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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-26941
PROSPECTUS SUPPLEMENT
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(TO PROSPECTUS DATED MAY 22, 1997)
$1,000,000,000
POPULAR, INC.
MEDIUM-TERM NOTES, SERIES 3
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
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Popular, Inc. (formerly BanPonce Corporation), a Puerto Rico corporation
(the "Corporation"), may offer from time to time its Medium-Term Notes, Series 3
(the "Notes") at an aggregate initial offering price not to exceed
$1,000,000,000 or its equivalent in one or more foreign currencies, including
composite currencies, less an amount equal to the aggregate proceeds from the
sale of certain other securities issued by the Corporation or issued by certain
affiliates of the Corporation and guaranteed by the Corporation, as further
described in the accompanying Prospectus. Each Note will mature nine months or
more from its date of issue, as selected by the purchaser and agreed to by the
Corporation. Unless otherwise indicated in the applicable Pricing Supplement to
this Prospectus Supplement (a "Pricing Supplement"), and except as set forth in
the accompanying Prospectus under "Description of Debt
Securities -- Redemption -- For Taxation", a Note may not be redeemed at the
option of the Corporation or be repaid at the option of the Holder thereof prior
to Maturity (which date for purposes hereof, shall be the stated maturity date
or date of redemption or repayment, as the case may be) and will be issued in
denominations of $1,000 or integral multiples thereof. If any of the Notes are
to be denominated in a foreign or composite currency, provisions with respect
thereto will be set forth in the applicable Pricing Supplement.
(continued on next page)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SECURITIES OFFICE OF THE COMMISSIONER OF FINANCIAL
INSTITUTIONS OF THE COMMONWEALTH OF PUERTO RICO OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, SUCH SECURITIES
OFFICE OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================================
PRICE TO AGENTS DISCOUNTS OR PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) CORPORATION(2)(3)
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<S> <C> <C> <C>
Per Note............................ 100% .125%-.750% 99.875%-99.250%
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Total(4)............................ Up to $1,000,000,000 Up to $7,500,000 Up to $998,750,000
===========================================================================================================================
</TABLE>
(1) Each Note will be sold at 100% of its principal amount except as may be
provided in the applicable Pricing Supplement.
(2) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Chase Securities Inc., Credit Suisse First Boston Corporation and First
Chicago Capital Markets, Inc. (each, an "Agent", and, collectively, the
"Agents"), individually or in a syndicate, may purchase Notes, as principal,
from the Corporation for resale to investors and other purchasers at varying
prices relating to prevailing market prices at the time of resale as
determined by the applicable Agent(s) or, if so agreed, for resale at a
fixed offering price. Unless otherwise specified in the applicable Pricing
Supplement, any Note sold to an Agent as principal will be purchased by such
Agent at a price equal to 100% of the principal amount thereof less a
percentage of the principal amount equal to the commission applicable to an
agency sale of a Note of identical maturity. If agreed to by the Corporation
and an Agent, such Agent may utilize its reasonable efforts on an agency
basis to solicit offers to purchase Notes at 100% of the principal amount
thereof, unless otherwise specified in the applicable Pricing Supplement.
The Corporation will pay a commission to each applicable Agent, ranging from
.125% to .750% depending upon the maturity of the Note, of the principal
amount of any Note sold through such Agent. Commissions payable by the
Corporation to the Agents with respect to Notes with stated maturities in
excess of 30 years that are sold through an Agent will be negotiated at the
time of issuance. The Corporation may also sell Notes directly to investors
on its own behalf, in which case no commission will be payable. See
"Supplemental Plan of Distribution."
(3) Before deducting other expenses payable by the Corporation estimated to be
approximately $700,000, including reimbursement of certain of the Agents'
expenses.
(4) Or the equivalent thereof in foreign currencies or composite currencies.
The Notes are being offered on a continuous basis by the Corporation
through the agents, each of which has agreed to use its reasonable efforts to
solicit offers to purchase the Notes. In addition, the Notes may also be sold to
an Agent, as principal, for resale to investors or other purchasers. The Notes
will not be listed on any securities exchange, and there can be no assurance
that the Notes offered by this Prospectus Supplement will be sold or that there
will be a secondary market for the Notes. The Corporation reserves the right to
withdraw, cancel or modify the offer made hereby without notice. The Corporation
or any Agent may reject any offer to purchase the Notes in whole or in part. See
"Supplemental Plan of Distribution" in this Prospectus Supplement.
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MERRILL LYNCH & CO.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON
FIRST CHICAGO CAPITAL MARKETS, INC.
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The date of this Prospectus Supplement is May 23, 1997.
<PAGE> 2
(continued from previous page)
THE NOTES WILL BE UNSECURED OBLIGATIONS OF THE CORPORATION AND WILL NOT BE
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 GOVERNMENT AGENCY.
The interest rate, if any, or interest rate formula on each Note and other
variable terms will be established by the Corporation at the date of issuance of
such Note and will be set forth therein and specified in a Pricing Supplement.
Interest rates and interest rate formulae are subject to change by the
Corporation, but no change will affect any Note already issued or as to which an
offer to purchase has been accepted by the Corporation. Unless otherwise
indicated in the applicable Pricing Supplement, the Notes will bear interest at
fixed rates ("Fixed Rate Notes") or at floating rates ("Floating Rate Notes")
determined by reference to one or more of the Certificate of Deposit Rate,
Commercial Paper Rate, CMT Rate, Eleventh District Cost of Funds Rate, Federal
Funds Rate, LIBOR, Prime Rate, Treasury Rate or other interest rate basis or
formula, as adjusted by any Spread and/or Spread Multiplier applicable to such
Notes. See "Description of Notes" in this Prospectus Supplement and "Description
of Debt Securities" in the accompanying Prospectus. Interest on Fixed Rate Notes
will accrue from their date of issue and, unless otherwise provided in the
applicable Pricing Supplement, will be payable semi-annually on each June 15 and
December 15 and at Maturity. Interest on Floating Rate Notes will accrue from
their date of issue and will be payable on the dates indicated therein and in
the applicable Pricing Supplement and at Maturity. The Notes may also be issued
at original issue discounts and such Notes may or may not bear interest.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued in fully registered certificated or book-entry form. Ownership of
beneficial interests in Notes issued in book-entry form will be shown on, and
transfers thereof will be effected only through, records maintained by The
Depository Trust Company in The City of New York (with respect to participants'
interests), as Depository, and its participants. Owners of beneficial interests
in Notes issued in book-entry form will be entitled to physical delivery of
Notes in certificated form equal in principal amount to their respective
beneficial interests only under the limited circumstances described herein. See
"Description of Notes -- Book-Entry Notes" in this Prospectus Supplement.
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY ONE OR MORE AGENTS AS
PRINCIPAL ON A FIXED PRICE BASIS, SUCH AGENT(S) MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO COVER
SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"SUPPLEMENTAL PLAN OF DISTRIBUTION."
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RECENT DEVELOPMENTS
On December 6, 1996, the Corporation signed a definitive agreement to
acquire National Bancorp, Inc. ("NBI"), the parent of American Midwest Bank and
other subsidiaries, through an indirect wholly owned subsidiary of the
Corporation. American Midwest Bank operates two branches in Melrose Park,
Illinois and had assets of $171 million and deposits of $157 million as of March
31, 1997. The Agreement provides for NBI to divest all of its subsidiaries other
than American Midwest Bank prior to the acquisition and is subject to certain
other conditions. The Federal Reserve approved the application for the
acquisition of NBI on April 25, 1997.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes hereby
supplements, and to the extent inconsistent therewith, replaces the description
of the general terms and provisions of the Notes set forth under the headings
"Description of Debt Securities" and "Terms Applicable to the Senior Debt
Securities or Subordinated Debt Securities" in the accompanying Prospectus dated
May 22, 1997, to which general description reference is hereby made. The
particular terms of the Notes offered by any Pricing Supplement will be
described therein and in such Note. However, unless otherwise provided in the
Pricing Supplement applicable to a Note, each Note will have the following
terms.
