricing Supplement relating to a Note, the
Company may have the right to redeem the Note prior to its Stated Maturity, and
the holder may have the right to elect repayment of the Note prior to its Stated
Maturity. See "Description of Notes -- Optional Redemption, Repayment and
Repurchase."
The presence of such options may also affect the calculation of OID, among
other things. The OID Regulations provide that, solely for purposes of the
accrual of OID, an issuer of a debt instrument having an option or combination
of options to extend the term of the debt instrument or to redeem the debt
instrument prior to its stated maturity date will be presumed to exercise such
option or options in the manner that minimizes the yield on the debt instrument.
Conversely, a holder having an option to elect repayment of the debt instrument
prior to its stated maturity date or a combination of such options will be
presumed to exercise such option or options in a manner that maximizes the yield
on the debt instrument. If the exercise of such option or options to extend the
term of the debt instrument, to redeem the debt instrument prior to its stated
maturity date or to elect repayment of the debt instrument prior to its stated
maturity date actually occurs or does not occur, contrary to the presumption
made under the OID Regulations (a "change of circumstances"), then, solely for
purposes of the accrual of OID, the debt instrument is treated as reissued on
the date of the change in circumstances for an amount equal to its
S-24
<PAGE> 25
adjusted issue price on that date. Persons considering the purchase of Notes
involving an option of the Company to extend the Stated Maturity of the Notes or
to redeem the Notes prior to their Stated Maturity or an option of a holder to
elect repayment of a Note prior to its Stated Maturity should carefully examine
the applicable Pricing Supplement and should consult their own tax advisors
regarding the United States federal income tax consequences of the holding and
disposition of such Notes.
FOREIGN CURRENCY NOTES
The following is a summary of the principal United States federal income
tax consequences to a United States Holder of the ownership of a Note (a
"Foreign Currency Note") denominated in a Specified Currency other than the U.S.
dollar (a "Foreign Currency"). If interest payments are made in a Foreign
Currency to a United States Holder that is not required to accrue such interest
prior to its receipt, such holder will be required to include in income the U.S.
dollar value of the amount received (determined by translating the Foreign
Currency received at the "spot rate" for such Foreign Currency on the date such
payment is received), regardless of whether the payment is in fact converted
into U.S. dollars. No exchange gain or loss is recognized with respect to the
receipt of such payment.
A United States Holder that is required to accrue interest on a Foreign
Currency Note prior to the receipt of such interest will be required to include
in income for each taxable year the U.S. dollar value of the interest that has
accrued during such year, determined by translating such interest at the average
rate of exchange for the period or periods during which such interest accrued.
The average rate of exchange for an interest accrual period is the simple
average of the exchange rates for each business day of such period (or such
other average that is reasonably derived and consistently applied by the
holder). An accrual basis holder may elect to translate interest income at the
spot rate on the last day of the accrual period (or last day of the taxable year
in the case of an accrual period that straddles the holder's taxable year) or on
the date the interest payment is received if such date is within five days of
the end of the accrual period. Upon receipt of an interest payment on such Note,
such holder will recognize ordinary income or loss in an amount equal to the
difference between the U.S. dollar value of such payment (determined by
translating any Foreign Currency received at the "spot rate" for such Foreign
Currency on the date received) and the U.S. dollar value of the interest income
that such holder has previously included in income with respect to such payment.
OID on a Note that is also a Foreign Currency Note will be determined for
any accrual period in the applicable Foreign Currency and then translated into
U.S dollars in the same manner as interest income accrued by a holder on the
accrual basis, as described above. Likewise, a United States Holder will
recognize exchange gain or loss when the OID is paid to the extent of the
difference between the U.S. dollar value of the accrued OID (determined in the
same manner as for accrued interest) and the U.S. dollar value of such payment
(determined by translating any Foreign Currency received at the spot rate for
such Foreign Currency on the date of payment). For this purpose, all receipts on
a Note will be viewed first as the receipt of any stated interest payments
called for under the terms of the Note, second as receipts of previously accrued
OID (to the extent thereof), with payments considered made for the earliest
accrual periods first, and thereafter as the receipt of principal.
The amount of market discount on Foreign Currency Notes includible in
income will generally be determined by translating the market discount
determined in the Foreign Currency into U.S. dollars at the spot rate on the
date the Foreign Currency Note is retired or otherwise disposed of. If the
United States Holder has elected to accrue market discount currently, then the
amount which accrues is determined in the Foreign Currency and then translated
into U.S. dollars on the basis of the average exchange rate in effect during
such accrual period. A United States Holder will recognize exchange gain or loss
with respect to market discount which is accrued currently using the approach
applicable to the accrual of interest income as described above.
Bond premium on a Foreign Currency Note will be computed in the applicable
Foreign Currency. With respect to a United States Holder that elects to amortize
the premium, the amortizable bond premium will reduce interest income in the
applicable Foreign Currency. At the time bond premium is
S-25
<PAGE> 26
amortized, exchange gain or loss (which is generally ordinary income or loss)
will be realized based on the difference between spot rates at such times and at
the time of acquisition of the Foreign Currency Note. A United States Holder
that does not elect to amortize bond premium will translate the bond premium,
computed in the applicable Foreign Currency, into U.S. dollars at the spot rate
on the maturity date and such bond premium will constitute a capital loss which
may be offset or eliminated by exchange gain.
A United States Holder's tax basis in a Foreign Currency Note will be the
U.S. dollar value of the Foreign Currency amount paid for such Foreign Currency
Note determined at the time of such purchase. A United States Holder that
purchases a Note with previously owned Foreign Currency will recognize exchange
gain or loss at the time of purchase attributable to the difference at the time
of purchase, if any, between his tax basis in such Foreign Currency and the fair
market value of the Note in U.S. dollars on the date of purchase. Such gain or
loss will be ordinary income or loss.
For purposes of determining the amount of any gain or loss recognized by a
United States Holder on the sale, exchange, retirement or other disposition of a
Foreign Currency Note, the amount realized upon such sale, exchange, retirement
or other disposition will be the U.S. dollar value of the amount realized in
Foreign Currency (other than amounts attributable to accrued but unpaid interest
not previously included in the holder's income), determined at the time of the
sale, exchange, retirement or other disposition.
A United States Holder will recognize exchange gain or loss attributable to
the movement in exchange rates between the time of purchase and the time of
disposition (including the sale, exchange, retirement or other disposition) of a
Foreign Currency Note. Such gain or loss will be treated as ordinary income or
loss. The realization of such gain or loss will be limited to the amount of
overall gain or loss realized on the disposition of a Foreign Currency Note.
Under proposed Treasury Regulations issued on March 17, 1992, if a Foreign
Currency Note is denominated in one of certain hyperinflationary currencies,
generally (i) exchange gain or loss would be realized with respect to movements
in the exchange rate between the beginning and end of each taxable year (or such
shorter period) that such Note was held and (ii) such exchange gain or loss
would be treated as an addition or offset, respectively, to the accrued interest
income on (and an adjustment to the holder's tax basis in) the Foreign Currency
Note.
A United States Holder's tax basis in Foreign Currency received as interest
on (or OID with respect to), or received on the sale, exchange, retirement or
other disposition of, a Foreign Currency Note will be the U.S. dollar value
thereof at the spot rate at the time the holder received such Foreign Currency.
Any gain or loss recognized by a United States Holder on a sale, exchange or
other disposition of Foreign Currency will be ordinary income or loss and will
not be treated as interest income or expense, except to the extent provided in
Treasury Regulations or administrative pronouncements of the IRS.
INDEXED NOTES
The tax treatment of a United States Holder of an Indexed Note will depend
on factors including the specific index or indices used to determine indexed
payments on the Note and the amount and timing of any contingent payments of
principal and interest. Persons considering the purchase of Indexed Notes should
carefully examine the applicable Pricing Supplement and should consult their own
tax advisors regarding the United States federal income tax consequences of the
holding and disposition of such Notes.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Company or any paying agent of
principal or interest (which for purposes of this discussion includes OID)
on a Note owned by a Non-United States Holder, provided (i) that the
beneficial owner does not actually or constructively own 10% or more of the
total combined voting
S-26
<PAGE> 27
power of all classes of stock of the Company entitled to vote within the
meaning of section 871(h)(3) of the Code and the regulations thereunder,
(ii) the beneficial owner is not a controlled foreign corporation that is
related to the Company through stock ownership, (iii) the beneficial owner
is not a bank whose receipt of interest on a Note is described in section
881(c)(3)(A) of the Code, (iv) the beneficial owner satisfies the statement
requirement (described generally below) set forth in section 871(h) and
section 881(c) of the Code and the regulations thereunder and (v) such
interest is not contingent interest within the meaning of section
871(h)(4)(A) of the Code and the regulations thereunder;
(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange or retirement of a Note; and
(c) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Note would not have been,
if received at the time of such individual's death, effectively connected
with the conduct of a United States trade or business by such individual.
To qualify for the exemption from withholding tax referred to in (a) above,
the beneficial owner of such Note, or a financial institution holding the Note
on behalf of such owner, must provide, in accordance with specified procedures,
a paying agent of the Company with a statement to the effect that the beneficial
owner is not a U.S. person, citizen or resident. Pursuant to current temporary
Treasury Regulations, these requirements will be met if (1) the beneficial owner
provides his name and address, and certifies, under penalties of perjury, that
he is not a U.S. person, citizen or resident (which certification may be made on
an Internal Revenue Service Form W-8 (or successor form)) or (2) a financial
institution holding the Note on behalf of the beneficial owner certifies, under
penalties of perjury, that such statement has been received by it and furnishes
a paying agent with a copy thereof.
Payments of premium, if any, and interest (including OID) to Non-United
States Holders not meeting the requirements of paragraph (a) above will be
subject to a 30% withholding unless the beneficial owner of the Note provides
the Company with a properly executed (1) Internal Revenue Service Form 1001 (or
successor form) claiming an exemption from or reduction in withholding under the
benefit of a tax treaty or (2) Internal Revenue Service Form 4224 (or successor
form) stating that interest paid on the Note is not subject to withholding tax
because it is effectively connected with the owner's conduct of a trade or
business in the United States.
If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest (including OID) on the Note is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from the withholding tax discussed above, will be
subject to United States federal income tax on such interest and OID on a net
income basis in the same manner as if it were a United States Holder. In
addition, if such holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its effectively connected earnings and profits for
the taxable year, subject to adjustments. For this purpose, such premium, if
any, and interest (including OID) on a Note will be included in such foreign
corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note generally will not be subject to United States federal
income tax unless (i) such gain or income is effectively connected with a trade
or business in the United States of the Non-United States Holder, or (ii) in the
case of a Non-United States Holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, exchange, retirement or other disposition, and certain other conditions
are met.
S-27
<PAGE> 28
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on Notes and to the
proceeds of a sale of a Note made to United States Holders other than certain
exempt recipients (such as corporations). Backup withholding at a 31% rate will
apply to such payments if the United States Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (a)(iv) under "Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on a Note is paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Note, or if a foreign office of a broker
(as defined in applicable Treasury Regulations) pays the proceeds of the sale of
a Note to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a U.S. person, a
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, such payment will not be subject to backup withholding but
may be subject to information reporting.
Payments of principal, interest, OID and premium on a Note paid to the
beneficial owner of a Note by a United States office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds of
sale of a Note, will be subject to both backup withholding and information
reporting unless the beneficial owner provides a statement described in (a)(iv)
above and the payor does not have actual knowledge that the beneficial owner is
a United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company through
the Agents, which have agreed to use reasonable efforts to solicit orders to
purchase Notes. The Company will have the sole right to accept orders to
purchase Notes and may reject proposed purchases in whole or in part. The Agents
shall have the right, in their discretion reasonably exercised and without
notice to the Company, to reject any proposed purchase of Notes in whole or in
part. The Company will pay the Agents a commission of from .125% to .875% of the
principal amount of Notes sold through it, depending upon the Stated Maturity.
Commissions on Notes with a Stated Maturity of greater than 40 years will be
negotiated at the time of sale.
The Company may also sell Notes at a discount to the Agents for their own
account or for resale to one or more purchasers at varying prices related to
prevailing market prices at the time of resale or, if set forth in the
applicable Pricing Supplement, at a fixed public offering price, as determined
by such Agent. After any initial public offering of Notes to be resold to
purchasers at a fixed public offering price, the public offering price and any
concession or discount may be changed. In addition, an Agent may offer Notes
purchased by it as principal to other dealers. Notes sold by an Agent to a
dealer may be sold at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed will not be in excess of
the discount received by such Agent from the Company. Unless otherwise specified
in the applicable Pricing Supplement, any Note purchased by an Agent as
principal will be purchased at 100% of the principal amount or face amount
thereof less a percentage equal to the commission applicable to an agency sale
of a Note of identical maturity.
S-28
<PAGE> 29
No Note will have an established trading market when issued. The Notes will
not be listed on any securities exchange. An Agent may make a market in the
Notes, but such Agent is not obligated to do so and may discontinue any
market-making at any time without notice. There can be no assurance of a
secondary market for any Notes, or that the Notes will be sold.
An Agent, whether acting as agent or principal, may be deemed to be an
"underwriter" within the meaning of the Securities Act. The Company has agreed
to indemnify each Agent against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments that such Agent may be required
to make in respect thereof.
In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Notes may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, the Notes in the open market. Finally, the underwriting
syndicates may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the Notes in the offering, if the syndicate repurchases
previously distributed the Notes in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Notes above independent market
levels. The Agents are not required to engage in these activities, and may end
any of these activities at any time.
S-29
<PAGE> 30
PROSPECTUS
STAR BANC CORPORATION
DEBT SECURITIES AND DEBT WARRANTS
PREFERRED SHARES AND PREFERRED SHARE WARRANTS
COMMON STOCK AND COMMON STOCK WARRANTS
UNITS
------------------------
Star Banc Corporation (the "Corporation") intends to offer from time to
time in one or more series its unsecured debt securities, which may be senior
(the "Senior Securities") or subordinated (the "Subordinated Securities," and,
together with the Senior Securities, the "Debt Securities"), warrants to
purchase the Debt Securities ("Debt Warrants"), shares of common stock, par
value $5.00 per share ("Common Stock"), shares of preferred stock, without par
value (the "Preferred Shares"), interests in which may be represented by
depositary shares ("Depositary Shares"), warrants to purchase the Preferred
Shares or Depositary Shares ("Preferred Share Warrants") or warrants to purchase
Common Stock ("Common Stock Warrants," and, together with the Debt Warrants and
Preferred Share Warrants, the "Securities Warrants"), with an aggregate initial
public offering price (including the exercise price of any Securities Warrants)
of up to $500,000,000 or the equivalent thereof in one or more foreign
currencies or composite currencies, including European Currency Units ("ECUs"),
on terms to be determined at the time of sale. The Debt Securities, Common
Stock, Preferred Shares, Depositary Shares and Securities Warrants may be
offered separately or as a part of units consisting of one or more such
securities ("Units," and, together with the Debt Securities, Common Stock,
Preferred Shares, Depositary Shares and Securities Warrants, the "Offered
Securities"), in separate series, in amounts, at prices and on terms to be set
forth in one or more supplements to this Prospectus (a "Prospectus Supplement").
The Senior Securities will rank pari passu with all other unsecured Senior
Debt (as defined herein) of the Corporation. The Subordinated Securities will be
subordinated to all existing and future Senior Debt of the Corporation.
Specific terms of the Offered Securities, including such terms as, where
applicable, (i) in the case of Debt Securities, the specific designation,
aggregate principal amount, currency, denominations, maturity, premium, rate and
time of payment of interest, terms for redemption at the option of the
Corporation or repayment at the option of the holder, terms for sinking fund
payments, terms for conversion into other Offered Securities and the initial
public offering price; (ii) in the case of Preferred Shares, the specific title
and stated value, aggregate number of shares or fractional interests therein,
any dividend, liquidation, redemption, conversion, voting and other rights, the
initial public offering price, and whether interests in the Preferred Shares
will be represented by Depositary Shares; (iii) in the case of Common Stock the
aggregate number of shares and the initial public offering price; and (iv) in
the case of Securities Warrants, where applicable, the duration, offering price,
exercise price and detachability, will be set forth in the accompanying
Prospectus Supplement. Units may be issued in amounts, at prices, on terms and
containing such conditions, covenants and other provisions, and consisting of
such Offered Securities, as will be set forth in a Prospectus Supplement. The
Prospectus Supplement will also contain information, where applicable, about
certain United States federal income tax considerations relating to, and any
listing on a securities exchange of, the Offered Securities covered by the
Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time, or to or through underwriters or dealers, which may include
affiliates of the Corporation. If any agents or underwriters are involved in the
sale of any of the Offered Securities, their names, and any applicable fee,
commission, purchase price or discount arrangements with them, will be set
forth, or will be calculable from the information set forth, in such Prospectus
Supplement.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
------------------------
THE DEBT SECURITIES ARE UNSECURED OBLIGATIONS OF THE CORPORATION AND NO
OFFERED SECURITIES ARE SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY
BANK OR NONBANK SUBSIDIARY OF THE CORPORATION, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
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 OR ANY PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is March 14, 1997.
<PAGE> 31
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the Securities and
Exchange Commission (the "Commission") are incorporated in and made a part of
this Prospectus by reference: (i) Annual Report on Form 10-K for the year ended
December 31, 1995; (ii) Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1996, June 30, 1996 and September 30, 1996; (iii) Current Report
on Form 8-K filed March 12, 1997; (iv) Registration Statement on Form 8-A dated
May 5, 1994; and (v) Registration Statement on Form 8-A dated April 15, 1994.
All documents filed by the Corporation with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities offered
hereby shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein or in the accompanying Prospectus Supplement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Corporation will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the information incorporated
herein by reference (other than exhibits, unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to David M. Moffett, Chief Financial Officer, Star Banc
Corporation, Star Bank Center, 425 Walnut Street, P.O. Box 1038, Cincinnati,
Ohio 45202. Telephone requests may be directed to (513) 632-4000.
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Exchange Act, and, in accordance therewith, files reports and other information
with the Commission. Such reports, proxy and information statements and other
information filed by the Corporation can be inspected and copied at the public
reference facilities of the Commission, Room 1024, 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, Suite 1300, New York, New York 10048, and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, at prescribed
rates. In addition, copies of such material can be obtained from the
Commission's Internet site (http://www.sec.gov). The Common Stock is listed on
the New York Stock Exchange, Inc. (the "NYSE"). Reports, proxy and information
statements and other information concerning the Corporation can also be
inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
Additional information regarding the Corporation and the Offered Securities
offered hereby is contained in the registration statement (the "Registration
Statement") and the exhibits relating thereto in respect of the Offered
Securities offered hereby, filed with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). For further information pertaining to
the Corporation and the Offered Securities offered hereby, reference is made to
the Registration Statement and the exhibits thereto, which may be inspected
without charge at the office of the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549, and copies thereof may be obtained from the Commission
at prescribed rates. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain of the information contained in the
Registration Statement. Statements contained herein concerning the provisions of
any document filed as an exhibit to the Registration Statement are not
necessarily complete and reference is made to the copy of such document so
filed. Such statements are qualified in their entirety by such reference.
------------------------
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$," "dollars," "U.S.
dollars," or "U.S. $").
2
<PAGE> 32
THE CORPORATION
The Corporation is organized under the laws of the State of Ohio and
maintains its executive offices in Cincinnati, Ohio. The Corporation is a bank
holding company (under the Bank Holding Company Act of 1956, as amended (the
"BHCA")) registered with the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), and, accordingly, is subject to regulation and
examination by the Federal Reserve Board.
As a result of a 1993 and 1996 restructuring of certain of its Ohio and
Indiana banks, the Corporation presently directly holds one wholly-owned
national bank subsidiary: Star Bank, N.A. (the "Bank"). Through the Bank and its
260 banking offices, the Corporation engages in the commercial banking and trust
business and provides a full range of consumer, wholesale, commercial, trust and
investment products (including, but not limited to deposits, individual
retirement accounts ("IRAs"), and mutual funds) and investment services in Ohio,
Kentucky and Indiana. The Bank offers corporate loans, commercial leasing,
commercial and residential mortgages, real estate construction lending, and a
variety of consumer loan products (including installment loans, credit cards and
retail leasing). None of the foregoing types of loans exceeds 30% of the Bank's
diversified loan portfolio. The Bank also offers cash management and
international trade services to commercial clients.
The Corporation has expanded significantly by acquisition in the last five
years. Recently, the Corporation, in three separate transactions, purchased 24
branch offices in the Columbus, Ohio area, 47 branch offices in the Cleveland
and Akron, Ohio areas, and 28 additional branches in the Cleveland, Ohio area;
and, on July 26, 1996, the Bank acquired 5 additional branches in Indiana. Most
recently, the Bank entered into an Agreement to acquire 7 branch offices in the
Southwestern Ohio area from Amerifirst Bank, N.A. This transaction is expected
to close in the first quarter of 1997. The Corporation continues to explore
other acquisition opportunities in its market area.
The Corporation's other active subsidiaries include: Miami Valley Insurance
Company, an Arizona corporation engaged solely in the business of issuing credit
life and accident and health insurance in connection with the lending activities
of the Corporation's Ohio and Indiana branch offices; First National Cincinnati
Corporation, a subsidiary of the Bank that owns and operates the Corporation's
headquarters building; and Star Banc Finance, Inc., a consumer finance company
regulated by the Federal Reserve Board that offers a broad mix of credit
products and services, including direct and indirect auto loans, second
mortgages and personal loans.
The Corporation's principal executive offices are located at Star Bank
Center, 425 Walnut Street, Cincinnati, Ohio 45202, and its telephone number is
(513) 632-4000.
Additional information concerning the Corporation is included in the
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
3
<PAGE> 33
CERTAIN REGULATORY MATTERS
GENERAL
As a bank holding company, the Corporation is subject to supervision and
examination by the Federal Reserve Board. Under the BHCA, a bank holding company
generally may not, directly or indirectly, acquire the ownership or control of
more than 5% of the voting securities or all or substantially all of the assets
of any company, including a bank, without the prior approval of the Federal
Reserve Board. In addition, under the BHCA a bank holding company is generally
prohibited from engaging in nonbanking activities, subject to certain
exceptions. Proposals to change the laws and regulations governing the banking
industry are frequently raised in Congress, in the state legislatures and before
the various bank regulatory agencies. The likelihood and timing of any changes
and the impact such changes might have on the Bank and its affiliates are
difficult to determine.
The Bank is subject to supervision and examination by applicable federal
and state banking agencies. The Bank is primarily regulated by the Office of the
Comptroller of the Currency (the "OCC"). The deposits of the Bank are primarily
insured by the Bank Insurance Fund (the "BIF"); and certain deposits of the Bank
are insured by the Savings Association Insurance Fund (the "SAIF"); and, for
that reason, the Bank is subject to regulation by the Federal Deposit Insurance
Corporation (the "FDIC"). The Bank is also affected by the fiscal and monetary
policies of the federal government and its agencies, including the Federal
Reserve Board. An important purpose of these policies is to curb inflation and
control recessions through control of the supply of money and credit. The
Federal Reserve Board uses its powers to establish reserve requirements of
insured depository institutions, to set the discount rate on its extensions of
credit to insured depository institutions and to conduct open market operations
in United States government securities so as to influence the supply of money
and credit. These policies have a direct effect on the amount of bank loans and
deposits and on the interest rates charged on loans and paid on deposits, with
the result that federal policies have a material effect on bank earnings. Future
policies of the Federal Reserve Board and other authorities cannot be predicted
nor can their effect on future Bank earnings be predicted.
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to such
statutory or regulatory provisions.
DIVIDEND RESTRICTIONS
Federal law imposes limitations on the payment of dividends by the Bank.
The amount of dividends that may be paid by the Bank is limited to the lesser of
the amounts calculated under a "recent earnings" test and an "undivided profits"
test. Under the recent earnings test, a dividend may not be paid if the total of
all dividends declared by a bank in any calendar year is in excess of the
current year's net income combined with the retained net income of the two
preceding years, unless the bank obtains the approval of the OCC. Under the
"undivided profits" test, a dividend may not be paid in excess of a bank's
"undivided profits".
Under these provisions the Bank could have declared, as of December 31,
1996, aggregate dividends of at least $250 million, without obtaining prior
regulatory approval and without reducing the capital of the Bank below "well
capitalized" minimum regulatory levels.
If, in the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board,
the OCC, and the FDIC have issued policy statements which provide that
FDIC-insured banks and bank holding companies should generally pay dividends
only out of current operating earnings.
4
<PAGE> 34
HOLDING COMPANY STRUCTURE
The Corporation is a legal entity separate and distinct from its banking
and nonbanking subsidiaries. Accordingly, the right of the Corporation, and thus
the rights of the Corporation's creditors, to participate in any distribution of
the assets or earnings of any subsidiary other than in the Corporation's
capacity as a bona fide creditor of the subsidiary is necessarily subject to the
prior satisfaction of claims of creditors of the subsidiary. The principal
sources of the Corporation's revenues are dividends and fees from its
subsidiaries.
The Bank is subject to restrictions under federal law which limit the
transfer of funds by the Bank to the Corporation and its nonbank subsidiaries,
whether in the form of loans, extensions of credit, investments or asset
purchases. Such transfers by the Bank to the Corporation or any nonbank
subsidiary are limited in amount to 10% of the Bank's capital and surplus, and,
with respect to the Corporation and all such nonbank subsidiaries, to an
aggregate of 20% of such bank's capital and surplus. Furthermore, such loans and
extensions of credit are required to be secured in specified amounts.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
its subsidiary banks and to commit resources to support such subsidiary banks.
This support may be required at times when the Corporation may not have the
resources to provide it. Any capital loan by the Corporation to the Bank is
subordinate in right of payment to deposits and to certain other indebtedness of
the Bank. In addition, the Crime Control Act of 1990 provides that, in the event
of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a "default" is likely to occur in the absence of regulatory assistance.
Federal law (12 U.S.C. Section 55) permits the OCC to order the pro rata
assessment of shareholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any such
pro rata assessment of shareholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed shareholder failing to pay the assessment. The
Corporation, as the sole shareholder of the Bank, is subject to such provisions.
ACQUISITIONS
Effective September 29, 1995, under the provisions of the Reigle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Reigle-Neal Act"),
the Corporation is permitted to acquire banks located in any state. Effective
June 1, 1997, the Bank will be permitted to acquire a bank located in a state
other than the state in which the Bank is located (an "interstate merger")
through merger, consolidation or purchase of assets and assumption of
liabilities, unless the state in which either of the banks is located has opted
out of the interstate banking provisions of the Reigle-Neal Act. An interstate
merger may occur before June 1, 1997 if the states in which the merging banks
are located have enacted a law authorizing interstate bank mergers.
All of the Corporation's acquisitions of banking institutions and other
companies are subject to the prior approval of the Federal Reserve Board and any
applicable federal or state regulatory authorities. In addition, under the
provisions of the Reigle-Neal Act, bank mergers are subject to deposit
concentration limits of 10% nationwide, and 30% in any one state unless it is
the initial entry of the Corporation into the state.
5
<PAGE> 35
CAPITAL REQUIREMENTS
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, the minimum ratio of total capital to risk-adjusted assets
(including certain off-balance sheet items, such as stand-by letters of credit)
is 8%. At least half of the total capital is to be comprised of common
stockholders' equity, minority interests and noncumulative perpetual preferred
stock ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist of hybrid
capital instruments, perpetual debt, mandatory convertible debt securities, a
limited amount of subordinated debt, other preferred stock, and a limited amount
of the allowance for credit losses. The risk-based guidelines also specify that
all intangibles, including core deposit intangibles, except for mortgage
servicing rights ("MSRs") and purchased credit card relationships ("PCCRs"), be
deducted from Tier 1 capital. The guidelines permit the nondeduction of readily
marketable MSRs and PCCRs in Tier 1 capital to the extent that (i) MSRs and
PCCRs do not collectively exceed 50% of Tier 1 capital and (ii) PCCRs do not
exceed 25% of Tier 1 capital. For such purposes, MSRs and PCCRs each are
included in Tier 1 capital only up to the lesser of (i) 90% of their fair market
value (which must be determined quarterly) and (ii) 100% of the remaining
unamortized book value of such assets. In addition, the Federal Reserve Board's
minimum "leverage ratio" (the ratio of Tier 1 capital to quarterly average total
assets) guidelines for bank holding companies provide for a minimum leverage
ratio of 3% for bank holding companies that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies are required to maintain a leverage ratio of 3% plus an additional
cushion of 1% to 2%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions are expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve Board will continue to consider a "tangible
Tier 1 leverage ratio" in evaluating proposals for expansion or new activities.
The tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier
1 capital less all intangibles to total assets less all intangibles. The Bank is
also subject to capital requirements adopted by the OCC which are substantially
similar to the foregoing. At December 31, 1996, the Corporation's Tier 1 capital
and "total capital" (the sum of Tier 1 and Tier 2 capital) to risk-adjusted
assets ratios were 7.64% and 11.88%, respectively, and the Corporation's
leverage ratio was 6.53%. Neither the Corporation nor the Bank has been advised
by the appropriate federal regulatory agency of any specific leverage ratio
applicable to it.
As a result of a federal law enacted in 1991 that required each federal
banking agency to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of nontraditional activities, each of the federal banking
agencies has revised the risk-based capital guidelines described above to take
into account concentration of credit risk and risk of nontraditional activities.