GENERAL
The Notes are to be issued as a series of debt securities (the "Debt
Securities"), which Debt Securities are unlimited as to aggregate principal
amount. The maximum amount of Securities (as defined and described in the
accompanying Prospectus) registered under the registration statement under which
the Debt Securities are registered under the Securities Act of 1933, as amended
(the "Act"), is $1,000,000,000. Therefore, the Notes are limited in amount to
$1,000,000,000 as set forth on the cover page hereof, less an amount equal to
the aggregate proceeds from the sale of any other Securities which may be issued
from time to time by the Corporation or by certain affiliates of the Corporation
and guaranteed by the Corporation, as further described in the accompanying
Prospectus. The Notes are to be issued under the indenture between the
Corporation and The First National Bank of Chicago, as trustee (the "Trustee"),
dated as of February 15, 1995, as supplemented by the First Supplemental
Indenture, dated as of May 8, 1997 (together, the "Indenture"), which is more
fully described in the accompanying Prospectus. The following summaries of
certain provisions of the Indenture and the Notes do not purport to be complete,
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Indenture and the Notes, including the definitions therein of
certain terms. In addition, all capitalized terms used in this Prospectus
Supplement and not otherwise defined herein shall have the respective meanings
ascribed to them in the Indenture. The terms and conditions set forth below will
apply to each Note unless otherwise specified in the applicable Pricing
Supplement or Foreign Currency, Multi-Currency and Indexed Note Prospectus
Supplement (as hereinafter defined).
The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that Debt Securities may
be issued in one or more series up to the aggregate principal amount which may
be authorized from time to time by the Corporation. The Corporation may, from
time to time, without the consent of the Holders of the Notes, provide for the
issuance of Debt Securities (including medium-term notes) under the Indenture in
addition to the $1,000,000,000 principal amount of Securities authorized and
available for issuance as of the date of this Prospectus Supplement pursuant to
the registration statement under which the Securities are registered under the
Act. The Notes will be denominated in and payable in United States dollars
except as may otherwise be provided in the applicable Pricing Supplement.
The Notes will be direct, unsecured debt obligations of the Corporation and
will rank pari passu among themselves and with all other unsecured and
unsubordinated existing and future indebtedness of the Corporation from time to
time outstanding.
The Notes will be offered on a continuous basis and will mature on any day
nine months or more from the date of issue, as selected by the initial purchaser
and agreed to by the Corporation. Unless otherwise indicated in a Pricing
Supplement, each interest bearing Note will bear interest at (a) a fixed rate
("Fixed Rate Note")
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or (b) a floating rate ("Floating Rate Note") determined by reference to one or
more of the Base Rates described below as adjusted by a Spread and/or Spread
Multiplier (as defined below), if any, applicable to such Note until the
principal thereof is paid or made available for payment. Notes may be issued at
significant discounts from their principal amount payable at Maturity ("Original
Issue Discount Notes"), and some such Notes may not bear interest.
Interest rates offered by the Corporation with respect to the Notes may
differ depending upon, among other factors, the aggregate principal amount of
Notes purchased in any single transaction. Notes with different variable terms
other than interest rates may also be offered concurrently to different
investors. Interest rates or formulas and other terms of Notes are subject to
change by the Corporation from time to time, but no such change will affect any
Note previously issued or as to which an offer to purchase has been accepted by
the Corporation.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued in fully registered certificated or book-entry form and, unless
otherwise specified in a supplement hereto, in denominations of $1,000 and
integral multiples thereof. Notes issued in certificated form may be transferred
or exchanged as described below. In the event Notes are issued in book-entry
form through the facilities of The Depository Trust Company in The City of New
York (the "Depository"), transfers or exchanges may be similarly effected
through a participating member of the Depository. See "Book-Entry Notes". No
service charge will be made for the registration of transfer or exchange of
Notes issued in certificated form, but the Corporation may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
Payments on Notes issued in book-entry form will be made in immediately
available funds to the Depository or its nominee in accordance with the
arrangements then in effect between the Trustee and the Depository. See
"Book-Entry Notes". Principal and interest on Notes issued in certificated form
due at Maturity on each Note will be payable in immediately available funds upon
presentation of the Note at the office of the Trustee at 14 Wall Street, Eighth
Floor, New York, New York 10005, Attention: Corporate Trust Services. Interest
payable at Maturity will be payable to the person to whom the principal of the
Note shall be paid. Interest due other than at Maturity will be payable by check
mailed to the record holder of such Note as of the Regular Record Date with
respect to such Interest Payment Date at the address shown in the register
maintained by the Trustee. Transfers of the Notes will be registrable at the
above-stated office of the Trustee.
Interest payments shall be the amount of interest accrued from and
including the next preceding Interest Payment Date in respect of which interest
has been paid (or from and including the date of issue, if no interest has been
paid with respect to such Note) to, but excluding, the applicable Interest
Payment Date or at Maturity, as the case may be (each an "Interest Accrual
Period"). The principal and interest payable at Maturity on each Note will be
paid on such date in immediately available funds against presentation of the
Note at the above-referenced office of the Trustee. Notwithstanding the
foregoing, a Holder of $10,000,000 or more in an aggregate principal amount of
Notes issued in certificated form and having the same Interest Payment Dates
may, upon receipt of written instruction by the Trustee before a Regular Record
Date, receive payments of interest by transfer of immediately available funds to
an account at a bank located in The City of New York (or other bank consented to
by the Corporation) designated in such notice by such Holder (provided that such
bank has appropriate facilities therefor) commencing with the next Interest
Payment Date succeeding such Regular Record Date. Any such designation for wire
transfer purposes shall be made by filing the appropriate information with the
Paying Agent at its Corporate Trust Office in the Borough of Manhattan, The City
of New York, and unless revoked by written notice to the Paying Agent received
on or prior to the Regular Record Date immediately preceding the applicable
Interest Payment Date or the fifteenth day preceding Maturity, shall remain in
effect with respect to any further payment to such Holder. The Corporation has
initially appointed The First National Bank of Chicago as the Paying Agent and
Security Registrar.
REDEMPTION
The Notes will be subject to redemption in the circumstances set forth in
the accompanying Prospectus under "Description of Debt
Securities -- Redemption -- For Taxation".
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The Notes will also be subject to redemption by the Corporation on and
after the initial redemption date, if any, fixed at the time of sale and set
forth in the applicable Pricing Supplement and the applicable Note (the "Initial
Redemption Date"). If no Initial Redemption Date is indicated with respect to a
Note, such Note will not be redeemable prior to the Stated Maturity, except as
set forth in the immediately preceding paragraph. On and after the Initial
Redemption Date with respect to any Note, such Note will be redeemable in whole
or in part in increments of $1,000 at the option of the Corporation at a price
(the "Redemption Price") determined in accordance with the following paragraph,
together with interest thereon payable to the date of redemption, on notice
given no more than 60 nor less than 30 days prior to the date of redemption.
The Redemption Price for each Note subject to redemption shall initially be
equal to a certain percentage (the "Initial Redemption Percentage") of the
principal amount of such Note to be redeemed and shall decline at each
anniversary of the Initial Redemption Date with respect to such Note by a
percentage (the "Annual Redemption Percentage Reduction") of the principal
amount to be redeemed until the Redemption Price is 100% of such principal
amount. The Initial Redemption Percentage and any Annual Redemption Percentage
Reduction with respect to each Note subject to redemption prior to its Stated
Maturity will be fixed at the time of sale and set forth in the applicable
Pricing Supplement and the applicable Note.
REPAYMENT
The Notes will be subject to repayment at the option of the Holders thereof
in accordance with the terms of the Notes on their respective optional repayment
dates, if any, fixed at the time of sale and set forth in the applicable Pricing
Supplement and the applicable Note (the "Optional Repayment Dates"). If no
Optional Repayment Date is indicated with respect to a Note, such Note will not
be repayable at the option of the Holder prior to the Stated Maturity. On any
Optional Repayment Date with respect to any Note, such Note will be repayable in
whole, or in part in increments of $1,000 at the option of the Holder thereof,
at a price equal to 100% of the principal amount to be repaid, together with
interest thereon payable to the date of repayment, on notice given not more than
60 nor less than 30 days prior to the Optional Repayment Date. Unless otherwise
indicated in the applicable Pricing Supplement, in order for the exercise of the
repayment option to be effective and the Note to be repaid, the Corporation must
receive at the office of the Paying Agent or at such other place or places of
which the Corporation shall from time to time notify the Holder of such Note, on
or before the thirtieth, but not earlier than the sixtieth calendar day, or, if
such day is not a Business Day (as hereinafter defined), the next succeeding
Business Day, prior to the repayment date, either (i) the Note, with the form
entitled "Option to Elect Repayment" 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 a trust company in the United States of America setting forth (a) the
name, address, and telephone number of the Holder of the Note, (b) the principal
amount of the Note and the amount of the Note to be repaid, (c) a statement that
the option to elect repayment is being exercised thereby, and (d) a guarantee
stating that the Paying Agent on behalf of the Corporation will receive this
Note, with the form entitled "Option to Elect Repayment" duly completed, not
later than five Business Days after the date of such telegram, telex, facsimile
transmission, or letter (and the Note and form duly completed are received by
the Paying Agent on behalf of the Corporation by such fifth Business Day). Any
such election shall be irrevocable.