In addition, the Federal Reserve Board, the FDIC and the OCC adopted a rule that
amends, effective September 1, 1995, the capital standards to include explicitly
a bank's exposure to declines in the economic value of its capital due to
changes in interest rates as a factor to be considered in evaluating a bank's
interest rate exposure. On June 26, 1996, such agencies issued a joint policy
statement that describes the process to be used to measure and assess the
exposure of a bank's net economic value to changes in interest rates. These
agencies have indicated that they do not intend to issue a rule that would
propose to establish an explicit minimum capital charge for interest rate risk
based on the level of a bank's measured interest rate exposure. In August 1996,
the federal banking agencies adopted amendments to their risk-based capital
rules to incorporate a measure for market risk in foreign exchange and commodity
activities and in the trading of debt and equity instruments. These amendments,
which become effective at year end 1997, will require banks with relatively
large trading activities to calculate a capital charge for market risk using
their own internal value-at-risk models (subject to parameters set by the
regulators) or, alternatively, risk management techniques developed by the
regulators. As a result, in addition to existing capital requirements for credit
risk, certain institutions will be required to hold capital based on the measure
of their market risk exposure. These institutions will be able to satisfy this
additional requirement, in part, by issuing short-term subordinated debt that
qualifies as Tier 3 capital. The Corporation does not believe that these recent
proposals and revisions to the capital guidelines will materially impact its
operations.
6
<PAGE> 36
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised the
bank regulatory and funding provisions of the Federal Deposit Insurance Act (the
"FDIA") and makes revisions to several other federal banking statutes. Among
other things, FDICIA requires federal banking regulators to take "prompt
corrective action" in respect of FDIC-insured depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under applicable OCC
regulations, an FDIC-insured depository institution is defined to be well
capitalized if it maintains a leverage ratio of at least 5%, a risk-adjusted
Tier 1 capital ratio of at least 6% and a risk-adjusted total capital ratio of
at least 10% and is not subject to a directive, order or written agreement to
meet and maintain specific capital levels. An insured depository institution is
defined to be adequately capitalized if it meets all of its minimum capital
requirements as described above under "-- Capital Requirements". An insured
depository institution will be considered undercapitalized if it fails to meet
any minimum required measure; will be considered significantly undercapitalized
if it has a risk-adjusted total capital ratio of less than 6%, risk-adjusted
Tier 1 capital ratio of less than 3% or a leverage ratio of less than 3%; and
will be considered critically undercapitalized if it fails to maintain a level
of tangible equity equal to at least 2% of total assets. An insured depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to a wide
range of limitations on operations and activities, including growth limitations,
and are required to submit a capital restoration plan. The federal banking
agencies may not accept a capital plan without determining, among other things,
that the plan is based on realistic assumptions and is likely to succeed in
restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of (i) an amount equal to 5% of the depository
institution's total assets at the time it became undercapitalized and (ii) the
amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect
to such institution as of the time it fails to comply with the plan. If a
depository institution fails to submit an acceptable plan, it is treated as if
it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions may not, beginning 60 days after
becoming critically undercapitalized, make any payment of principal or interest
on their subordinated debt. In addition, critically undercapitalized
institutions are subject to the appointment of a receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards, by
regulation or guideline, for depository institutions relating to internal
controls, information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, asset
quality, earnings, stock valuation, and such other operational and managerial
standards as the agency deems appropriate. The FDIC, in consultation with the
other federal banking agencies has adopted a final rule and guidelines with
respect to external and internal audit procedures and internal controls in order
to implement those provisions of FDICIA intended to facilitate the early
identification of problems in financial management of depository institutions.
The federal banking agencies have published final rules implementing the safety
and soundness standards required by FDICIA, including operational and managerial
standards, asset quality and earnings standards, and compensation standards. The
Corporation does not believe these standards will have a material impact on its
operations.
7
<PAGE> 37
FDICIA also contains a variety of other provisions that may affect the
operations of the Corporation, including reporting requirements, revised
regulatory standards for real estate lending, "truth in savings" provisions, and
the requirement that a depository institution give 90 days' notice to customers
and regulatory authorities before closing any branch.
Under other regulations promulgated under FDICIA, a bank cannot accept
"brokered deposits" (that is, deposits obtained through a person engaged in the
business of placing deposits with insured depository institutions or with
interest rates significantly higher than prevailing market rates) unless (i) it
is well capitalized or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank that cannot receive brokered deposits also cannot offer
"pass-through" insurance on certain employee benefit accounts unless it provides
certain notices to affected depositors. In addition, a bank that is adequately
capitalized and that has not received a waiver from the FDIC may not pay an
interest rate on any deposits in excess of 75 basis points over certain
prevailing market rates. There are no such restrictions on a bank that is well
capitalized. Based on the above criteria and the Bank's capital ratios as of
December 31, 1996, the Bank qualifies as "well capitalized" under FDICIA and the
OCC's prompt corrective action regulations. The terminology used in FDICIA and
the prompt corrective action regulations, as described above, should not
necessarily be viewed as describing the condition or prospects of subject
depositary institutions, including the Bank.
FDIC INSURANCE
Each BIF member institution pays FDIC insurance premiums based on the
institution's annual assessment rate assigned to it by the FDIC. The assessment
rate is based on the institution's capitalization risk category and "supervisory
subgroup." An institution's capitalization risk category is based on the FDIC's
determination of whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. An institution's supervisory
subgroup is based on the FDIC's assessment of the financial condition of the
institution and the probability that FDIC intervention or other corrective
action will be required. "Subgroup A" institutions are financially sound
institutions with few minor weaknesses; "Subgroup B" institutions are
institutions that demonstrate weaknesses which, if not corrected, could result
in significant deterioration; and "Subgroup C" institutions are institutions for
which there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness. The FDIC assessment rate schedule for BIF insured deposits,
adopted by the FDIC in 1995, ranges from zero to 27 cents per $100 of domestic
deposits, with Subgroup A institutions assessed at a rate of zero and Subgroup C
institutions assessed at a rate of 27 cents. On September 30, 1996, the
"Economic Growth and Regulatory Paperwork Reduction Act of 1996" was enacted.
The legislation, among other things, provides for the annual assessments on both
banks and savings associations to pay interest on bonds issued by the Financing
Corporation ("FICO") in connection with the cost of savings associations
insolvencies. This legislation is expected to result in BIF insurance premiums
for the Bank's BIF insured deposits in 1997 of 1.3 cents per $100 of deposits,
substantially all related to the FICO interest obligations. The FDIC may change
the assessment rate schedule BIF insured deposits on a semiannual basis. An
increase in the rate assessed against the Bank could have a material adverse
effect on the Corporation's earnings, depending on the amount of the increase.
The FDIC is authorized to terminate a depository institution's deposit
insurance upon a finding by the FDIC that the institution's financial condition
is unsafe or unsound or that the institution has engaged in unsafe or unsound
practices or has violated any applicable rule, regulation, order or condition
enacted or imposed by the institution's regulatory agency. The termination of
deposit insurance with respect to the Bank could have a material adverse effect
on the Corporation's earnings.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 also
provided for the recapitalization of the SAIF by imposing a one-time assessment
on SAIF-insured deposits. The deposits of the Bank include SAIF-insured
deposits. The effect of the legislation was to impose a one-time charge on the
Bank of approximately $5.0 million and to reduce the premium on its SAIF-insured
deposits to the same premium as for BIF insured deposits except that the
assessment for interest on the FICO obligations for 1997
8
<PAGE> 38
will be 6.4 cents per $100 of deposits. The FDIC may change the assessment rate
for such deposits on a semiannual basis.
DEPOSITOR PREFERENCE
Under the FDICIA, claims of holders of domestic deposits and certain claims
of administrative expenses and employee compensation against an FDIC-insured
depository institution, such as the Bank, have priority over other general
unsecured claims against the institution in the "liquidation or other
resolution" of the institution by a receiver.
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement, the net
proceeds to be received by the Corporation from the sale of the Offered
Securities offered hereby will be added to the general funds of the Corporation,
and will be available for general corporate purposes, including investments in
or advances to existing or future subsidiaries, repayment of maturing
obligations and redemption of outstanding indebtedness. Pending such use, the
Corporation may temporarily invest the net proceeds or use them to reduce
short-term indebtedness.
9
<PAGE> 39
RATIOS OF EARNINGS TO FIXED CHARGES
AND TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following are the consolidated ratios of earnings to fixed charges and
to combined fixed charges and preferred stock dividends for each of the years in
the five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding interest on deposits.................... 5.17x 3.98x 4.62x 6.77x 5.50x
Including interest on deposits.................... 1.75x 1.61x 1.79x 1.77x 1.48x
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends:
Excluding interest on deposits.................... 5.17x 3.97x 4.57x 6.37x 5.15x
Including interest on deposits.................... 1.75x 1.61x 1.79x 1.76x 1.47x
</TABLE>
For purposes of computing the consolidated ratios of earnings to fixed
charges, income before income taxes plus fixed charges less capitalized interest
has been divided by fixed charges. For purposes of computing the consolidated
ratios of earnings to combined fixed charges and preferred stock dividends,
income before income taxes plus fixed charges less capitalized interest has been
divided by fixed charges and pretax earnings required to cover preferred stock
dividends. Fixed charges, excluding interest on deposits, consist of interest on
short-term borrowings and long-term debt, amortization of debt expense,
capitalized interest and one-third of net rental expense (which is deemed
representative of the interest factor). Fixed charges, including interest on
deposits, consist of the foregoing items plus interest on deposits. Pretax
earnings required to cover preferred stock dividends have been computed by
dividing preferred stock dividends by one minus the Corporation's effective
income tax rate.
10
<PAGE> 40
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be described
in the Prospectus Supplement relating to such Debt Securities.
The Senior Securities are to be issued under an indenture (the "Senior
Indenture") between the Corporation and the trustee named in the applicable
Prospectus Supplement as trustee (the "Senior Trustee"). The Subordinated
Securities are to be issued under an indenture (the "Subordinated Indenture")
between the Corporation and the trustee named in the applicable Prospectus
Supplement as trustee (the "Subordinated Trustee" and, together with the Senior
Trustee, the "Trustees"). The forms of the Senior Indenture and the Subordinated
Indenture (collectively, the "Indentures") are exhibits to the Registration
Statement. The following summaries of certain provisions of the Indentures do
not purport to be complete and are qualified in their entirety by reference to
the provisions of the Indentures.
Numerical references in parentheses below are to sections of the
Indentures. Wherever particular sections or defined terms of the Indentures are
referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference. Unless otherwise indicated, capitalized terms
shall have the meanings ascribed to them in the Indentures.
GENERAL
Each Indenture provides that Debt Securities in an unlimited amount may be
issued thereunder from time to time in one or more series. (SECTION 301)
The Senior Securities will be unsecured and will rank pari passu with other
unsecured indebtedness of the Corporation. The Subordinated Securities will be
unsecured and will rank pari passu with other subordinated debt of the
Corporation, and, together with such other subordinated debt, will be
subordinated and junior in right of payment to the prior payment in full of the
Senior Debt of the Corporation as described below under "-- Subordination."
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Debt Securities for the terms of such Debt Securities,
including, where applicable, (i) the designation and any limit on the aggregate
principal amount of such Debt Securities; (ii) the price (expressed as a
percentage of the aggregate principal amount thereof) at which such Debt
Securities will be issued; (iii) the date or dates on which such Debt Securities
will mature or method by which such dates can be determined and the dates on
which premiums, if any, will be payable; (iv) the currency or currencies in
which such Debt Securities are being sold and are denominated and the
circumstances, if any, under which any Debt Securities may be payable in a
currency other than the currency in which such Debt Securities are denominated
and, if so, the exchange rate, the exchange rate agent and, if the Holder of any
such Debt Securities may elect the currency in which payments thereon are to be
made, the manner of such election; (v) the denominations in which any Debt
Securities which are Registered Securities will be issuable, if other than
denominations of $1,000 and any integral multiple thereof, and the denomination
or denominations in which any Debt Securities which are Bearer Securities will
be issuable, if other than the denomination of $5,000; (vi) the rate or rates
(which may be fixed or variable) at which such Debt Securities will bear
interest, which rate may be zero in the case of certain Debt Securities issued
at an issue price representing a discount from the principal amount payable at
maturity; (vii) the date from which interest on such Debt Securities will
accrue, the dates on which such interest will be payable or the method by which
such dates can be determined, the date on which payment of such interest will
commence and the circumstances, if any, in which the Corporation may defer
interest payments; (viii) the dates on which, and the price or prices at which,
such Debt Securities will, pursuant to any mandatory sinking fund provision, or
may, pursuant to any optional redemption provision, be redeemed or repaid, and
the other terms and provisions of any such optional redemption or required
repayment; (ix) the place or places where the principal (and premium if any) and
interest shall be payable; (x) in the case of the Subordinated Securities, any
terms by which such securities may be convertible into Common Stock (see
11
<PAGE> 41
"DESCRIPTION OF COMMON STOCK"), Preferred Shares (see "DESCRIPTION OF PREFERRED
SHARES") or Depositary Shares (see "DESCRIPTION OF DEPOSITARY SHARES") of the
Corporation, and, in the case of Subordinated Securities convertible into
Preferred Shares or Depositary Shares, the terms of such Preferred Shares or
Depositary Shares; (xi) whether such Debt Securities are to be issuable as
Bearer Securities and/or Registered Securities, and, if issuable as Bearer
Securities, the terms upon which any Bearer Securities may be exchanged for
Registered Securities; (xii) whether such Debt Securities are to be issued in
the form of one or more temporary or permanent Global Securities, and, if so,
the identity of the depositary for such Global Security or Securities; (xiii) if
a temporary global Debt Security is to be issued with respect to such series,
the extent to which, and the manner in which, any interest thereon payable on an
interest payment date prior to the issuance of a permanent Global Security or
definitive Bearer Securities will be credited to the accounts of the persons
entitled thereto on such interest payment date; (xiv) if a temporary Global
Security is to be issued with respect to such series, the terms upon which
interests in such temporary Global Security may be exchanged for interests in a
permanent Global Security or for definitive Debt Securities of the series, and
the terms upon which interests in a permanent Global Security, if any, may be
exchanged for definitive Debt Securities of the series; (xv) any additional
restrictive covenants included for the benefit of Holders of such Debt
Securities; (xvi) any additional Events of Default provided with respect to such
Debt Securities; (xvii) information with respect to book-entry procedures, if
any; (xviii) whether the Debt Securities will be repayable at the option of the
Holder; (xix) any other terms of the Debt Securities not inconsistent with the
provisions of the applicable Indenture; (xx) the right of the Corporation to
defease the Debt Securities or certain covenants under the Indentures; (xxi) the
Person or Persons who shall be the Security Registrar; and (xxii) the terms of
any securities being offered together with or separately from the Debt
Securities. Such Prospectus Supplement will also describe any special provisions
for the payment of additional amounts with respect to the Debt Securities,
certain United States federal income tax consequences and, any risk factors or
other special considerations applicable to such series of Debt Securities. If a
Debt Security is denominated in a foreign currency, such Debt Security may not
trade on a United States national securities exchange unless and until the
Commission has approved appropriate rule changes pursuant to the Securities Act
to accommodate the trading of such Debt Security.
Neither Indenture contains any restriction on the Corporation's ability to
enter into highly leveraged transactions or any provision affording special
protection to holders of Debt Securities in the event the Corporation engages in
a highly leveraged transaction. Further, neither Indenture contains any
provisions that would provide protection to holders of Debt Securities upon a
sudden and dramatic decline in the credit quality of the Corporation resulting
from a takeover, recapitalization or similar restructuring of the Corporation.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Debt Securities of a series may be issuable in definitive form solely as
Registered Securities, solely as Bearer Securities or as both Registered
Securities and Bearer Securities. Unless otherwise indicated in the Prospectus
Supplement, Bearer Securities other than Bearer Securities in temporary or
permanent global form will have interest coupons attached. (SECTION 201) Each
Indenture also provides that Bearer Securities or Registered Securities of a
series may be issuable in permanent global form. (SECTION 203) See "-- Permanent
Global Securities."
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of authorized denominations and of a
like aggregate principal amount, tenor and terms. In addition, if Debt
Securities of any series are issuable as both Registered Securities and Bearer
Securities, at the option of the Holder upon request confirmed in writing, and
subject to the terms of the applicable Indenture, Bearer Securities (with all
unmatured coupons, except as provided below, and all matured coupons in default)
of such series will be exchangeable into Registered Securities of the same
series of any authorized denominations and of a like aggregate principal amount,
tenor and terms. Bearer Securities surrendered in exchange for Registered
Securities between the close of business on a Regular Record Date or a Special
Record Date and the relevant date for payment of interest shall be surrendered
without the coupon relating to such date for payment of interest, and interest
will not be payable in respect of the Registered Security issued in exchange for
such Bearer Security, but will be payable only to the Holder of such coupon when
due in accordance with
12
<PAGE> 42
the terms of the applicable Indenture. Bearer Securities will not be issued in
exchange for Registered Securities. (SECTION 305) Each Bearer Security, other
than a temporary global Bearer Security, and each interest coupon will bear the
following legend: "Any United States Person who holds this obligation will be
subject to limitations under the United States federal income tax laws including
the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue
Code."
Debt Securities may be presented for exchange as provided above, and
Registered Securities may be presented for registration of transfer (duly
endorsed or accompanied by a satisfactory written instrument of transfer), at
the office of the Security Registrar or at the office of any transfer agent
designated by the Corporation for such purpose with respect to such series of
Debt Securities, without service charge and upon payment of any taxes and other
governmental charges. (SECTION 305) If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the Security Registrar) initially
designated by the Corporation with respect to any series of Debt Securities, the
Corporation may at any time rescind the designation of any such transfer agent
or approve a change in the location through which any such transfer agent (or
Security Registrar) acts, except that, if Debt Securities of a series are
issuable solely as Registered Securities, the Corporation will be required to
maintain a transfer agent in each Place of Payment for such series and, if Debt
Securities of a series are issuable as Bearer Securities, the Corporation will
be required to maintain (in addition to the Security Registrar) a transfer agent
in a Place of Payment for such series located outside the United States. The
Corporation may at any time designate additional transfer agents with respect to
any series of Debt Securities. (SECTION 1002)
The Corporation shall not be required (i) to issue, register the transfer
of or exchange Debt Securities of any particular series to be redeemed for a
period of 15 days preceding the first publication of the relevant notice of
redemption, or, if Registered Securities are outstanding and there is no
publication, the mailing of the relevant notice of redemption, (ii) to register
the transfer of or exchange any Registered Security so selected for redemption
in whole or in part, except the unredeemed portion of any Registered Security
being redeemed in part, or (iii) to exchange any Bearer Security so selected for
redemption except that such a Bearer Security may be exchanged for a Registered
Security of like tenor and terms of that series, provided that such Registered
Security shall be surrendered for redemption. (SECTION 305) Additional
information regarding restrictions on the issuance, exchange and transfer of and
special United States federal income tax considerations relating to Bearer
Securities will be set forth in the applicable Prospectus Supplement.
TEMPORARY GLOBAL SECURITIES
If so specified in the applicable Prospectus Supplement, all or any portion
of the Debt Securities of a series which are issuable as Bearer Securities will
initially be represented by one or more temporary Global Securities, without
interest coupons, to be deposited with a common depositary in London for Morgan
Guaranty Trust Corporation of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear") and Cedel S.A. ("Cedel") for credit to designated
accounts. On and after the date determined as provided in any such temporary
Global Security and described in the applicable Prospectus Supplement, but
within a reasonable time, each such temporary Global Security will be
exchangeable for definitive Bearer Securities, definitive Registered Securities
or all or a portion of a permanent global Bearer Security, or any combination
thereof, as specified in such Prospectus Supplement. No definitive Bearer
Security or permanent global Bearer Security delivered in exchange for a portion
of a temporary Global Security shall be mailed or otherwise delivered to any
location in the United States in connection with such exchange.
Additional information regarding restrictions on and special United States
federal income tax consequences relating to temporary Global Securities will be
set forth in the Prospectus Supplement relating thereto.
PERMANENT GLOBAL SECURITIES
If any Debt Securities of a series are issuable in permanent global form,
the applicable Prospectus Supplement will describe the circumstances, if any,
under which beneficial owners of interests in any such permanent Global Security
may exchange such interests for Debt Securities of such series and of like tenor
13
<PAGE> 43
and principal amount of any authorized form and denomination. Principal of and
any premium and interest on a permanent Global Security will be payable in the
manner described in the Prospectus Supplement relating thereto.
PAYMENTS AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
payments of principal of and premium, if any, and interest, if any, on Bearer
Securities will be payable in the currency designated in the Prospectus
Supplement, subject to any applicable laws and regulations, at such paying
agencies outside the United States as the Corporation may appoint from time to
time. Unless otherwise provided in the Prospectus Supplement, such payments may
be made, at the option of the Holder, by a check in the designated currency or
by transfer to an account in the designated currency maintained by the payee
with a bank located outside the United States. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest on Bearer Securities on
any Interest Payment Date will be made only against surrender of the coupon
relating to such Interest Payment Date to a paying agent outside the United
States. (SECTION 1001) No payment with respect to any Bearer Security will be
made at any office or paying agency maintained by the Corporation in the United
States nor will any such payment be made by transfer to an account, or by mail
to an address, in the United States. Notwithstanding the foregoing, payments of
principal of and premium, if any, and interest, if any, on Bearer Securities
denominated and payable in U.S. dollars will be made in U.S. dollars at an
office or agency of, and designated by, the Corporation located in the United
States, if payment of the full amount thereof in U.S. dollars at all paying
agencies outside the United States is illegal or effectively precluded by
exchange controls or other similar restrictions, and the Trustee receives an
opinion of counsel that such payment within the United States is legal. (SECTION
1002) As used in the Prospectus, "United States" means the United States of
America (including the States and the District of Columbia) and its possessions.
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of and premium, if any, and interest, if any, on a Registered
Security will be payable in the currency designated in the Prospectus
Supplement, and interest will be payable at the office of such paying agent or
paying agents as the Corporation may appoint from time to time, except that, at
the option of the Corporation, payment of any interest may be made by a check in
such currency mailed to the Holder at such Holder's registered address or by
wire transfer to an account in such currency designated by such Holder in
writing not less than ten days prior to the date of such payment. Unless
otherwise indicated in the applicable Prospectus Supplement, payment of any
installment of interest on a Registered Security will be made to the Person in
whose name such Registered Security is registered at the close of business on
the Regular Record Date for such payments. (SECTION 307) Unless otherwise
indicated in the applicable Prospectus Supplement, principal payable at maturity
will be paid to the registered holder upon surrender of the Registered Security
at the office of a duly appointed paying agent.
The paying agents outside the United States initially appointed by the
Corporation for a series of Debt Securities will be named in the applicable
Prospectus Supplement. The Corporation may terminate the appointment of any of
the paying agents from time to time, except that the Corporation will maintain
at least one paying agent outside the United States so long as any Bearer
Securities are outstanding where Bearer Securities may be presented for payment
and may be surrendered for exchange, provided that so long as any series of Debt
Securities is listed on The Stock Exchange of the United Kingdom and the
Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require, the
Corporation will maintain a paying agent in London or Luxembourg or any other
required city located outside the United States, as the case may be, for such
series of Debt Securities. (SECTION 1002)
All moneys paid by the Corporation to a paying agent for the payment of
principal of or premium, if any, or interest, if any, on any Debt Security that
remains unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will, at request of the Corporation,
be repaid to the Corporation, and the Holder of such Debt Security or any coupon
appertaining thereto will thereafter look only to the Corporation for payment
thereof. (SECTION 1003)
14
<PAGE> 44
COVENANTS CONTAINED IN INDENTURES
The Senior Indenture provides that the Corporation will not, and will not
permit any Subsidiary to, sell or otherwise dispose of, or permit any "Principal
Subsidiary Bank" (defined as any Subsidiary Bank having total assets in excess
of 10% of the total consolidated assets of the Corporation and its Subsidiaries)
to issue (except to the Corporation), shares of "Capital Stock" (defined as
outstanding shares of stock of any class), or securities convertible into
Capital Stock, of any Principal Subsidiary Bank, or any Subsidiary owning,
directly or indirectly, in whole or in part, Capital Stock of a Principal
Subsidiary Bank, with the following exceptions: (i) sales of directors'
qualifying shares; (ii) sales or other dispositions for fair market value if,
after giving effect to such disposition and to the issuance of any shares
issuable upon conversion or exchange of securities convertible or exchangeable
into Capital Stock, the Corporation would own, directly or indirectly, through
Subsidiaries not less than 80% of the shares of each class of Capital Stock of
such Principal Subsidiary Bank; (iii) sales or other dispositions or issuances
made in compliance with an order or direction of a court or regulatory authority
of competent jurisdiction; or (iv) sales of Capital Stock by any Principal
Subsidiary Bank to its stockholders where the sale does not reduce the
percentage of shares of the same class owned by the Corporation. (SECTION 1005
OF THE SENIOR INDENTURE) At the date hereof, the only Subsidiary Bank which is a
Principal Subsidiary Bank is the Bank. Notwithstanding the foregoing, any
Principal Subsidiary Bank may be merged into or consolidated with another
banking institution organized under the laws of the United States, any State
thereof or the District of Columbia, if after giving effect to such merger or
consolidation, the Corporation or any Wholly-Owned Subsidiary owns at least 80%
of the Capital Stock of such other banking institution then issued and
outstanding free and clear of any security interest and if, immediately after
giving effect thereto, no default or Event of Default shall have happened and be
continuing.
The Subordinated Indenture does not contain the foregoing covenant.
The Corporation is not restricted by the Indentures from incurring,
assuming or becoming liable for any type of debt or other obligations, from
creating liens on its property for any purpose or from paying dividends or
making distributions on its Capital Stock or purchasing or redeeming its Capital
Stock. The Indentures do not require the maintenance of any financial ratios or
specified levels of net worth or liquidity. In addition, the Indentures do not
contain any provision which would require the Corporation to repurchase or
redeem or otherwise modify the terms of any of its Debt Securities upon a change
in control or other events involving the Corporation which may adversely affect
the creditworthiness of the Debt Securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Corporation may not consolidate with or merge with or into, or transfer
or lease its assets substantially as an entirety to, any Person unless (i) the
successor Person is a corporation organized and validly existing under the laws
of a domestic jurisdiction and expressly assumes the Corporation's obligations
on the Debt Securities and under the applicable Indenture; and (ii) after giving
effect to the transaction no Event of Default, and no event which, after notice
or lapse of time, or both, would become an Event of Default, shall have occurred
and be continuing. (SECTION 801)
MODIFICATION AND WAIVER
Except as to certain modifications and amendments not adverse to Holders of
Debt Securities, modifications and amendments of and waivers of compliance with
provisions of each Indenture may be made only with the consent of the Holders of
not less than a majority in principal amount of the Outstanding Debt Securities
of each series thereunder affected by such modification, amendment or waiver;
provided that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security or coupon affected thereby, (i) change
the Stated Maturity of the principal or any installment of principal or any
installment of interest, if any; (ii) reduce the amount of principal or interest
thereon, or any premium payable upon redemption or repayment thereof or in the
case of an Original Issue Discount Security the amount of principal payable upon
acceleration of the Maturity thereof; (iii) change the place of payment or the
currency in which principal or interest is payable, if any; (iv) impair the
right to institute suit for the enforcement of any payment of the principal,
premium, if any, and interest, if any, or adversely affect the right
15
<PAGE> 45
of repayment, if any, at the option of the Holder; (v) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
whose Holders is required for modification or amendment of the applicable
Indenture or for waiver of compliance with certain provisions of the applicable
Indenture or for waiver of certain defaults; (vi) reduce the requirements
contained in the applicable Indenture for quorum or voting; (vii) in the case of
Subordinated Securities convertible into Common Stock, impair any right to
convert such Subordinated Securities; or (viii) modify any of the above
provisions. (SECTION 902)
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series issued thereunder if Debt Securities of that series
are issuable in whole or in part as Bearer Securities. (SECTION 1401 OF THE
SENIOR INDENTURE, SECTION 1601 OF THE SUBORDINATED INDENTURE) A meeting may be
called at any time by the Trustee for such Debt Securities, or upon the request
of the Corporation or the Holders of at least 10% in principal amount of the
Outstanding Debt Securities of such series, in any such case upon notice given
in accordance with the Indenture with respect thereto. (SECTION 1402 OF THE
SENIOR INDENTURE, SECTION 1602 OF THE SUBORDINATED INDENTURE) Except as limited
by the proviso in the preceding paragraph, any resolution presented at a meeting
or adjourned meeting at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
limited by the proviso in the preceding paragraph, any resolution with respect
to any consent or waiver which may be given by the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of a series
issued under an Indenture may be adopted at a meeting or an adjourned meeting at
which a quorum is present only by the affirmative vote of the Holders of a
majority in principal amount of such Outstanding Debt Securities of that series;
and provided, further, that, except as limited by the proviso in the preceding
paragraph, any resolution with respect to any demand, consent, waiver or other
action which may be made, given or taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series issued under an Indenture may be adopted
at a meeting or adjourned meeting at which a quorum is present by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Debt Securities of that series. (SECTION 1404 OF THE SENIOR
INDENTURE, SECTION 1604 OF THE SUBORDINATED INDENTURE)
Any resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the applicable Indenture
with respect thereto will be binding on all Holders of Debt Securities of that
series and the related coupons issued under that Indenture. The quorum at any
meeting of Holders of a series of Debt Securities called to adopt a resolution,
and at any reconvened meeting, will be persons holding or representing a
majority in principal amount of the Outstanding Debt Securities of such series;
provided, however, that if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the Holders of not less
than a majority in principal amount of the Outstanding Debt Securities of a
series, the Persons holding or representing a majority in principal amount of
the Outstanding Debt Securities of such series issued under that Indenture will
constitute a quorum. (SECTION 1404 OF THE SENIOR INDENTURE, SECTION 1604 OF THE
SUBORDINATED INDENTURE)
EVENTS OF DEFAULT
Unless otherwise provided in the applicable Prospectus Supplement, any
series of Senior Securities issued under the Senior Indenture will provide that
the following shall constitute Events of Default with respect to such series:
(i) default in payment of principal of or premium, if any, on any Senior
Security of such series when due; (ii) default for 30 days in payment of
interest, if any, on any Senior Security of such series or related coupon, if
any, when due; (iii) default in the deposit of any sinking fund payment on any
Senior Security of such series when due; (iv) default in the performance of
certain covenants contained in such Indenture; (v) default in the performance of
any other covenant in such Indenture, continued for 30 days after written notice
thereof by the Trustee thereunder or the Holders of at least 25% in principal
amount of the Outstanding Senior Securities of such series issued under that
Indenture; and (vi) certain events of bankruptcy, insolvency or reorganization
of the Corporation. (SECTION 501 OF THE SENIOR INDENTURE)
16
<PAGE> 46
Unless otherwise provided in the applicable Prospectus Supplement, any
series of Subordinated Securities issued under the Subordinated Indenture will
provide that the only Event of Default will be certain events of bankruptcy of
the Corporation. (SECTION 501 OF THE SUBORDINATED INDENTURE) Unless specifically
stated in the applicable Prospectus Supplement for a particular series of
Subordinated Securities, there is no right of acceleration of the payment of
principal of the Subordinated Securities upon a default in the payment of
principal, premium, if any, or interest, if any, or in the performance of any
covenant or agreement in the Subordinated Securities or Subordinated Indenture.