While the Book-Entry Notes are represented by the Global Securities held by
or on behalf of the Depository, and registered in the name of the Depository or
the Depository's nominee, the option for repayment may be exercised by the
applicable participant that has an account with the Depository, on behalf of the
beneficial owners of the Global Security or Securities representing such
Book-Entry Notes, by delivering a written notice substantially similar to the
above mentioned form to the Trustee at its Corporate Trust Office (or such other
address of which the Corporation shall from time to time notify the Holders),
not more than 60 nor less than 30 days prior to the date of repayment. Notices
of elections from participants on behalf of beneficial owners of the Global
Security or Securities representing such Book-Entry Notes to exercise their
option to have such Book-Entry Notes repaid must be received by the Trustee by
5:00 P.M., New York City time, on the last day for giving such notice. In order
to ensure that a notice is received by the Trustee on a particular day, the
beneficial owner of the Global Security or Securities representing such Book-
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Entry Notes must so direct the applicable participant before such participant's
deadline for accepting instructions for that day. Different firms may have
different deadlines for accepting instructions from their customers.
Accordingly, beneficial owners of the Global Security or Securities representing
Book-Entry Notes should consult the participants through which they own their
interest therein for the respective deadlines for such participants. All notices
shall be executed by a duly authorized officer of such participant (with
signature guaranteed) and shall be irrevocable. In addition, beneficial owners
of the Global Security or Securities representing Book-Entry Notes shall effect
delivery at the time such notice of election is given to the Depository by
causing the applicable participant to transfer such beneficial owner's interest
in the Global Security or Securities representing such Book-Entry Notes, on the
Depository's records, to the Trustee. See "Book-Entry Notes".
The Corporation may at any time purchase Notes at any price or prices in
the open market or otherwise. Notes so purchased by the Corporation may be held
or resold or, at the discretion of the Corporation, may be surrendered to the
Trustee for cancellation.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issue at the rate
per annum stated on the face thereof until the principal amount thereof is paid
or made available for payment. Interest on Fixed Rate Notes will be computed on
the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes (other than Amortizing Notes) will be payable semi-annually
in arrears on June 15 and December 15 of each year (each, an "Interest Payment
Date") and at Maturity. The Regular Record Date for Fixed Rate Notes with
respect to any June 15 or December 15 Interest Payment Date will be the June 1
or December 1, whether or not such date shall be a Business Day, immediately
preceding such Interest Payment Date. If any Interest Payment Date or Maturity
with respect to a Fixed Rate Note falls on a day that is not a Business Day, the
related payment of principal, premium, if any, or interest shall be made on the
next Business Day as if it were made on the date such payment was due, and no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date or at Maturity. If the Original Issue Date of a Note
is between a Regular Record Date and the corresponding Interest Payment Date,
the initial interest payment will be made on the Interest Payment Date following
the next succeeding Regular Record Date to the Holder on such next succeeding
Regular Record Date.
FLOATING RATE NOTES
Interest on Floating Rates Notes will be determined by reference to one or
more "Base Rates" which shall be (a) the "Certificate of Deposit Rate"
("Certificate of Deposit Rate Notes"), (b) the "Commercial Paper Rate"
("Commercial Paper Rate Notes"), (c) the "CMT Rate" ("CMT Rate Notes"), (d) the
"Eleventh District Cost of Funds Rate" ("Eleventh District Cost of Funds Rate
Notes"), (e) the "Federal Funds Rate" ("Federal Funds Rate Notes"), (f) "LIBOR"
("LIBOR Notes"), (g) the "Prime Rate" ("Prime Rate Notes"), (h) the "Treasury
Rate" ("Treasury Rate Notes") or (i) such other interest rate basis or formula
as may be set forth in an applicable Pricing Supplement. The interest rate on
each Floating Rate Note will be calculated by reference to one or more specified
Base Rates based upon the Index Maturity and adjusted by a Spread and/or Spread
Multiplier, if any, as specified in the applicable Pricing Supplement, if
applicable, and subject to the Minimum Interest Rate, if any, and the Maximum
Interest Rate, if any. The "Index Maturity" is the period to maturity of the
instrument or obligation from which the Base Rate is calculated. The "Spread" is
the number of basis points above or below the Base Rate applicable to the
interest rate for such Floating Rate Note, and the "Spread Multiplier" is the
percentage of the Base Rate applicable to the interest rate for such Floating
Rate Note. The Spread, Spread Multiplier, Index Maturity and other variable
terms of the Floating Rate Notes are subject to change by the Corporation from
time to time, but no such change will affect any Floating Rate Note theretofore
issued or as to which an offer has been accepted by the Corporation.
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The applicable Pricing Supplement will specify certain terms for each
Floating Rate Note in connection with which it is being delivered, including the
following: Base Rate, Initial Interest Rate, Interest Rate Reset Period or
Interest Reset Dates, Interest Payment Dates, Index Maturity, Maturity, Maximum
Interest Rate and Minimum Interest Rate, if any, Spread or Spread Multiplier, if
any, Optional Repayment Dates, if any, Initial Redemption Date, if any, Initial
Redemption Percentage, Annual Redemption Percentage Reduction and Alternate Rate
Event Spread, if applicable.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually or annually (each, an "Interest Rate
Reset Period"), as specified in the applicable Pricing Supplement. The "Interest
Reset Date" will be, in the case of Floating Rate Notes which reset (a) daily,
each Business Day; (b) weekly, the Wednesday of each week (with the exception of
weekly reset Treasury Rate Notes, which reset Tuesday of each week except as
provided below); (c) monthly, the third Wednesday of each month (with the
exception of Eleventh District Cost of Funds Rate Notes, which reset the first
Business Day of each month); (d) quarterly, the third Wednesday of March, June,
September and December of each year; (e) semi-annually, the third Wednesday of
the two months specified in the applicable Pricing Supplement; and (f) annually,
the third Wednesday of the month specified in the applicable Pricing Supplement.
If any 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 day that is a Business Day, except that in the case of a LIBOR
Note or Notes, if such Business Day is in the next succeeding calendar month,
such Interest Reset Date shall be the next preceding Business Day. Unless
otherwise specified in the applicable Pricing Supplement, "Business Day" means
any day, other than a Saturday, Sunday or other day on which banks in The City
of New York are required or authorized by law, regulation or executive order to
close, and with respect to LIBOR Notes, that is also a London Banking Day.
"London Banking Day" means any day on which dealings in deposits in U.S. dollars
are transacted in the London interbank market.
A Floating Rate Note may also have either or both of the following: (i) a
maximum limit, or ceiling (the "Maximum Interest Rate"), on the rate of interest
which may accrue during any Interest Period (as defined below); and (ii) a
minimum limit, or floor (the "Minimum Interest Rate"), on the rate of interest
which may accrue during any Interest Period. Notwithstanding any Maximum
Interest Rate which may be applicable to any Floating Rate Note pursuant to the
above provisions, the interest rate on Floating Rate Notes will in no event be
higher than the maximum rate permitted by New York law, as the same may be
modified by United States law of general application. Under present New York
law, the maximum rate of interest is 16% per annum on a simple interest basis.
The limit may not apply to Floating Rate Notes in which $2,500,000 or more has
been invested.
The interest rate in effect with respect to a Floating Rate Note during any
Interest Period commencing as of an Interest Reset Date will be the rate
determined as of the "Interest Determination Date". The Interest Determination
Date pertaining to an Interest Reset Date for Certificate of Deposit Rate Notes,
Commercial Paper Rate Notes, CMT Rate Notes, Federal Funds Rate Notes and Prime
Rate Notes will be the second Business Day preceding such Interest Reset Date.