In the event of a default in the payment of principal, premium, if any, or
interest, if any, default of any sinking fund payment; or the performance of any
covenant or agreement in the Subordinated Securities or Subordinated Indenture,
the Trustee, subject to certain limitations and conditions, may institute
judicial proceedings to enforce payment of such principal, premium, if any, or
interest, if any, or to obtain the performance of such covenant or agreement or
any other proper remedy. (SECTION 503 OF THE SUBORDINATED INDENTURE)
The Corporation is required to file with each Trustee annually an Officers'
Certificate concerning the absence of certain defaults under the terms of the
Indentures. (SECTION 1007 OF THE SENIOR INDENTURE, SECTION 1004 OF THE
SUBORDINATED INDENTURE) Each Indenture provides that if an Event of Default
specified therein shall occur and be continuing, either the Trustee thereunder
or the Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series issued under that Indenture may declare the principal
of all such Debt Securities (or in the case of Original Issue Discount
Securities, such portion of the principal amount thereof as may be specified in
the terms thereof) to be due and payable. (SECTION 502) In certain cases, the
Holders of a majority in principal amount of the Outstanding Debt Securities of
any series may, on behalf of the Holders of all Debt Securities of any such
series and any related coupons, waive any past default or Event of Default
except a default (i) in payment of the principal of or premium, if any, or
interest, if any, on any of the Debt Securities of such series and (ii) in
respect of a covenant or provision of the Indenture which cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security of
such series or coupon affected. (SECTION 513)
Each Indenture contains a provision entitling the Trustee thereunder,
subject to the duty of such Trustee during default to act with the required
standard of care, to be indemnified by the Holders of the Debt Securities of any
series thereunder or any related coupons before proceeding to exercise any right
or power under such Indenture with respect to such series at the request of such
Holders. (SECTION 603) Each Indenture provides that no Holder of any Debt
Securities of any series thereunder or any related coupons may institute any
proceeding, judicial or otherwise, to enforce such Indenture except in the case
where the Trustee thereunder fails to act for 60 days after it receives written
notice of default and the Trustee receives a request to enforce such Indenture
by the Holders of not less than 25% in aggregate principal amount of the
Outstanding Debt Securities of such series and an offer of reasonable indemnity.
(SECTION 507) This provision will not prevent any Holder of Debt Securities or
any related coupons from enforcing payment of the principal thereof and premium,
if any, and interest, if any, thereon at the respective due dates thereof.
(SECTION 508) The Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of any series issued under an Indenture may direct
the time, method and place of conducting any proceedings for any remedy
available to the Trustee for such Debt Securities or exercising any trust or
power conferred on it with respect to the Debt Securities of such series.
However, such Trustee may refuse to follow any direction that conflicts with law
or the Indenture under which it serves or which would be unjustly prejudicial to
Holders not joining therein. (SECTION 512)
The Subordinated Indenture provides that the Trustee thereunder will give
to the Holders of Debt Securities notice of a default if not cured or waived,
but, except in the case of a default in the payment of principal of or premium,
if any, or interest, if any, on any Debt Securities of such series or any
related coupons or in the payment of any sinking fund installment with respect
to Debt Securities of such series or in the exchange of Capital Securities for
Debt Securities of such series, the Trustee for such Debt Securities shall be
protected in withholding such notice if it determines in good faith that the
withholding of such notice is in the interest of the Holders of such Debt
Securities. (SECTION 602 OF THE SUBORDINATED INDENTURE)
17
<PAGE> 47
The Senior Indenture provides that the Trustee thereunder will give to the
Holders of Debt Securities notice of a default, however, in the case of default
in the performance, or breach, of any covenant or warranty of the Company under
the Senior Indenture, and continuance of such default or breach for 30 days
after notice of default is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Debt Securities of such series, requiring it to be remedied, the
Trustee for such Debt Securities will not give notice to Holders of such Debt
Securities until at least 30 days after the occurrence of such default. (SECTION
602 OF THE SENIOR INDENTURE)
DEFEASANCE AND DISCHARGE
The Corporation may be discharged from any and all obligations in respect
of the Debt Securities of any series (except for certain obligations relating to
temporary Debt Securities and exchange of Debt Securities, registration of
transfer or exchange of Debt Securities of such series, replacement of stolen,
lost or mutilated Debt Securities of such series, maintenance of paying
agencies, obligations to hold monies for payment in trust and payment of
additional amounts, if any, required in consequence of United States withholding
taxes imposed on payments to non-U.S. persons) upon the deposit with the
Trustee, in trust, of money and/or, to the extent such Debt Securities are
denominated and payable in U.S. dollars only, Eligible Instruments which through
the payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal of
(and premium, if any), each installment of interest on, and any mandatory
sinking fund or analogous payments on, the Debt Securities of such series on the
Stated Maturity of such payments in accordance with the terms of the applicable
Indenture and the Debt Securities of such series. Such a trust may be
established only if, among other things, (a) the Corporation has delivered to
the Trustee an Opinion of Counsel to the effect that (i) the Corporation has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (ii) since the date of the applicable Indenture there has been a
change in applicable federal income tax law, in either case, to the effect that,
and based thereon such Opinion of Counsel shall confirm that, the Holders of
Debt Securities of such series will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge, and will be subject to federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred; and (b) the Debt Securities
of such series, if then listed on any domestic or foreign securities exchange,
will not be delisted as a result of such deposit, defeasance and discharge.
(SECTION 403) In the event of any such defeasance and discharge of Debt
Securities of such series, Holders of Debt Securities of such series would be
able to look only to such trust fund for payment of principal of and any premium
and any interest on their Debt Securities until Maturity.
The Corporation may terminate certain of its obligations under each
Indenture with respect to the Debt Securities of any series thereunder,
including its obligations to comply with the covenants described under " --
Covenants Contained in Indentures" above, with respect to such Debt Securities,
on the terms and subject to the conditions contained in such Indentures, by
depositing in trust with the Trustee money and/or, to the extent such Debt
Securities are denominated and payable in U.S. dollars only, Eligible
Instruments which, through the payment of principal and interest in accordance
with their terms, will provide money in an amount sufficient to pay the
principal and premium, if any, and interest, if any, on such Debt Securities,
and any mandatory sinking fund, repayment or analogous payments thereon, on the
scheduled due dates therefor. Such deposit and termination is conditioned, among
other things, upon the Corporation's delivery of an opinion of counsel that the
Holders of such Debt Securities will have no federal income tax consequences as
a result of such deposit and termination. Such termination will not relieve the
Corporation of its obligation to pay when due the principal of or interest on
such Debt Securities if such Debt Securities of such series are not paid from
the money or Eligible Instruments held by the Trustee for the payment thereof.
(SECTION 1501 OF THE SENIOR INDENTURE, SECTION 1701 OF THE SUBORDINATED
INDENTURE) The applicable Prospectus Supplement may further describe the
provisions, if any, permitting or restricting such defeasance with respect to
the Debt Securities of a particular series. In the event the Corporation
exercises its option to omit compliance with the covenants described under
" -- Covenants Contained in Indentures" above with respect to the Debt
Securities of any series as described above and the Debt Securities of such
series are declared due and payable because of the occurrence of any Event of
Default, then the amount of money and
18
<PAGE> 48
Eligible Instruments on deposit with the Trustee will be sufficient to pay
amounts due on the Debt Securities of such series at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Debt Securities of
such series at the time of the acceleration resulting from such Event of
Default. The Corporation shall in any event remain liable for such payments as
provided in the applicable Indenture.
SUBORDINATION
The Subordinated Securities shall be subordinate and junior in right of
payment, to the extent set forth in the Subordinated Indenture, to all Senior
Debt (as defined below) of the Corporation. In the event that the Corporation
shall default in the payment of any principal, premium, if any, or interest, if
any, on any Senior Debt when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration of acceleration or
otherwise, then, unless and until such default shall have been cured or waived
or shall have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made for
principal, premium, if any, or interest, if any, on the Subordinated Securities,
or in respect of any redemption, repayment, retirement, purchase or other
acquisition of any of the Subordinated Securities. (SECTION 1801 OF THE
SUBORDINATED INDENTURE) "Senior Debt" means any obligation of the Corporation to
its creditors, whether now outstanding or subsequently incurred, other than (i)
any obligation as to which it is provided that such obligation is not Senior
Debt and (ii) the Subordinated Securities. (SECTION 101 OF THE SUBORDINATED
INDENTURE) As of September 30, 1996, the Corporation had no Senior Debt
outstanding.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding-up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv) any
other marshalling of the assets of the Corporation, all Senior Debt (including
any interest thereon accruing after the commencement of any such proceedings)
shall first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made on account of the principal of or
interest on the Subordinated Securities. In such event, any payment or
distribution on account of the principal of or interest on the Subordinated
Securities, whether in cash, securities or other property (other than securities
of the Corporation or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in the subordination provisions with respect to the
Subordinated Securities, to the payment of all Senior Debt at the time
outstanding, and to any securities issued in respect thereof under any such plan
of reorganization or readjustment), which would otherwise (but for the
subordination provisions) be payable or deliverable in respect of the
Subordinated Securities shall be paid or delivered directly to the holders of
Senior Debt in accordance with the priorities then existing among such holders
until all Senior Debt (including any interest thereon accruing after the
commencement of any such proceedings) shall have been paid in full. (SECTION
1801 OF THE SUBORDINATED INDENTURE)
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Debt, the Holders of Subordinated Securities,
together with the holders of any obligations of the Corporation ranking on a
parity with the Subordinated Securities, shall be entitled to be repaid from the
remaining assets of the Corporation the amounts at the time due and owing on
account of unpaid principal, premium, if any, and interest, if any, on the
Subordinated Securities and such other obligations before any payment or other
distribution, whether in cash, property or otherwise, shall be made on account
of any capital stock or obligations of the Corporation ranking junior to the
Subordinated Securities and such other obligations. If any payment or
distribution on account of the principal of or interest on the Subordinated
Securities of any character or any security, whether in cash, securities or
other property (other than securities of the Corporation or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in the subordination
provisions with respect to the Subordinated Securities, to the payment of all
Senior Debt at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment) shall be received
by any Holder of any Subordinated Securities in contravention of any of the
terms of the Subordinated Indenture and before all
19
<PAGE> 49
the Senior Debt shall have been paid in full, such payment or distribution or
security shall be received in trust for the benefit of, and shall be paid over
or delivered and transferred to, the holders of the Senior Debt at the time
outstanding in accordance with the priorities then existing among such holders
for application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay all such Senior Debt in full. (SECTION 1801 OF THE SUBORDINATED
INDENTURE) By reason of such subordination, in the event of the insolvency of
the Corporation, holders of Senior Debt may receive more, ratably, and holders
of the Subordinated Securities having a claim pursuant to such securities may
receive less, ratably, than the other creditors of the Corporation. Such
subordination will not prevent the occurrence of any Event of Default in respect
of the Subordinated Securities.
CONVERSION OF SUBORDINATED CONVERTIBLE SECURITIES
The Holders of Subordinated Securities of a specified series that are
convertible into Common Stock, Preferred Shares or Depositary Shares of the
Corporation ("Subordinated Convertible Securities") will be entitled at certain
times specified in the applicable Prospectus Supplement, subject to prior
redemption, repayment or repurchase, to convert any Subordinated Convertible
Securities of such series (in denominations set forth in the applicable
Prospectus Supplement) into Common Stock, Preferred Shares or Depositary Shares,
as the case may be, at the conversion price set forth in the applicable
Prospectus Supplement, subject to adjustment as described below and in the
applicable Prospectus Supplement. Except as described below, no adjustment will
be made on conversion of any Subordinated Convertible Securities for interest
accrued thereon or for dividends on any Common Stock, Preferred Shares or
Depositary Shares issued. (SECTION 1903 OF THE SUBORDINATED INDENTURE) If any
Subordinated Convertible Securities (not called for redemption or submitted for
repayment) are converted between a Regular Record Date for the payment of
interest and the next succeeding Interest Payment Date, such Subordinated
Convertible Securities must be accompanied by funds equal to the interest
payable on such succeeding Interest Payment Date on the principal amount so
converted. (SECTION 1903 OF THE SUBORDINATED INDENTURE) The Corporation is not
required to issue fractional shares of Common Stock upon conversion of
Subordinated Convertible Securities that are convertible into Common Stock and,
in lieu thereof, will pay a cash adjustment based upon the Closing Price (as
defined in the Subordinated Indenture) of the Common Stock on the last business
day prior to the date of conversion. (SECTION 1904 OF THE SUBORDINATED
INDENTURE) In the case of Subordinated Convertible Securities called for
redemption or submitted for repayment, conversion rights will expire at the
close of business on the redemption date or repayment date, as the case may be.