The Interest Determination Date with respect to an Interest Reset Date for LIBOR
Notes will be the second London Banking Day preceding such Interest Reset Date.
With respect to Treasury Rate Notes, the Interest Determination Date with
respect to an Interest Reset Date will be the day of the week in which the
Interest Reset Date falls on which Treasury bills are auctioned (Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is most frequently held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if as a result of a legal holiday an auction is held on
the Friday of the week preceding an Interest Reset Date, the related Interest
Determination Date shall be such preceding Friday; and, provided, further that
if an auction shall fall on any Interest Reset Date, then the Interest Reset
Date shall instead be the first Business Day following such auction. The
Interest Determination Date with respect to an Interest Reset Date for Eleventh
District Cost of Funds Rate Notes will be the last Business Day of the month
immediately preceding such Interest Reset Date on which the Federal Home Loan
Bank of San Francisco (the "FHLB of San Francisco") publishes the monthly
Eleventh District Cost of Funds Index (as defined below).
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The interest rate determined with respect to any Interest Determination
Date will become effective on and as of the next succeeding Interest Reset Date,
subject to any maximum or minimum interest rate limitation referred to above;
provided, however, that the interest rate in effect with respect to a Floating
Rate Note for the period from the date of issue to the initial Interest Reset
Date will be the "Initial Interest Rate" specified in the applicable Pricing
Supplement.
Each Floating Rate Note will bear interest from the date of issue at the
rates determined as described herein until the principal thereof is paid or
otherwise made available for payment. Except as provided below or in the
applicable Pricing Supplement, interest will be payable, in the case of Floating
Rate Notes which reset (a) 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; (b) quarterly, on
the third Wednesday of March, June, September and December of each year; (c)
semi-annually, on the third Wednesday of the two months of each year specified
in the applicable Pricing Supplement; and (d) annually, on the third Wednesday
of the month specified in the applicable Pricing Supplement (each, an "Interest
Payment Date") and, in each case, at Maturity.
If any Interest Payment Date with respect to any Floating Rate Note would
otherwise fall on a day that is not a Business Day with respect to such Note,
such Interest Payment Date shall be postponed to the next day that is a Business
Day, except that in the case of a LIBOR Note, if such Business Day falls in the
next succeeding calendar month, such Interest Payment Date shall be advanced to
the immediately preceding Business Day. If the date of Maturity of any Floating
Rate Note would fall on a day that is not a Business Day, the payment of
principal, premium, if any, and interest shall be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period from
and after Maturity.
The "Regular Record Date" for Floating Rate Notes with respect to any
Interest Payment Date shall be the fifteenth calendar day, whether or not such
date shall be a Business Day, prior to such Interest Payment Date.
Unless otherwise specified in the applicable Pricing Supplement, with
respect to a Floating Rate Note, accrued interest will be calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
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 for each such day is computed by dividing the interest rate
applicable to such day by 360 (or, in the case of Treasury Rate Notes or CMT
Rate Notes, by the actual number of days in the year).
Unless otherwise provided for in the applicable Pricing Supplement, The
First National Bank of Chicago will be the "Calculation Agent" for the Floating
Rate Notes. Upon the 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 that will become effective as a result of a
determination made for the next Interest Reset Date with respect to such
Floating Rate Note. The Calculation Agent will calculate the Interest Rate on or
before any applicable Calculation Date. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date", where applicable,
pertaining to any Interest Determination Date will be the earlier of (i) the
tenth calendar day after such Interest Determination Date or, if any 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 Maturity, as the
case may be.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upward (e.g.,
9.876545% (or .09876545) will be rounded upward to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from such calculation on Floating Rate
Notes will be rounded to the nearest cent (with one-half cent being rounded
upward).
As mentioned above, the Initial Interest Rate will be specified in the
applicable Pricing Supplement. The interest rate that will become effective on
each subsequent Interest Reset Date will be determined by the Calculation Agent
as set forth below plus or minus any Spread and/or multiplied by any Spread
Multiplier
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and subject to the Minimum Interest Rate, if any, and the Maximum Interest Rate,
if any, as specified in the applicable Pricing Supplement.
Certificate of Deposit Rate: Unless otherwise indicated in the applicable
Pricing Supplement, "Certificate of Deposit Rate" means, with respect to any
Interest Determination Date relating to a Certificate of Deposit Rate Note (a
"Certificate of Deposit Rate Interest Determination Date"), the rate on that day
for negotiable certificates of deposit having the Index Maturity specified in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates", or any successor publication ("H.15(519)"), under the heading "CDs
(Secondary Market)", or, if not so published by 3:00 P.M., New York City time,
on the Calculation Date pertaining to such Certificate of Deposit Rate Interest
Determination Date, then the Certificate of Deposit Rate shall be the rate on
such Certificate of Deposit Rate Interest Determination Date for negotiable
certificates of deposit of the Index Maturity specified in the applicable
Pricing Supplement as published by the Federal Reserve Bank of New York in its
daily statistical release "Composite 3:30 P.M. quotations for U.S. Government
Securities" or any successor publication of the Federal Reserve Bank of New York
("Composite Quotations") under the heading "Certificates of Deposit". If such
rate is not published by 3:00 P.M., New York City time, on such Calculation
Date, in either H.15(519) or Composite Quotations, then the Certificate of
Deposit Rate for such Certificate of Deposit Rate Interest Determination Date
shall be the arithmetic mean calculated by the Calculation Agent of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Certificate of Deposit Rate Interest Determination Date, of three leading
nonbank dealers in negotiable U.S. dollar certificates of deposit in The City of
New York (which may include the Agents) selected by the Calculation Agent for
negotiable certificates of deposit of major United States money center banks (in
the market for negotiable certificates of deposit) with a remaining maturity
closest to the Index Maturity specified in the applicable Pricing Supplement in
denominations of $5,000,000; provided, however, that if fewer than three dealers
selected as aforesaid by the Calculation Agent are quoting rates as mentioned in
this sentence, then the Certificate of Deposit Rate with respect to such
Certificate of Deposit Rate Interest Determination Date shall be the Certificate
of Deposit Rate in effect on such Certificate of Deposit Rate Interest
Determination Date.
Commercial Paper Rate: Unless otherwise indicated in the applicable
Pricing Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Commercial Paper Rate Note (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as defined below) on
such date of the rate for commercial paper having the Index Maturity specified
in the applicable Pricing Supplement as published in H.15(519) under the heading
"Commercial Paper". In the event that such rate is not so published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Commercial
Paper Rate Interest Determination Date, then the Commercial Paper Rate 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 the rate for a
Commercial Paper Rate Interest Determination Date is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
Calculation Date, the Commercial Paper Rate for that Commercial Paper Rate
Interest Determination Date shall be calculated by the Calculation Agent and
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 in commercial paper in The City of
New York (which may include the Agents) selected by the Calculation Agent for
commercial paper of the specified Index Maturity placed for an industrial issuer
whose bond rating is "Aa", or the equivalent, from a nationally recognized
rating agency; provided, however, that if fewer than three dealers selected as
aforesaid by the Calculation Agent are quoting rates as mentioned in this
sentence, the Commercial Paper Rate with respect to such Commercial Paper Rate
Interest Determination Date shall be the Commercial Paper Rate in effect on such
Commercial Paper Rate Interest Determination Date.
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"Money Market Yield" shall be the yield (expressed as a percentage rounded
as aforesaid) calculated in accordance with the following formula:
<TABLE>
<S> <C> <C>
Money Market Yield = D X 360 X 100
----------------------------------------------
360 - (D X M)
</TABLE>
where "D" refers to the 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 period for which interest is being calculated.
CMT Rate Notes: Unless otherwise specified in the applicable Pricing
Supplement, "CMT Rate" means, with respect to any Interest Determination Date
relating to a CMT Rate Note (a "CMT Rate Interest Determination Date"), the rate
displayed on the Designated CMT Telerate Page (as defined below) 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 Rate Interest Determination Date and (ii) if
the Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the related CMT Rate 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
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in the relevant 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 Rate 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 Rate 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 (which may include an Agent
or its affiliates) 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
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 and 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 the lowest of such 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 second
preceding sentence have remaining terms to maturity equally close to the
Designated CMT Maturity Index, the quotes for the Treasury Note with the shorter
remaining term to maturity will be used.