(SECTION 1902 OF THE SUBORDINATED INDENTURE)
Unless otherwise indicated in the applicable Prospectus Supplement, the
conversion price for Subordinated Convertible Securities that are convertible
into Common Stock is subject to adjustment under formulas set forth in the
Subordinated Indenture upon the occurrence of certain events, including the
issuance of the Corporation's capital stock as a dividend or distribution on the
Common Stock; subdivisions and combinations of the Common Stock; the issuance to
all holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock within 45 days after the date fixed for
the determination of the stockholders entitled to receive such rights or
warrants, at less than the current market price (as defined in the Subordinated
Indenture); and the distribution to all holders of Common Stock of evidences of
indebtedness or assets of the Corporation (excluding certain cash dividends and
distributions described in the next paragraph) or rights or warrants (excluding
those referred to above). (SECTION 1906 OF THE SUBORDINATED INDENTURE) In the
event that the Corporation shall distribute any rights or warrants to acquire
capital stock ("Capital Stock Rights") pursuant to which separate certificates
representing such Capital Stock Rights will be distributed subsequent to the
initial distribution of such Capital Stock Rights (whether or not such
distribution shall have occurred prior to the date of the issuance of a series
of Subordinated Convertible Securities), such subsequent distribution shall be
deemed to be the distribution of such Capital Stock Rights; provided that the
Corporation may, in lieu of making any adjustment in the conversion price upon a
distribution of separate certificates representing such Capital Stock Rights,
make proper provision so that each Holder of such a Subordinated Convertible
Security who converts such Subordinated Convertible Security (or any portion
thereof) (a) before the record date for such distribution of separate
certificates shall be entitled to receive upon such conversion shares of Common
Stock issued with
20
<PAGE> 50
Capital Stock Rights and (b) after such record date and prior to the expiration,
redemption or termination of such Capital Stock Rights shall be entitled to
receive upon such conversion, in addition to the shares of Common Stock issuable
upon such conversion, the same number of such Capital Stock Rights as would a
holder of the number of shares of Common Stock that such Subordinated
Convertible Security so converted would have entitled the holder thereof to
acquire in accordance with the terms and provisions applicable to the Capital
Stock Rights if such Subordinated Convertible Security were converted
immediately prior to the record date for such distribution. Common Stock owned
by or held for the account of the Corporation or any majority owned subsidiary
shall not be deemed outstanding for the purpose of any adjustment. (SECTION 1906
OF THE SUBORDINATED INDENTURE)
No adjustment in the conversion price of Subordinated Convertible
Securities that are convertible into Common Stock will be made for regular
quarterly or other periodic or recurring cash dividends or distributions or for
cash dividends or distributions to the extent paid from retained earnings. No
adjustment in the conversion price of Subordinated Convertible Securities that
are convertible into Common Stock will be required unless such adjustment would
require a change of at least 1% in the conversion price then in effect, provided
that any such adjustment not so made will be carried forward and taken into
account in any subsequent adjustment; and provided, further, that any such
adjustment not so made shall be made no later than three years after the
occurrence of the event requiring such adjustment to be made or carried forward.
Notwithstanding any of the foregoing, the issuance of Common Stock under the
Corporation's Dividend Reinvestment and Stock Purchase Plan shall not require an
adjustment to the conversion price of Subordinated Convertible Securities that
are convertible into Common Stock. The Corporation reserves the right to make
such reductions in the conversion price in addition to those required in the
foregoing provisions as the Corporation, in its discretion, shall determine to
be advisable in order that certain stock-related distributions thereafter made
by the Corporation to its stockholders shall not be taxable. (SECTION 1906 OF
THE SUBORDINATED INDENTURE) Except as stated above, the conversion price will
not be adjusted for the issuance of Common Stock or any securities convertible
into or exchangeable for Common Stock, or securities carrying the right to
purchase any of the foregoing.
In the case of (i) a reclassification or change of the Common Stock, (ii) a
consolidation or merger involving the Corporation or (iii) a sale or conveyance
to another corporation of the property and assets of the Corporation as an
entirety or substantially as an entirety, in each case, as a result of which
holders of Common Stock shall be entitled to receive stock, securities, other
property or assets (including cash) with respect to, or in exchange for, such
Common Stock, the Holders of the Subordinated Convertible Securities then
outstanding that are convertible into Common Stock will be entitled thereafter
to convert such Subordinated Convertible Securities into the kind and amount of
shares of stock and other securities or property which they would have received
upon such reclassification, change, consolidation, merger, sale or conveyance
had such Subordinated Convertible Securities been converted into Common Stock
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. (SECTION 1907 OF THE SUBORDINATED INDENTURE)
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price of
Subordinated Convertible Securities that are convertible into Common Stock, the
Holders of such Subordinated Convertible Securities may, in certain
circumstances, be deemed to have received a distribution subject to United
States income tax as a dividend; in certain other circumstances, the absence of
such an adjustment may result in a taxable dividend to the holders of Common
Stock or such Subordinated Convertible Securities.
21
<PAGE> 51
DESCRIPTION OF PREFERRED SHARES
The following description of the terms of the Preferred Shares sets forth
certain general terms and provisions of the Preferred Shares to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Shares offered by any Prospectus Supplement will be described in the
Prospectus Supplement relating to such series of the Preferred Shares. If so
indicated in the Prospectus Supplement, the terms of any such series may differ
from the terms set forth below. The description of certain provisions of the
Preferred Shares set forth below and in any Prospectus Supplement does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Certificate of Designations relating to each series of the
Preferred Shares.
GENERAL
Pursuant to the Corporation's Articles of Incorporation, as amended (the
"Articles"), the Board of Directors of the Corporation has the authority,
without further stockholder action, to issue from time to time a maximum of
1,000,000 shares of preferred stock, without par value ("Preferred Stock"),
including shares issued or reserved for issuance, in one or more series and with
such terms and at such times and for such consideration as the Board of
Directors of the Corporation may determine. The terms and conditions of the
Preferred Stock are governed by the laws of the state of Ohio as well as by the
Corporation's Articles, and the Corporation's Code of Regulations. The authority
of the Board of Directors of the Corporation includes the determination or
fixing of the following with respect to shares of any series thereof: (i) the
number of shares and designation or title thereof; (ii) rights as to dividends;
(iii) whether and upon what terms the shares are to be redeemable; (iv) the
rights of the holders upon the dissolution, or upon the distribution of assets,
of the Corporation; (v) whether and upon what terms the shares shall have a
purchase, retirement or sinking fund; (vi) whether and upon what terms the
shares are to be convertible; (vii) the voting rights, if any, which shall
apply; and (viii) any other preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions of such
series. At December 31, 1996, no shares of Preferred Stock were outstanding.
As described under "DESCRIPTION OF DEPOSITARY SHARES," the Corporation may,
at its option, elect to offer Depositary Shares evidenced by depositary receipts
("Depositary Receipts"), each representing a fractional interest (to be
specified in the Prospectus Supplement relating to the particular series of the
Preferred Shares) in a share of the particular series of the Preferred Shares
issued and deposited with a Depositary (as defined).
Under interpretations adopted by the Federal Reserve Board, if the holders
of any series of the Preferred Shares become entitled to vote for the election
of directors because dividends on such series are in arrears as described under
"-- Voting Rights" below, such series may then be deemed a "class of voting
securities" and a holder of 25% or more of such series (or a holder of 5% or
more if it otherwise exercises a "controlling influence" over the Corporation)
may then be subject to regulation as a bank holding company in accordance with
the BHCA. In addition, at such time as such series is deemed a class of voting
securities, any other bank holding company may be required to obtain the prior
approval of the Federal Reserve Board to acquire 5% or more of such series, and
any person other than a bank holding company may be required to obtain the prior
approval of the Federal Reserve Board to acquire 10% or more of such series.
The Preferred Shares shall have the dividend, liquidation, redemption,
voting and conversion rights set forth below unless otherwise provided in the
Prospectus Supplement relating to a particular series of the Preferred Shares.
For information concerning legal limitations on the ability of the Bank to
supply funds to the Corporation, see "CERTAIN REGULATORY MATTERS." Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Shares offered thereby for specific terms, including (i) the title,
stated value and liquidation preference of such Preferred Shares and the number
of Preferred Shares offered; (ii) the initial public offering price at which
such Preferred Shares will be issued; (iii) the dividend rate or rates (or
method of calculation), the dividend periods, the dates on which dividends shall
be payable, and whether such dividends shall be cumulative or noncumulative and,
if cumulative, the dates from which dividends shall commence to cumulate; (iv)
any repurchase, redemption or sinking fund provisions;
22
<PAGE> 52
(v) any conversion provisions; (vi) whether the Corporation has elected to offer
Depositary Shares as described under "DESCRIPTION OF DEPOSITARY SHARES;" and
(vii) any additional dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions.
The Preferred Shares will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the Prospectus Supplement relating to a particular
series of the Preferred Shares, each series of the Preferred Shares will rank on
a parity in all respects with each other series of the Preferred Shares and will
rank senior to the Corporation's Series A Preferred Stock described below. The
Preferred Shares will have no preemptive rights to subscribe for any additional
securities which may be issued by the Corporation. Unless otherwise specified in
the applicable Prospectus Supplement, the Bank will be the transfer agent and
registrar for the Preferred Shares and any Depositary Shares.
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares will rank on a parity in all respects with the outstanding
Preferred Stock of the Corporation and shall rank senior to the Series A
Preferred Stock as to the payment of dividends and the distribution of assets.
The Common Stock of the Corporation, including the Common Stock that may be
issued upon conversion of the Preferred Shares or in exchange for, or upon
conversion of, Subordinated Securities, will be subject to any prior rights of
the Preferred Stock then outstanding. Therefore, the rights of any Preferred
Stock that may be subsequently issued, may limit the rights of the holders of
the Preferred Shares and Common Stock of the Corporation.
DIVIDENDS
The holders of the Preferred Shares of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation
or a duly authorized committee thereof, out of funds legally available therefor,
cash dividends at such rates and on such dates as will be set forth in the
Prospectus Supplement relating to such series. Such rates may be fixed or
variable or both. If variable, the formula used for determining the dividend
rate for each dividend period will be set forth in the Prospectus Supplement.
Dividends will be payable to the holders of record as they appear on the stock
books of the Corporation on such record dates as will be fixed by the Board of
Directors of the Corporation or a duly authorized committee thereof.
Dividends on any series of the Preferred Shares may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. If the Board
of Directors of the Corporation fails to declare a dividend payable on a
dividend payment date on any series of the Preferred Shares for which dividends
are noncumulative ("Noncumulative Preferred Shares"), then the holders of such
series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Corporation will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment dates.
No full dividends will be declared or paid or set apart for payment on any
stock of the Corporation ranking, as to dividends, on a parity with or junior to
the Preferred Shares for any period unless full dividends on the Preferred
Shares of each series (including any accumulated dividends) have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment. When dividends are not paid in full
upon any series of Preferred Shares and any Preferred Stock ranking on a parity
as to dividends with the Preferred Shares, all dividends declared or made upon
Preferred Shares of each series and any Preferred Stock ranking on a parity as
to dividends with the Preferred Shares shall be declared pro rata so that the
amount of dividends declared per share on Preferred Shares of each series and
such Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share (which, in the case of Noncumulative Preferred
Shares, shall not include any accumulation in respect of unpaid dividends for
prior dividend periods) on shares of each series of the Preferred Shares and
such Preferred Stock bear to each other. Except as provided in the preceding
sentence, no dividend (other than dividends or distributions paid in shares of,
or options, warrants or rights to subscribe for or purchase shares of, Common
Stock or any other stock of the Corporation ranking junior to the Preferred
Shares as to dividends and upon liquidation) shall be declared or paid or set
aside for payment or other distribution declared or made upon the Common Stock
or any other stock of the Corporation ranking junior to or on a parity with the
Preferred Shares as to dividends or upon liquidation, nor shall any Common Stock
nor any other stock of the
23
<PAGE> 53
Corporation ranking junior to or on a parity with the Preferred Shares as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation (except
by conversion into or exchange for stock of the Corporation ranking junior to
the Preferred Shares as to dividends and upon liquidation) unless, in each case,
the full dividends on each series of the Preferred Shares shall have been paid
or declared and set aside for payment. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on any
series of the Preferred Shares which may be in arrears.
REDEMPTION
A series of the Preferred Shares may be redeemable, in whole or in part, at
the option of the Corporation, and may be subject to mandatory redemption
pursuant to a sinking fund or otherwise, in each case, upon terms, at the times
and at the redemption prices set forth in the Prospectus Supplement relating to
such series. Preferred Shares redeemed by the Corporation will be restored to
the status of authorized but unissued shares of Preferred Stock, as the case may
be.
The Prospectus Supplement relating to a series of the Preferred Shares
which is subject to mandatory redemption will specify the number of shares of
such series of the Preferred Shares which shall be redeemed by the Corporation
in each year commencing after a date to be specified, at a redemption price per
share to be specified, together with an amount equal to all accrued and unpaid
dividends thereon to the date of redemption. The redemption price may be payable
in cash or other property, as specified in the Prospectus Supplement relating to
such series of the Preferred Shares. If the redemption price is payable only
from the net proceeds of the issuance of capital stock of the Corporation, the
terms of such series may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, the applicable shares of
such series of the Preferred Shares shall automatically and mandatorily be
converted into shares of the applicable capital stock of the Corporation
pursuant to conversion provisions specified in the Prospectus Supplement
relating to such series of the Preferred Shares.
If fewer than all of the outstanding shares of any series of the Preferred
Shares are to be redeemed, the number of Preferred Shares to be redeemed will be
determined by the Board of Directors of the Corporation and such Preferred
Shares shall be redeemed pro rata from the holders of record of such Preferred
Shares in proportion to the number of such Preferred Shares held by such holders
(with adjustments to avoid redemption of fractional shares).
Notwithstanding the foregoing, if any dividends, including any
accumulation, on Preferred Shares of any series are in arrears, no Preferred
Shares of such series shall be redeemed unless all outstanding Preferred Shares
of such series are simultaneously redeemed, and the Corporation shall not
purchase or otherwise acquire any Preferred Shares of such series; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
Preferred Shares of such series pursuant to a purchase or exchange offer,
provided that such offer is made on the same terms to all holders of such series
of the Preferred Shares.
Notice of redemption shall be given by mailing the same to each record
holder of the shares to be redeemed, not less than 30 nor more than 60 days
prior to the date fixed for redemption thereof, to the respective addresses of
such holders as the same shall appear on the stock books of the Corporation.
Each such notice shall state (i) the redemption date; (ii) the number of
Preferred Shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
dividends on the Preferred Shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights as
to such Preferred Shares, if any, shall terminate. If fewer than all Preferred
Shares of any series of the Preferred Shares held by any holder are to be
redeemed, the notice mailed to such holder shall also specify the number or
percentage of Preferred Shares to be redeemed from such holder.
If notice of redemption has been given, from and after the redemption date
for the shares of the series of the Preferred Shares called for redemption
(unless default shall be made by the Corporation in providing
24
<PAGE> 54
money for the payment of the redemption price of the Preferred Shares so called
for redemption), dividends on the Preferred Shares so called for redemption
shall cease to accrue and such Preferred Shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive the redemption price) shall cease. Upon
surrender in accordance with such notice of the certificates representing any
Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors of the Corporation shall so require and the notice shall so
state), the redemption price set forth above shall be paid out of funds provided
by the Corporation. If fewer than all of the Preferred Shares represented by any
such certificate are redeemed, a new certificate shall be issued representing
the unredeemed Preferred Shares without cost to the holder thereof.
In the event that a redemption described above is deemed to be a "tender
offer" within the meaning of Rule 14e-1 under the Exchange Act, the Company will
comply with all applicable provisions of the Exchange Act.