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<PAGE> 11
"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)). 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: Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to an Eleventh District
Cost of Funds Rate Note (an "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 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 for 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 will be the Eleventh District Cost of Funds in effect on such
Eleventh District Cost of Funds Rate Interest Determination Date.
In determining that the FHLB of San Francisco has failed in any month to
publish the Eleventh District Cost of Funds Index, the Calculation Agent may
rely conclusively on any written advice from the FHLB of San Francisco to such
effect.
Federal Funds Rate: Unless otherwise indicated in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Federal Funds Rate Note (a "Federal Funds Rate
Interest Determination Date"), the rate on that day for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)" or, if not
so published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Federal Funds Rate Interest Determination Date, the Federal
Funds Rate shall be the rate on such Federal Funds Rate Interest Determination
Date as published in Composite Quotations under the heading "Federal
Funds/Effective Rate". If such rate is not published by 3:00 P.M., New York City
time, on such Calculation Date in either source, the Federal Funds Rate shall be
the arithmetic mean calculated by the Calculation Agent of the rates for 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 as of 9:00 A.M., New York City time, on such Federal Funds Interest
Determination Date; provided, however, that if fewer than three brokers selected
as aforesaid by the Calculation Agent are quoting rates as described above, the
Federal Funds Rate with respect to such Federal Funds Rates Interest
Determination Date shall be the Federal Funds Rate in effect on such Federal
Funds Interest Determination Date.
LIBOR: Unless otherwise indicated in the applicable Pricing Supplement,
LIBOR will be determined by the Calculation Agent in accordance with the
following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note (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 U.S. dollars having the Index Maturity
designated in the applicable Pricing Supplement, commencing on the second
London Banking Day immediately
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<PAGE> 12
following such LIBOR Interest Determination Date, that appear on the
Reuters Screen LIBO Page as of 11:00 A.M., London time, on such LIBOR
Interest Determination Date, if at least two such offered rates appear on
the Reuters Screen LIBO Page ("LIBOR Reuters"), or (b) the rate for
deposits in U.S. dollars having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such LIBOR Interest Determination Date, that appears
on Telerate Page 3750 as of 11:00 A.M., London time, on such 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 page LIBO on that service for
the purpose of displaying London interbank offered rates of major banks).
"Telerate Page 3750" means the display designated as page "3750" on the
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 for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR
Telerate is specified in the applicable Pricing Supplement, LIBOR will be
determined as if LIBOR Telerate had been specified. If LIBOR Reuters is
specified in the applicable Pricing Supplement and at least two such
offered rates appear on the Reuters Screen LIBO Page, the rate in respect
of such LIBOR Interest Determination Date will be the arithmetic mean of
such offered rates as determined by the Calculation Agent. If fewer than
two offered rates appear on the Reuters Screen LIBO Page, or if no rate
appears on Telerate Page 3750, as applicable, LIBOR in respect of such
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 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 U.S. dollars having the
Index Maturity designated in the applicable Pricing Supplement are offered
at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date by four major banks (which may include affiliates of the
Agents) in the London interbank market selected by the Calculation Agent
(the "Reference Banks") to prime banks in the London interbank market,
commencing on the second London Banking Day immediately following such
LIBOR Interest Determination Date and in a principal amount equal to an
amount of not less than U.S. $1 million that is representative for a single
transaction 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 rates. If at least two such quotations are provided, LIBOR
for such LIBOR Interest Determination Date will be the arithmetic mean of
such quotations. If fewer than two quotations are provided, LIBOR for such
LIBOR Interest Determination Date will be the arithmetic mean of the rates
quoted by 11:00 A.M., New York City time, on such LIBOR Interest
Determination Date by three major banks (which may include affiliates of
the Agents) in The City of New York selected by the Calculation Agent for
loans in U.S. dollars to leading European banks, having the Index Maturity
specified in the applicable Pricing Supplement, commencing on the second
London Banking Day immediately following such LIBOR Interest Determination
Date and in a principal amount equal to an amount of not less than U.S. $1
million that is representative for a single transaction 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
will be LIBOR in effect on such LIBOR Interest Determination Date.
Prime Rate: Unless otherwise indicated in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Prime Rate Note (a "Prime Rate Interest Determination Date"), the
rate set forth in H.15(519) for such date opposite the caption "Bank Prime
Loan". If such rate is not yet published by 3:00 P.M., New York City time, on
the Calculation Date, the Prime Rate for such Prime Rate Interest Determination
Date will be the arithmetic mean of the rates of interest publicly announced by
each bank named on the Reuters Screen USPRIME1 Page as such bank's prime rate or
base lending rate as in effect for such Prime Rate Interest Determination Date
as quoted on the Reuters Screen USPRIME1 Page on such Prime Rate Interest
Determination Date, or, if fewer than four such rates appear on the Reuters
Screen USPRIME1 Page for such Prime Rate Interest Determination Date, the rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by
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<PAGE> 13
a 360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks (which may include
affiliates of the Agents) in The City of New York selected by the Calculation
Agent from which quotations are requested. If fewer than four quotations are
provided, the Prime Rate shall be calculated by the Calculation Agent and shall
be determined as the arithmetic mean of four prime rates quoted on the basis of
the actual number of days in the year divided by a 360-day year as of the close
of business on such Prime Rate Interest Determination Date as furnished in The
City of New York by the major money center banks, if any, that have provided
such quotations and by a reasonable number of substitute banks or trust
companies (which may include affiliates of the Agents) to obtain four such prime
rate quotations, provided such substitute banks or trust companies are organized
and doing business under the laws of the United States, or any State thereof,
each having total equity capital of at least $500 million and being subject to
supervision or examination by a Federal or State authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
Prime Rate is not published in H.15(519) and the banks or trust companies
selected as aforesaid are not quoting as mentioned in this sentence, the Prime
Rate with respect to such Prime Rate Interest Determination Date will be the
interest rate otherwise in effect on such Prime Rate Interest Determination
Date. "Reuters Screen USPRIME1 Page" means the display designated as page
"USPRIME1" on the Reuter Monitor Money Rates Service (or such other page as may
replace page USPRIME1 on that service for the purpose of displaying prime rates
or base lending rates of major United States banks).
Treasury Rate: Unless otherwise indicated in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Treasury Rate Note (a "Treasury Rate Interest Determination
Date"), the rate applicable to the most recent auction of direct obligations of
the United States ("Treasury bills") having the Index Maturity specified in the
applicable Pricing Supplement as such rate is published in H.15(519) under the
heading "Treasury bills -- auction average (investment)" or, if not so published
by 3:00 P.M., New York City time, on or prior to 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) for such auction as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills 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 for a particular week, then
the Treasury Rate 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 as selected by the Calculation Agent, for the issue of Treasury bills
with a remaining maturity closest to the applicable Index Maturity; provided,
however, that if fewer than three dealers selected as aforesaid by the
Calculation Agent are quoting rates as mentioned in this sentence, the Treasury
Rate with respect to such Treasury Rate Interest Determination Date shall be the
Treasury Rate in effect on such Treasury Rate Interest Determination Date.
ORIGINAL ISSUE DISCOUNT NOTES
The Notes may be issued as Original Issue Discount Notes. An "Original
Issue Discount Note" is a Note (bearing no interest or interest at a rate which
at the time of issuance is below market rates) which is issued at a price lower
than the stated principal amount thereof and which provides that upon redemption
prior to Stated Maturity or upon acceleration of the Maturity thereof an amount
less than the principal amount thereof shall become due and payable. In the
event of redemption prior to Stated Maturity or upon acceleration of the
Maturity of an Original Issue Discount Note, the amount payable to the Holder of
such Note upon such redemption or acceleration will be determined in accordance
with the terms of such Note, but will be an amount less than the amount payable
at the Stated Maturity of such Note. In addition, a Note issued at a discount
may, for United States federal income tax purposes, be considered a "Discount
Note", regardless of the amount payable upon redemption or acceleration of
maturity of such Note. See "United States Taxation -- Original Issue Discount"
below. Any other special considerations applicable to any such discounted Notes
will be described in the Pricing Supplement relating thereto.
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<PAGE> 14
AMORTIZING NOTES
The Notes may be issued as Amortizing Notes. Unless otherwise specified in
the applicable Pricing Supplement, interest on each Amortizing Note will be
computed on the basis of a 360-day year of twelve 30-day months. Payments of
principal of and interest on Amortizing Notes will be made in equal installments
at such periodic intervals as are specified in the applicable Pricing Supplement
and at Maturity. Payments with respect to Amortizing Notes will be applied first
to interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. Further information concerning additional terms and
conditions of any issue of Amortizing Notes will be provided in the applicable
Pricing Supplement. A table setting forth repayment information in respect of
each Amortizing Note will be included in the applicable Pricing Supplement and
set forth in such Notes.
BOOK-ENTRY NOTES
The Notes may be issued in whole or in part in the form of one or more
fully-registered global Notes (each, a "Book-Entry Note") which will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository's nominee. Except as set forth below, a Book-Entry Note may not
be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any nominee to a successor of
the Depository or a nominee of such successor.
The Depository has advised the Corporation and the Agents that it is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the 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 Corporation understands that the Depository 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
Depository's participants include securities brokers and dealers (including the
Agents), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the Depository.
Access to the Depository'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.
Persons who are not participants may beneficially own securities held by the
Depository only through participants.
Upon the issuance of Notes by the Corporation represented by a Book-Entry
Note, the Depository will credit, on its book-entry registration and transfer
system, the respective principal amounts of the Notes represented by such
Book-Entry Note to the accounts of participants. The accounts to be credited
shall be designated by the Agents or by the Corporation, if such Notes are
offered and sold directly by the Corporation. Ownership of beneficial interests
in a Book-Entry Note will be limited to participants or persons that may hold
interests through participants. Ownership interests in a Book-Entry Note will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depository (with respect to beneficial interests of
participants), or by participants or persons that may hold interests through
participants (with respect to beneficial interests of other beneficial owners).
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in certificated form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Book-Entry
Note.
So long as the Depository for a Book-Entry Note, or its nominee, is the
Holder of a Book-Entry Note, the Depository or its nominee, as the case may be,
will be considered the sole owner or Holder of the Notes represented by such
Book-Entry Note for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in a Book-Entry Note will not be entitled to have
Notes represented by such Book-Entry Note registered in their names, will not
receive or be entitled to receive physical delivery of Notes in certificated
form, and will not be considered the owners or holders thereof under the
Indenture.
Principal, premium, if any, and interest payments on Notes issued in
book-entry form and represented by one or more Book-Entry Notes will be made by
the Corporation to the Depository or its nominee, as the case
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<PAGE> 15
may be, as the Holder of the related Book-Entry Note or Notes. None of the
Corporation, the Agents, nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of a Book-Entry Note, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. The Corporation expects that the Depository, upon receipt of any
payment of principal, premium, if any, or interest in respect of a Book-Entry
Note, will credit immediately the accounts of the related participants with
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interest in such Book-Entry Note as shown on the records of
the Depository. The Corporation also expects that payments by participants to
owners of beneficial interests in a Book-Entry Note will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name" and will be the responsibility of such participants.
If the Depository is at any time unwilling or unable to continue as
depository or ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, and a successor depository is not appointed by
the Corporation within 90 days after the Corporation receives notice or becomes
aware that the Depository is no longer so registered or, if an Event of Default
or an event which, with the lapse of time, the giving of notice or both, would
be an Event of Default, has occurred and is continuing, the Corporation will
issue Notes in certificated form in exchange for each Book-Entry Note. In
addition, the Corporation may at any time determine not to have Notes
represented by one or more Book-Entry Notes, and, in such event, will issue
Notes in certificated form in exchange for all the Book-Entry Notes representing
such Notes. In any such instance, an owner of a beneficial interest in
Book-Entry Notes will be entitled to physical delivery in certificated form of
Notes equal in principal amount to such beneficial interest and to have such
Notes registered in its name. Notes so issued in certificated form will be
issued in denominations of $1,000 and integral multiples thereof and will be
issued in registered form only, without coupons.
FOREIGN CURRENCY NOTES, MULTI-CURRENCY NOTES AND INDEXED NOTES
If any Note is not to be denominated in U.S. dollars, certain provisions
with respect thereto will be set forth in a foreign currency or indexed currency
supplement included in the applicable Pricing Supplement (a "Foreign Currency,
Multi-Currency and Indexed Note Pricing Supplement") which will specify the
currency or currencies, including composite currencies such as the European
Currency Unit, in which the principal, premium, if any, and interest with
respect to such Note are to be paid (the "Specified Currency"), along with any
other terms relating to the non-U.S. dollar denomination. Such additional
information contained in the applicable Foreign Currency, Multi-Currency and
Indexed Note Pricing Supplement shall constitute a part of this Prospectus
Supplement.
The Notes also may be issued with the principal amount payable at Maturity
to be determined with reference to the exchange rate of a Specified Currency
relative to an indexed currency (the "Indexed Currency") or other index, each as
set forth in the applicable Foreign Currency, Multi-Currency and Indexed Note
Pricing Supplement. Holders of such Notes may receive a principal amount at
Maturity that is greater than or less than the face amount of the Note depending
upon the relative value at Maturity of the Specified Currency compared to the
Indexed Currency or as otherwise set forth in the applicable Foreign Currency,
Multi-Currency or Indexed Note Pricing Supplement. Information as to the method
for determining the principal amount payable at Maturity and certain additional
risks and tax considerations associated with investment in such Notes will be
set forth in the applicable Foreign Currency, Multi-Currency and Indexed Note
Pricing Supplement.
UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of ownership of Notes is based upon the opinion of Sullivan &
Cromwell, counsel to the Corporation. It deals only with Notes held as capital
assets by initial purchasers, and not with special classes of holders, such as
dealers in securities or currencies, banks, tax-exempt organizations, life
insurance companies, persons that hold Notes that are a hedge or that are hedged
against currency risks or that are part of a straddle or conversion transaction,
persons
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that are not "United States Holders", as defined below, or persons whose
functional currency is not the U.S. dollar. Moreover, the summary deals only
with Notes that are due to mature 30 years or less from the date on which they
are issued. The United States federal income tax consequences of ownership of
Notes that are due to mature more than 30 years from their date of issue will be
discussed in an applicable Pricing Supplement.
The summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as currently in effect and all
subject to change at any time, perhaps with retroactive effect.
Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of ownership of Notes.
Payments of Interest
Interest on a Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars (a "Specified
Currency"), other than interest on a "Discount Note" that is not "qualified
stated interest" (each as defined below under "Original Issue
Discount -- General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United States Holder is a beneficial owner who
or that is (i) a citizen or resident of the United States, (ii) a domestic
corporation or (iii) otherwise subject to United States federal income taxation
on a net income basis in respect of a Note.
Interest paid by the Corporation on the Notes and original issue discount,
if any, accrued with respect to the Notes (as described below under "Original
Issue Discount") constitutes income from sources outside the United States, but,
with certain exceptions, will be "passive" or "financial services" income, which
is treated separately from other types of income for purposes of computing the
foreign tax credit allowable to a United States Holder.
If an interest payment is denominated in, or determined by reference to, a
Specified Currency, the amount of income recognized by a cash basis United
States Holder will be the U.S. dollar value of the interest payment, based on
the exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a Specified Currency in accordance with either of two methods.
Under the first method, the amount of income accrued will be based on the
average exchange rate in effect during the interest accrual period (or, with
respect to an accrual period that spans two taxable years, the part of the
period within the taxable year).
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all debt
instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
Upon receipt of the interest payment (including a payment attributable to
accrued but unpaid interest upon the sale or retirement of a Note) denominated
in, or determined by reference to, a Specified Currency, the United States
Holder will recognize ordinary income or loss measured by the difference between
(x) the average exchange rate used to accrue interest income, or the exchange
rate as determined under the second method described above if the United States
Holder elects that method and (y) the exchange rate in effect on the date of
receipt, regardless of whether the payment is in fact converted into U.S.
dollars.
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Original Issue Discount
General. A Note, other than a Note with a term of one year or less (a
"short-term Note"), will be treated as issued at an original issue discount (a
"Discount Note") if the excess of the Note's "stated redemption price at
maturity" over its issue price is more than a "de minimis amount" (as defined
below). Generally, the issue price of a Note will be the first price at which a
substantial amount of Notes included in the issue of which the Note is a part is
sold to other than bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers. The
stated redemption price at maturity of a Note is the total of all payments
provided by the Note that are not payments of "qualified stated interest". A
qualified stated interest payment is generally any one of a series of stated
interest payments on a Note that are unconditionally payable at least annually
at a single fixed rate (with certain exceptions for lower rates paid during some
periods) applied to the outstanding principal amount of the Note. Special rules
for "Variable Rate Notes" (as defined below under "Original Issue
Discount -- Variable Rate Notes") are described below under "Original Issue
Discount -- Variable Rate Notes".