CONVERSION
The Prospectus Supplement relating to a series of the Preferred Shares
which is convertible will state the terms on which Preferred Shares of that
series are convertible into shares of Common Stock or a series of Preferred
Stock.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of each series of the
Preferred Shares and any Preferred Stock ranking on a parity with such series of
Preferred Shares upon liquidation will be entitled to receive out of the assets
of the Corporation available for distribution to stockholders, before any
distribution of assets is made to holders of the Common Stock or any other class
or series of stock of the Corporation ranking junior to such series of the
Preferred Shares upon liquidation, liquidation distributions in the amount set
forth in the Prospectus Supplement relating to such series of the Preferred
Shares plus an amount equal to the sum of all accrued and unpaid dividends
(whether or not earned or declared) for the then current dividend period and, if
such series of the Preferred Shares is cumulative, for all dividend periods
prior thereto. Neither the sale of all or substantially all of the property and
assets of the Corporation, nor the merger or consolidation of the Corporation
into or with any other corporation nor the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the holders of the Preferred Shares of any series
and any other Preferred Stock of the Corporation ranking as to any such
distribution on a parity with such series of the Preferred Shares shall be
insufficient to pay in full all amounts to which such holders are entitled, no
such distribution shall be made on account of any shares of any other series of
the Preferred Shares or Preferred Stock of the Corporation ranking as to any
such distribution on a parity with the Preferred Shares of such series upon such
dissolution, liquidation or winding up unless proportionate distributive amounts
shall be paid on account of the Preferred Shares of such series, ratably, in
proportion to the full distributive amounts for which holders of all such parity
shares are respectively entitled upon such dissolution, liquidation or winding
up. After payment of the full amount of the liquidation distribution to which
they are entitled, the holders of such series of the Preferred Shares will have
no right or claim to any of the remaining assets of the Corporation.
VOTING RIGHTS
Except as indicated below or in the Prospectus Supplement relating to a
particular series of the Preferred Shares, or except as expressly required by
applicable law, the holders of the Preferred Shares will not be entitled to
vote. In the event the Corporation issues shares of a series of the Preferred
Shares, unless otherwise indicated in the Prospectus Supplement relating to such
series, each share will be entitled to one vote on matters on which holders of
such series are entitled to vote. However, as more fully described under
"DESCRIPTION OF DEPOSITARY SHARES," if the Corporation elects to provide for the
issuance of Depositary Shares representing fractional interests in a share of
such series of the Preferred Shares, the
25
<PAGE> 55
holders of each such Depositary Share will, in effect, be entitled through the
Depositary to such fraction of a vote, rather than a full vote. In the case of
any series of Preferred Shares having one vote per share on matters on which
holders of such series are entitled to vote, the voting power of such series, on
matters on which holders of such series and holders of any other series of
Preferred Shares or a series of Preferred Stock are entitled to vote as a single
class, will depend on the number of shares in such series, not the aggregate
stated value, liquidation preference or initial offering price of the shares of
such series of the Preferred Shares.
Whenever dividends on any series of the Preferred Shares shall be in
arrears for such number of dividend periods which shall in the aggregate contain
not less than 540 days, the holders of shares of the Preferred Shares of such
series (voting together as a class with holders of shares of any one or more
series of Preferred Stock ranking on a parity with the Preferred Shares as to
dividends and upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors on the terms set forth below and until all past dividends accumulated
on Preferred Shares of such series shall have been paid in full. Each holder of
Preferred Shares of such series will have one vote for each share of stock held
and each other series will have such number of votes, if any, for each share of
stock held as may be granted to them. In such case, the Board of Directors of
the Corporation will be increased by two directors, and the holders of the
Preferred Shares of such series (together with the holders of shares of any one
or more series of Preferred Stock ranking on such a parity and upon which like
voting rights have been conferred and are exercisable) will have the exclusive
right as members of such class, as outlined above, to elect two directors at the
next annual meeting of stockholders.
So long as any Preferred Shares of any series remain outstanding, the
Corporation will not, without the consent of the holders of the outstanding
Preferred Shares of such series and outstanding shares of all series of
Preferred Stock ranking on a parity with the Preferred Shares of such series
either as to dividends or the distribution of assets upon liquidation,
dissolution or winding up and upon which like voting rights have been conferred
and are then exercisable, by a vote of at least two-thirds of all such
outstanding Preferred Shares and shares of Preferred Stock voting together as a
class, given in person or by proxy, either in writing or at a meeting, (i)
authorize, create or issue, or increase the authorized or issued amount of, any
class or series of stock ranking prior to the Preferred Shares with respect to
payment of dividends or the distribution of assets on liquidation, dissolution
or winding up, or (ii) amend, alter or repeal, whether by merger, consolidation
or otherwise, the provisions of the Corporation's Articles or of the resolutions
contained in a Certificate of Designations for any series of the Preferred
Shares designating such series of the Preferred Shares and the preferences and
relative, participating, optional or other special rights and qualifications,
limitations and restrictions thereof, so as to adversely affect any right,
preference, privilege or voting power of the Preferred Shares or the holders
thereof; provided, however, that any increase in the amount of the authorized
Preferred Stock or the creation and issuance of other series of Preferred Stock,
or any increase in the amount of authorized shares of any series of Preferred
Stock, in each case, ranking on a parity with or junior to the Preferred Shares
with respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up will not be deemed to adversely affect
such rights, preferences, privileges or voting powers.
26
<PAGE> 56
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined) and of the Depositary Shares
and Depositary Receipts does not purport to be complete and is subject to and
qualified in its entirety by reference to the Deposit Agreement and Depositary
Receipts relating to each series of the Preferred Shares a form of which is
filed as an exhibit to the Registration Statement to which this Prospectus
pertains.
GENERAL
The Corporation may, at its option, elect to offer fractional interests in
Preferred Shares, rather than full Preferred Shares. In the event such option is
exercised, the Corporation will provide for the issuance by a Depositary to the
public of Depositary Receipts evidencing Depositary Shares, each of which will
represent a fractional interest (to be set forth in the Prospectus Supplement
relating to a particular series of the Preferred Shares) in a share of a
particular series of the Preferred Shares as described below.
The shares of any series of the Preferred Shares underlying the Depositary
Shares will be deposited under a separate deposit agreement (the "Deposit
Agreement") between the Corporation and a bank or trust company selected by the
Corporation having its principal executive office in the United States and
having a combined capital and surplus of at least $50,000,000 (the
"Depositary"). The Prospectus Supplement relating to a series of Depositary
Shares will set forth the name and address of the principal executive office of
the Depositary. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the applicable fractional
interest in a Preferred Share underlying such Depositary Share, to all the
rights and preferences of the Preferred Shares underlying such Depositary Share
(including dividend, voting, redemption, conversion and liquidation rights).
Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of the Corporation, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts but
not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at the Corporation's expense.
Upon surrender of the Depositary Receipts at the principal office of the
Depositary (unless the related Depositary Shares have previously been called for
redemption), the owner of the Depositary Shares evidenced thereby is entitled to
delivery at such office, to or upon his order, of the number of Preferred Shares
and any money or other property represented by such Depositary Shares. Partial
Preferred Shares will not be issued. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of whole Preferred Shares to be
withdrawn, the Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares. Holders
of Preferred Shares thus withdrawn will not thereafter be entitled to deposit
such shares under the Deposit Agreement or to receive Depositary Shares
therefor. The Corporation does not expect that there will be any public trading
market for the Preferred Shares represented by Depositary Receipts except as
represented by the Depositary Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Shares to the record holders
of Depositary Shares relating to such Preferred Shares in proportion to the
numbers of such Depositary Shares owned by such holders on the relevant record
date. The Depositary shall distribute only such amount, however, as can be
distributed without attributing to any holder of Depositary Shares a fraction of
one cent, and any balance not so distributed shall be added to and treated as
part of the next sum received by the Depositary for distribution to record
holders of Depositary Shares.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not
27
<PAGE> 57
feasible to make such distribution, in which case the Depositary may, with the
approval of the Corporation, sell such property and distribute the net proceeds
from such sale to such holders.
The Deposit Agreement will also contain provisions relating to the manner
in which any subscription or similar rights offered by the Corporation to
holders of the Preferred Shares shall be made available to holders of Depositary
Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of the Preferred Shares underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Depositary resulting from the redemption, in whole or in part,
of such series of the Preferred Shares held by the Depositary. The Depositary
shall mail notice of redemption not less than 30 and not more than 60 days prior
to the date fixed for redemption to the record holders of the Depositary Shares
to be so redeemed at their respective addresses appearing in the Depositary's
books. The redemption price per Depositary Share will be equal to the applicable
fraction of the redemption price per share payable with respect to such series
of the Preferred Shares. Whenever the Corporation redeems Preferred Shares held
by the Depositary, the Depositary will redeem as of the same redemption date the
number of Depositary Shares relating to the Preferred Shares so redeemed. If
less than all the Depositary Shares are to be redeemed, the Depositary Shares to
be redeemed will be selected by lot or pro rata as may be determined by the
Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
moneys payable upon such redemption and any money or other property to which the
holders of such Depositary Shares were entitled upon such redemption upon
surrender to the Depositary of the Depositary Receipts evidencing such
Depositary Shares.
VOTING THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Shares
relating to such Preferred Shares. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Shares) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the number of shares of Preferred Shares
underlying such holder's Depositary Shares. The Depositary will endeavor,
insofar as practicable, to vote the number of Preferred Shares underlying such
Depositary Shares in accordance with such instructions, and the Corporation will
agree to take all action which may be deemed necessary by the Depositary in
order to enable the Depositary to do so. The Depositary will abstain from voting
Preferred Shares to the extent it does not receive specific instructions from
the holders of Depositary Shares relating to such Preferred Shares.
TAXATION
Owners of Depositary Shares will be treated for federal income tax purposes
as if they were owners of the Preferred Shares represented by such Depositary
Shares, and, accordingly, will be entitled to take into account for federal
income tax purposes income and deductions to which they would be entitled if
they were holders of such Preferred Shares. In addition, (i) no gain or loss
will be recognized for federal income tax purposes upon the withdrawal of
Preferred Shares in exchange for Depositary Shares as provided in the Deposit
Agreement, (ii) the tax basis of each Preferred Share to an exchanging owner of
Depositary Shares will, upon such exchange, be the same as the aggregate tax
basis of the Depositary Shares exchanged therefor, and (iii) the holding period
for the Preferred Shares in the hands of an exchanging owner of Depositary
Shares will include the period during which such person owned such Depositary
Shares.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Corporation and the Depositary.
28
<PAGE> 58
However, any amendment which materially and adversely alters the rights of the
existing holders of Depositary Shares will not be effective unless such
amendment has been approved by the record holders of at least a majority of the
Depositary Shares then outstanding. A Deposit Agreement may be terminated by the
Corporation or the Depositary only if (i) all outstanding Depositary Shares
relating thereto have been redeemed or (ii) there has been a final distribution
in respect of the Preferred Shares of the relevant series in connection with any
liquidation, dissolution or winding up of the Corporation and such distribution
has been distributed to the holders of the related Depositary Shares.
CHARGES OF DEPOSITARY
The Corporation will pay all transfer and other taxes and governmental
charges arising solely from the existence of the depositary arrangements. The
Corporation will pay charges of the Depositary in connection with the initial
deposit of the Preferred Shares and any redemption of the Preferred Shares.
Holders of Depositary Shares will pay other transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Shares all reports
and communications from the Corporation which are delivered to the Depositary
and which the Corporation is required to furnish to the holders of the Preferred
Shares.
Neither the Depositary nor the Corporation will be liable if it is
prevented or delayed by law or any circumstance beyond its control in performing
its obligations under the Deposit Agreement. The obligations of the Corporation
and the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Shares or
Preferred Shares unless satisfactory indemnity is furnished. They may rely upon
written advice of counsel or accountants, or information provided by persons
presenting Preferred Shares for deposit, holders of Depositary Shares or other
persons believed to be competent and on documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Corporation
notice of its election to do so, and the Corporation may at any time remove the
Depositary, any such resignation or removal to take effect upon the appointment
of a successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50,000,000.
29
<PAGE> 59
DESCRIPTION OF COMMON STOCK
GENERAL
The Board of Directors of the Corporation is authorized to issue a maximum
of 100,000,000 shares of Common Stock. As of March 1, 1997, 85,956,487 shares of
Common Stock were issued, of which 81,431,600 were outstanding and 4,524,887
were held as treasury shares. Share numbers reflect the three-for-one stock
split announced by the Corporation on December 10, 1996. The Corporation split
its Common Stock three-for-one and paid a dividend of Common Stock on January
13, 1997 to Shareholders of Common Stock of record on December 31, 1996. The
terms and conditions of the Common Stock are governed by the laws of the State
of Ohio as well as by the Corporation's Articles and Code of Regulations.
Subject to any prior rights of any Preferred Stock then outstanding,
holders of the Common Stock are entitled to receive such dividends as are
declared by the Board of Directors of the Corporation out of funds legally
available therefor. For information concerning legal limitations on the ability
of the Bank to supply funds to the Corporation, see "CERTAIN REGULATORY
MATTERS." Subject to the rights, if any, of any Preferred Stock then
outstanding, all voting rights are vested in the holders of Common Stock.
Holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the shareholders of the Corporation. Holders of Common Stock are
not entitled to cumulate votes for the election of directors. The Board of
Directors of the Corporation is divided into three classes. The directors of the
class elected at each annual election hold office for a term of three years. The
Corporation's Articles provide that directors may be removed only for "cause",
which is defined as the conviction of a felony or a finding by a court of
negligence or misconduct in the performance of a director's duties.
The Common Stock has no preemptive rights and is not subject to further
calls or assessments by the Corporation. The transfer agent and registrar for
the Common Stock is the Bank.
The Corporation's Articles provide that, unless certain conditions have
been met, specified business combination transactions (including, but not
limited to, a merger with, or sale of all or substantially all the Corporation's
assets to, a "related person") submitted to shareholders require the affirmative
vote of holders of at least 80% of the Corporation's outstanding shares of
Common Stock and the affirmative vote of at least 50% of the outstanding shares
of Common Stock held by shareholders other than the related person. Generally, a
"related person" is one who beneficially owns 20% or more of the Corporation's
outstanding shares of Common Stock. Amendments to certain provisions of the
Corporation's Articles (including, among others, those requiring a classified
Board of Directors of the Corporation and the super-majority voting provisions),
also must be approved by at least 80% of the outstanding shares of Common Stock
and, if there is a related person, at least 50% of the outstanding shares not
held by the related person.
RIGHTS PLAN
Each share of Common Stock outstanding (and each share issued by the
Corporation prior to the occurrence of certain events) carries with it one
preferred stock purchase right ("Preferred Stock Purchase Right") to purchase,
at a price of $100.00, one-hundredth of a share of the Corporation's Series A
Preferred Stock. The Preferred Stock Purchase Rights are exercisable only if a
person or group (an "Adverse Person") acquires or obtains the right to acquire
ownership of 20% or more of the Corporation's Common Stock, commences a tender
or exchange offer for 30% or more of the Common Stock or is declared an "Adverse
Person" by the Corporation's Board of Directors. The Corporation is entitled to
redeem the Preferred Stock Purchase Rights at a price of one cent per Preferred
Stock Purchase Right at any time before the twentieth day following the date a
20% position has been acquired.