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity (the "de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. Unless the
election described below under "Election to Treat All Interest as Original Issue
Discount" is made, a United States Holder of a Note with de minimis original
issue discount must include such de minimis original issue discount in income as
stated principal payments on the Note are made. The includible amount with
respect to each such payment will equal the product of the total amount of the
Note's de minimis original issue discount and a fraction, the numerator of which
is the amount of the principal payment made and the denominator of which is the
stated principal amount of the Note.
United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must, generally, include original issue discount
("OID") in income calculated on a constant-yield method before the receipt of
cash attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note. The amount of OID
includible in income by a United States Holder of a Discount Note is the sum of
the daily portions of OID with respect to the Discount Note for each day during
the taxable year or portion of the taxable year on which the United States
Holder holds such Discount 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. Accrual periods with respect to a Note may be
of any length selected by the United States Holder and may vary in length over
the term of the Note as long as (i) no accrual period is longer than one year
and (ii) each scheduled payment of interest or principal on the Note occurs on
either the final or first day of an accrual period. The amount of OID allocable
to an accrual period equals the excess of (a) the product of the Discount Note's
adjusted issue price at the beginning of the accrual period and such Note's
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 the payments of qualified stated interest on the Note allocable
to the accrual period. The "adjusted issue price" of a Discount Note at the
beginning of any accrual period is the issue price of the Note increased by (x)
the amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Note that were not qualified
stated interest payments. For purposes of determining the amount of OID
allocable to an accrual period, if an interval between payments of qualified
stated interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of OID allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods other than a
final short accrual period are of equal length. The amount of OID allocable to
the final accrual period is
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the difference between (x) the amount payable at the maturity of the Note (other
than any payment of qualified stated interest) and (y) the Note's adjusted issue
price as of the beginning of the final accrual period.
Acquisition Premium. A United States Holder that purchases a Note for an
amount less than or equal to the sum of all amounts payable on the Note after
the purchase date other than payments of qualified stated interest but in excess
of its adjusted issue price (any such excess being "acquisition premium") and
that does not make the election described below under "Election to Treat All
Interest as Original Issue Discount" is permitted to reduce the daily portions
of OID by a fraction, the numerator of which is the excess of the United States
Holder's adjusted basis in the Note immediately after its purchase over the
adjusted issue price of the Note, and the denominator of which is the excess of
the sum of all amounts payable on the Note after the purchase date, other than
payments of qualified stated interest, over the Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount for
which a United States Holder purchased the Note is less than the Note's issue
price (as determined above under "Original Issue Discount -- General") and (ii)
the Note's stated redemption price at maturity or, in the case of a Discount
Note, the Note's "revised issue price", exceeds the amount for which the United
States Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount". The Code provides that,
for these purposes, the "revised issue price" of a Note generally equals its
issue price, increased by the amount of any OID that has accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a United States
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply to all debt
instruments with market discount acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A United States Holder of a
Market Discount Note that does not elect to include market discount in income
currently generally will be required to defer deductions for interest on
borrowings allocable to such Note in an amount not exceeding the accrued market
discount on such Note until the maturity or disposition of such Note.
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-issuance
accrued interest, then the United States Holder may elect to decrease the issue
price of the Note by the amount of pre-issuance accrued interest. In that event,
a portion of the first stated interest payment will be treated as a return of
the excluded pre-issuance accrued interest and not as an amount payable on the
Note.
Notes Subject to Contingencies Including Optional Redemption. If a Note
provides for an alternative payment schedule or schedules applicable upon the
occurrence of a contingency or contingencies (other than a remote or incidental
contingency), whether such contingency relates to payments of interest or of
principal, if the timing and amount of the payments that comprise each payment
schedule are known as of the issue date and if one of such schedules is
significantly more likely than not to occur, the yield and maturity of the Note
are determined by assuming that the payments will be made according to that
payment schedule. If there is no single payment schedule that is significantly
more likely than not to occur (other than because of a mandatory sinking fund),
the Note will be subject to the general rules that govern contingent payment
obligations. These rules will be discussed in an applicable Pricing Supplement.
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Corporation or the holder has an
unconditional option or options that, if exercised, would
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require payments to be made on the Notes under an alternative payment schedule
or schedules, then (i) in the case of an option or options of the Corporation,
the Corporation will be deemed to exercise or not exercise an option or
combination of options in the manner that minimizes the yield on the Note and
(ii) in the case of an option or options of the holder, the holder will be
deemed to exercise or not exercise an option or combination of options in the
manner that maximizes the yield on the Note. For purposes of those calculations,
the yield on the Note is determined by using any date on which the Note may be
redeemed or repurchased as the maturity date and the amount payable on such date
in accordance with the terms of the Note as the principal amount payable at
maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the Note
is repaid as a result of a change in circumstances and solely for purposes of
the accrual of OID, the yield and maturity of the Note are redetermined by
treating the Note as having been retired and reissued on the date of the change
in circumstances for an amount equal to the Note's adjusted issue price on that
date.
Election to Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "Original
Issue Discount -- General", with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium (described below under
"Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing United States Holder, and no payments on the Note will be treated
as payments of qualified stated interest. This election will generally apply
only to the Note with respect to which it is made and may not be revoked without
the consent of the Service. If this election is made with respect to a Note with
amortizable bond premium, then the electing United States Holder will be deemed
to have elected to apply amortizable bond premium against interest with respect
to all debt instruments with amortizable bond premium (other than debt
instruments the interest on which is excludible from gross income) held by the
electing United States Holder as of the beginning of the taxable year in which
the Note with respect to which the election is made is acquired or thereafter
acquired. The deemed election with respect to amortizable bond premium may not
be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Market Discount Note, the electing United States
Holder will be treated as having made the election discussed above under
"Original Issue Discount -- Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity from the issue date and
(z) .015, or (2) 15 percent of the total noncontingent principal payments, and
(ii) provides for stated interest compounded or paid at least annually at (1)
one or more "qualified floating rates", (2) a single fixed rate and one or more
qualified floating rates, (3) a single "objective rate" or (4) a single fixed
rate and a single objective rate that is a "qualified inverse floating rate".
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which
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the Note is denominated or (ii) it is equal to the product of such a rate and
either (a) a fixed multiple that is greater than 0.65 but not more than 1.35, or
(b) a fixed multiple greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. If a Note provides for two or more qualified floating
rates that (i) are within 0.25 percentage points of each other on the issue date
or (ii) can reasonably be expected to have approximately the same values
throughout the term of the Note, the qualified floating rates together
constitute a single qualified floating rate. A rate is not a qualified floating
rate, however, if the rate is subject to certain restrictions (including caps,
floors, governors, or other similar restrictions) unless such restrictions are
fixed throughout the term of the Note or are not reasonably expected to
significantly affect the yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on objective
financial or economic information that is not within the control of or unique to
the circumstances of the issuer or a related party. A variable rate is not an
objective rate, however, if it is reasonably expected that the average value of
the rate during the first half of the Note's term will be either significantly
less than or significantly greater than the average value of the rate during the
final half of the Note's term. An objective rate is a "qualified inverse
floating rate" if (i) the rate is equal to a fixed rate minus a qualified
floating rate, and (ii) the variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds. If interest on a Note is stated at a fixed rate for an initial period of
one year or less followed by either a qualified floating rate or an objective
rate for a subsequent period and (i) the fixed rate and the qualified floating
rate or objective rate have values on the issue date of the Note that do not
differ by more than 0.25 percentage points or (ii) the value of the qualified
floating rate or objective rate is intended to approximate the fixed rate, the
fixed rate and the qualified floating rate or the objective rate constitute a
single qualified floating rate or objective rate. Under these rules, Certificate
of Deposit Rate Notes, Commercial Paper Rate Notes, CMT Rate Notes, Eleventh
District Cost of Funds Rate Notes, Federal Funds Rate Notes, LIBOR Notes, Prime
Rate Notes and Treasury Rate Notes will generally be treated as Variable Rate
Notes.