If the Corporation is acquired in a merger or other business combination
transaction, each Preferred Stock Purchase Right entitles its holder (other than
an Acquiring Person or Adverse Person) to purchase, at the Preferred Stock
Purchase Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the
Preferred Stock Purchase Right's exercise price. The Preferred Stock Purchase
Rights also provide a similar right for holders (other than an Acquiring Person
or Adverse Person) to purchase Common Stock having a market value at that time
of twice the
30
<PAGE> 60
Preferred Stock Purchase Right's exercise price under certain circumstances
where a person or group has acquired a 30% block of the Corporation's Common
Stock or been declared an "Adverse Person" by a majority of the Corporation's
outside directors.
As long as the Preferred Stock Purchase Rights are attached to and
evidenced by the certificates representing the Common Stock, the Corporation
will continue to issue one Preferred Stock Purchase Right with each share of
Common Stock that shall become outstanding. A Preferred Stock Purchase Right is
presently attached to each issued and outstanding share of Common Stock. The
Preferred Stock Purchase Rights will expire on October 20, 1999 unless earlier
redeemed.
The Preferred Stock Purchase Rights have certain antitakeover effects. The
Preferred Stock Purchase Rights may cause substantial dilution to a person or
group that attempts to acquire the Corporation on terms not approved by the
Board of Directors of the Corporation. The Preferred Stock Purchase Rights
should not interfere with any merger or other business combination approved by
the Board of Directors of the Corporation since the Rights may be redeemed by
the Corporation prior to the consummation of such transactions.
The Rights Agreement between the Corporation and Mellon Bank, N.A., as
Rights Agent, dated as of October 10, 1989, has been filed as an exhibit to the
Company's Current Report on Form 8-A dated May 5, 1994. The description of the
Rights found in the foregoing Form 8-A has been incorporated by reference herein
and copies of such Form can be obtained in the manner set forth under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
31
<PAGE> 61
DESCRIPTION OF SECURITIES WARRANTS
The Corporation may issue Securities Warrants for the purchase of Debt
Securities, Preferred Shares, Depositary Shares or Common Stock. Securities
Warrants may be issued independently or together with Debt Securities, Preferred
Shares or Depositary Shares offered by any Prospectus Supplement and may be
attached to or separate from such Debt Securities, Preferred Shares or
Depositary Shares. Each series of Securities Warrants will be issued under a
separate warrant agreement (a "Securities Warrant Agreement") to be entered into
between the Corporation and a bank or trust company, as securities warrant agent
(the "Securities Warrant Agent"), all as set forth in the Prospectus Supplement
relating to the particular issue of offered Securities Warrants. The Securities
Warrant Agent will act solely as an agent of the Corporation in connection with
securities warrant certificates (the "Securities Warrant Certificates") and will
not assume any obligation or relationship of agency or trust for or with any
holders of Securities Warrant Certificates or beneficial owners of Securities
Warrants. Copies of the forms of Securities Warrant Agreements, including the
forms of Securities Warrant Certificates representing the Securities Warrants,
are filed as exhibits to the Registration Statement to which this Prospectus
pertains. The following summaries of certain provisions of the forms of
Securities Warrant Agreements and Securities Warrant Certificates do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the Securities Warrant Agreements and the
Securities Warrant Certificates.
GENERAL
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including, in the case of
Securities Warrants for the purchase of Debt Securities, the following where
applicable: (i) the offering price and exercise price; (ii) the currencies in
which such Securities Warrants are being offered; (iii) the designation,
aggregate principal amount, currencies, denominations and terms of the series of
Debt Securities purchasable upon exercise of such Securities Warrants; (iv) the
designation and terms of any series of Debt Securities, Preferred Shares or
Depositary Shares with which such Securities Warrants are being offered and the
number of such Securities Warrants being offered with each such Debt Security,
Preferred Share or Depositary Share; (v) the date on and after which such
Securities Warrants and the related series of Debt Securities, Preferred Shares
or Depositary Shares will be transferable separately; (vi) the principal amount
of the series of Debt Securities purchasable upon exercise of each such
Securities Warrant and the price at which and currencies in which such principal
amount of Debt Securities of such series may be purchased upon such exercise;
(vii) the date on which the right to exercise such Securities Warrants shall
commence and the date on which such right shall expire (the "Expiration Date");
(viii) whether the Securities Warrants will be issued in registered or bearer
form; (ix) United States federal income tax consequences; and (x) any other
terms of such Securities Warrants.
In the case of Securities Warrants for the purchase of Preferred Shares,
Depositary Shares or Common Stock, the applicable Prospectus Supplement will
describe the terms of such Securities Warrants, including the following where
applicable: (i) the offering price and exercise price; (ii) the aggregate number
of shares purchasable upon exercise of such Securities Warrants and, in the case
of Securities Warrants for Preferred Shares or Depositary Shares, the
designation, aggregate number and terms of the series of Preferred Shares
purchasable upon exercise of such Securities Warrants or underlying the
Depositary Shares purchasable upon exercise of such Securities Warrants; (iii)
the designation and terms of the series of Debt Securities, Preferred Shares or
Depositary Shares with which such Securities Warrants are being offered and the
number of such Securities Warrants being offered with each such Debt Security,
Preferred Share or Depositary Share; (iv) the date on and after which such
Securities Warrants and the related series of Debt Securities, Preferred Shares
or Depositary Shares will be transferable separately; (v) the number of
Preferred Shares, Depositary Shares or shares of Common Stock purchasable upon
exercise of each such Securities Warrant and the price at which such number of
Preferred Shares or Depositary Shares of such series or shares of Common Stock
may be purchased upon each exercise; (vi) the date on which the right to
exercise such Securities Warrants shall commence and the Expiration Date; (vii)
United States federal income tax consequences; and (viii) any other terms of
such Securities Warrants. Securities Warrants for the purchase of Preferred
Shares, Depositary Shares or Common Stock will be offered and exercisable for
U.S. dollars only and will be in registered form only.
32
<PAGE> 62
Securities Warrant Certificates may be exchanged for new Securities Warrant
Certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of Holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal of, premium,
if any, or interest, if any, on the Debt Securities purchasable upon such
exercise or to enforce covenants in the applicable indenture. Prior to the
exercise of any Securities Warrants to purchase Preferred Shares, Depositary
Shares or Common Stock, holders of such Securities Warrants will not have any
rights of holders of the Preferred Shares, Depositary Shares or Common Stock
purchasable upon such exercise, including the right to receive payments of
dividends, if any, on the Preferred Shares, Depositary Shares or Common Stock
purchasable upon such exercise or to exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of Preferred Shares, Depositary
Shares or shares of Common Stock, as the case may be, at such exercise price as
shall in each case be set forth in, or calculable from, the Prospectus
Supplement relating to the offered Securities Warrants. After the close of
business on the Expiration Date (or such later date to which such Expiration
Date may be extended by the Corporation), unexercised Securities Warrants will
become void.
Securities Warrants may be exercised by delivering to the Securities
Warrant Agent payment as provided in the applicable Prospectus Supplement of the
amount required to purchase the Debt Securities, Preferred Shares, Depositary
Shares or Common Stock, as the case may be, purchasable upon such exercise
together with certain information set forth on the reverse side of the
Securities Warrant Certificate. Securities Warrants will be deemed to have been
exercised upon receipt of payment of the exercise price, subject to the receipt,
within five business days, of the Securities Warrant Certificate evidencing such
Securities Warrants. Upon receipt of such payment and the Securities Warrant
Certificate properly completed and duly executed at the corporate trust office
of the Securities Warrant Agent or any other office indicated in the applicable
Prospectus Supplement, the Corporation will, as soon as practicable, issue and
deliver the Debt Securities, Preferred Shares, Depositary Shares or Common
Stock, as the case may be, purchasable upon such exercise. If fewer than all of
the Securities Warrants represented by such Securities Warrant Certificate are
exercised, a new Securities Warrant Certificate will be issued for the remaining
amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENTS
The Securities Warrant Agreements may be amended or supplemented without
the consent of the holders of the Securities Warrants issued thereunder to
effect changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant are subject to adjustment in certain events, including (i) the
issuance of capital stock as a dividend or distribution on the Common Stock;
(ii) subdivisions and combinations of the Common Stock; (iii) the issuance to
all holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock within 45 days after the date fixed for
the determination of the stockholders entitled to receive such rights or
warrants, at less than the current market price (as defined in the Warrant
Agreement for such series of Common Stock Warrants); (iv) the distribution to
all holders of Common Stock of evidences of indebtedness or assets of the
Corporation (excluding certain cash dividends and distributions described below)
or rights or warrants (excluding those referred to above). In the event that the
Corporation shall distribute any rights or warrants to acquire capital stock
pursuant to clause (iii) above (the "Capital Stock Rights"), pursuant to which
separate certificates
33
<PAGE> 63
representing such Capital Stock Rights will be distributed subsequent to the
initial distribution of such Capital Stock Rights (whether or not such
distribution shall have occurred prior to the date of the issuance of a series
of Common Stock Warrants), such subsequent distribution shall be deemed to be
the distribution of such Capital Stock Rights; provided that the Corporation
may, in lieu of making any adjustment in the exercise price of and the number of
shares of Common Stock covered by a Common Stock Warrant upon a distribution of
separate certificates representing such Capital Stock Rights, make proper
provision so that each holder of such a Common Stock Warrant who exercises such
Common Stock Warrant (or any portion thereof) (a) before the record date for
such distribution of separate certificates shall be entitled to receive upon
such exercise shares of Common Stock issued with Capital Stock Rights and (b)
after such record date and prior to the expiration, redemption or termination of
such Capital Stock Rights shall be entitled to receive upon such exercise, in
addition to the shares of Common Stock issuable upon such exercise, the same
number of such Capital Stock Rights as would a holder of the number of shares of
Common Stock that such Common Stock Warrant so exercised would have entitled the
holder thereof to acquire in accordance with the terms and provisions applicable
to the Capital Stock Rights if such Common Stock Warrant was exercised
immediately prior to the record date for such distribution. Common Stock owned
by or held for the account of the Corporation or any majority owned subsidiary
shall not be deemed outstanding for the purpose of any adjustment.
No adjustment in the exercise price of and the number of shares of Common
Stock covered by a Common Stock Warrant will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from retained earnings. No
adjustment will be required unless such adjustment would require a change of at
least 1% in the exercise price then in effect; provided that any such adjustment
not so made will be carried forward and taken into account in any subsequent
adjustment; provided, further, that any such adjustment not so made shall be
made no later than three years after the occurrence of the event requiring such
adjustment to be made or carried forward. Except as stated above, the exercise
price of and the number of shares of Common Stock covered by a Common Stock
Warrant will not be adjusted for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock, or securities carrying the
right to purchase any of the foregoing.
In the case of (i) a reclassification or change of the Common Stock, (ii) a
consolidation or merger involving the Corporation or (iii) a sale or conveyance
to another corporation of the property and assets of the Corporation as an
entirety or substantially as an entirety, in each case, as a result of which
holders of the Corporation's Common Stock shall be entitled to receive stock,
securities, other property or assets (including cash) with respect to or in
exchange for such Common Stock, the holders of the Common Stock Warrants then
outstanding will be entitled thereafter to convert such Common Stock Warrants
into the kind and amount of shares of stock and other securities or property
which they would have received upon such reclassification, change,
consolidation, merger, sale or conveyance had such Common Stock Warrants been
exercised immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance.
34
<PAGE> 64
PLAN OF DISTRIBUTION
The Corporation may offer and sell the Offered Securities in any of two
ways: (i) through agents or (ii) directly to one or more purchasers. The
Prospectus Supplement with respect to any of the Offered Securities will set
forth the terms of the offering of such Offered Securities, including the name
or names of any underwriters or agents, the purchase price of such Offered
Securities, the proceeds to the Corporation from such sale, any underwriting
discounts or agency fees and other items constituting underwriters' or agents'
compensation, the initial public offering price, any discounts or concessions
allowed or reallowed or paid to dealers, and any securities exchanges on which
such Offered Securities may be listed.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Corporation, to indemnification by the Corporation against certain
civil liabilities, including liabilities under the Securities Act, or to
contributions with respect to payments which the underwriters or agents may be
required to make in respect thereof. Underwriters and agents, and affiliates
thereof, may be customers of, engage in transactions with, or perform services
for the Corporation and its affiliates in the ordinary course of business.
Each underwriter, dealer and agent participating in the distribution of any
Debt Securities that are issuable as Bearer Securities will agree that, in
connection with the original issuance of such Bearer Securities, it will not
offer, sell or deliver, directly or indirectly, Bearer Securities to a United
States person or to any person within the United States, except to the extent
permitted under United States Treasury regulations.
All Offered Securities, except for the Common Stock, will be new issues of
securities with no established trading market. Any underwriters to whom Offered
Securities are sold by the Corporation for public offering and sale may make a
market in such Offered Securities, but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given concerning the liquidity of the trading market for any
Offered Securities.
VALIDITY OF SECURITIES
The validity of the Offered Securities was passed upon for the Corporation
by Thomas J. Lakin, Esq., who was formerly Executive Vice President, General
Counsel of the Corporation. As of December 31, 1996, Mr. Lakin was the
beneficial owner of 10,578 shares of Common Stock and had options to acquire
63,152 additional shares.
EXPERTS
The consolidated financial statements of the Corporation and subsidiaries
as of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996, incorporated by reference in this registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
accounting and auditing, in giving such report.
35
<PAGE> 65
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY AGENT. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OF SOLICITATION IN
SUCH STATE. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Company Description................... S-3
Pricing Supplement.................... S-3
Description of Notes.................. S-3
Currency Risks........................ S-18
Certain United States Federal Income
Tax Consequences.................... S-20
Plan of Distribution.................. S-28
PROSPECTUS
Incorporation of Certain Documents
by Reference........................ 2
Available Information................. 2
The Corporation....................... 3
Certain Regulatory Matters............ 4
Use of Proceeds....................... 9
Ratio of Earnings to Fixed Charges and
to Combined Fixed Charges and
Preferred Stock Dividends........... 10
Description of Debt Securities........ 11
Description of Preferred Shares....... 22
Description of Depositary Shares...... 27
Description of Common Stock........... 30
Description of Securities Warrants.... 32
Plan of Distribution.................. 35
Validity of Securities................ 35
Experts............................... 35
</TABLE>
$250,000,000
STAR BANC CORPORATION
MEDIUM-TERM NOTES,
SERIES A
DUE NINE MONTHS OR MORE
FROM THE DATE OF ISSUE
[STAR BANC LOGO]
STAR BANC CORPORATION
SALOMON BROTHERS INC
BANCAMERICA SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
PROSPECTUS SUPPLEMENT
DATED MARCH 18, 1997