In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate, all stated interest on the
Note is qualified stated interest and the amount of OID, if any, is determined
by using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or qualified
inverse floating rate, or, in the case of any other objective rate, a fixed rate
that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or a single objective rate and also does not provide for
interest payable at a fixed rate (other than at a single fixed rate for an
initial period), the amount of interest and OID accruals on the Note are
generally determined by (i) determining a fixed rate substitute for each
variable rate provided under the Variable Rate Note (generally, the value of
each variable rate as of the issue date or, in the case of an objective rate
that is not a qualified inverse floating rate, a rate that reflects the
reasonably expected yield on the Note), (ii) constructing the equivalent fixed
rate debt instrument (using the fixed rate substitutes described above), (iii)
determining the amount of qualified stated interest and OID with respect to the
equivalent fixed rate debt instrument, and (iv) making the appropriate
adjustments for actual variable rates during the applicable accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the Variable
Rate Note as of the issue date would be approximately the same as the fair
market value of an otherwise identical debt instrument that provides for the
qualified floating rate (or qualified inverse floating rate) rather than the
fixed rate.
Indexed Notes and Amortizing Notes. The applicable Pricing Supplement will
contain a discussion of any special United States federal income tax rules with
respect to Notes that are not subject to the rules
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governing Variable Rate Notes payments on which are determined by reference to
any index and other Notes that are subject to the general rules governing
contingent payment obligations and with respect to any Notes providing for the
periodic payment of principal over the life of the Note.
Short-Term Notes. In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis United
States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Notes as part of certain identified hedging
transactions, certain pass-thru entities and cash basis United States Holders
who so elect, are required to accrue OID on short-term Notes on either a
straight-line basis or under the constant-yield method (based on daily
compounding), at the election of the United States Holder. In the case of a
United States Holder not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of the short-term Note
will be ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States Holders who are
not required and do not elect to accrue OID on short-term Notes will be required
to defer deductions for interest on borrowings allocable to short-term Notes in
an amount not exceeding the deferred income until the deferred income is
realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest and any
additional amounts paid with respect to withholding tax on the Notes (including
withholding tax on payments of such additional amounts), are included in the
short-term Note's stated redemption price at maturity.
Specified Currency Discount Notes. OID for any accrual period on a
Discount Note that is denominated in, or determined by reference to, a Specified
Currency will be determined in the Specified Currency and then translated into
U.S. dollars in the same manner as stated interest accrued by an accrual basis
United States Holder, as described under "Payments of Interest". Upon receipt of
an amount attributable to OID (whether in connection with a payment of interest
or the sale or retirement of a Note), a United States Holder may recognize
ordinary income or loss.
Notes Purchased at a Premium
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium",
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. In the case of a Note that is denominated in, or
determined by reference to, a Specified Currency, amortizable bond premium will
be computed in units of Specified Currency, and amortizable bond premium will
reduce interest income in units of the Specified Currency. At the time amortized
bond premium offsets interest income, exchange gain or loss (taxable as ordinary
income or loss) is realized measured by the difference between exchange rates at
that time and at the time of the acquisition of the Notes. Any election to
amortize bond premium shall apply to all bonds (other than bonds the interest on
which is excludible from gross income) held by the United States Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States Holder, and is irrevocable without the consent of
the Service. See also "Original Issue Discount -- Election to Treat All Interest
as Original Issue Discount".
Purchase, Sale and Retirement of the Notes
A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost (as defined below), increased by the amount of any OID or market
discount included in the United States Holder's income with respect to the Note
and the amount, if any, of income attributable to de minimis original issue
discount and de minimis market discount included in the United States Holder's
income with respect to the Note, and reduced by (i) the amount of any payments
that are not qualified stated interest payments, and (ii) the amount of any
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amortizable bond premium applied to reduce interest on the Note. The U.S. dollar
cost of a Note purchased with a Specified Currency will generally be the U.S.
dollar value of the purchase price on the date of purchase or, in the case of
Notes traded on an established securities market, as defined in the applicable
Treasury Regulations, that are purchased by a cash basis United States Holder
(or an accrual basis United States Holder that so elects), on the settlement
date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in Specified Currency will be the U.S. dollar value
of such amount on (i) the date payment is received in the case of a cash basis
United States Holder, (ii) the date of disposition in the case of an accrual
basis United States Holder or (iii) in the case of Notes traded on an
established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an accrual basis
United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue
Discount -- Short-Term Notes" or "Original Issue Discount -- Market Discount",
described in the next succeeding paragraph, attributable to accrued but unpaid
interest or subject to the general rules governing contingent payment
obligations, gain or loss recognized on the sale or retirement of a Note will be
capital gain or loss and will be long-term capital gain or loss if the Note was
held for more than one year.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
Exchange of Amounts in Other Than U.S. Dollars
Specified Currency received as interest on a Note or on the sale or
retirement of a Note will have a tax basis equal to its U.S. dollar value at the
time such interest is received or at the time of such sale or retirement.
Specified Currency that is purchased will generally have a tax basis equal to
the U.S. dollar value of the Specified Currency on the date of purchase. Any
gain or loss recognized on a sale or other disposition of a Specified Currency
(including its use to purchase Notes or upon exchange for U.S. dollars) will be
ordinary income or loss.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of OID on a
Discount Note with respect to, non-corporate United States Holders, and "backup
withholding" at a rate of 31% will apply to such payments and to payments of OID
if the United States Holder fails to provide an accurate taxpayer identification
number or to report all interest and dividends required to be shown on its
federal income tax returns.
CERTAIN PUERTO RICO TAX CONSIDERATIONS
The following summary of certain Puerto Rico tax aspects of the acquisition
of the Notes reflects the opinion of McConnell Valdes, counsel to the
Corporation. The income tax portion of this discussion is based upon the Puerto
Rico Internal Revenue Code of 1994, as amended (the "PRIRC"). The PRIRC, which
was enacted on October 31, 1994, is substantially a reenactment of the Puerto
Rico Income Tax Act of 1954 (the "ITA"), with various additions and deletions.
The discussion of the tax treatment under the PRIRC will be based also on
provisions of the regulations issued under the ITA (the "ITA Regulations"),
which generally will remain in effect until regulations are issued under the
PRIRC. At this time, regulations have not been issued under the relevant
sections of the PRIRC.
The discussion below is also based on the Puerto Rico Municipal Property
Tax Act of 1991, as amended (the "MPTA"), the Municipal License Tax Act, as
amended (the "MLTA") and the regulations thereunder (the "MLTA Regulations").
The discussion concerning Puerto Rico estate and gift taxes is based on the
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<PAGE> 23
PRIRC. The discussion below is also based on judicial or administrative
interpretations of the ITA, the MPTA, the MLTA and the PRIRC. Investors should
be aware that the PRIRC, the ITA Regulations, the MPTA, the MLTA, the MLTA
Regulations and the PRIRC, as well as any interpretations thereof, are subject
to change, and that any change could be applied retroactively and affect the
discussion below.
This discussion is limited to certain Puerto Rico tax considerations
applicable to the following classes of prospective investors: individuals who
are bona fide residents of Puerto Rico, individuals who are not residents of
Puerto Rico, and corporations and partnerships (other than "special
partnerships" under Subchapter K of Chapter 3 of Subtitle A of the PRIRC and
other than "corporations of individuals" under Subchapter N of Chapter 3 of
Subtitle A of the PRIRC). It deals only with Notes held as capital assets by
initial purchasers; but not with special classes of holders such as dealers in
securities or currencies, banks or other financial businesses, registered
investment companies, life insurance companies and tax exempt organizations.
This discussion does not purport to cover all aspects of Puerto Rico taxation
that may be relevant to particular investors in light of their personal
investment circumstances or to certain types of investors subject to special
treatment under the PRIRC. EACH INVESTOR IS STRONGLY URGED TO CONSULT HIS OWN
TAX ADVISOR AS TO ANY PUERTO RICO TAX CONSIDERATIONS AFFECTING THE PURCHASE,
HOLDING AND DISPOSITION OF THE NOTES.
INCOME TAX
The following discussion regarding the Puerto Rico income taxation of an
investment in the Notes assumes that interest thereon (including original issue
discount) constitutes income from sources within Puerto Rico. Interest
(including original issue discount) on indebtedness of a corporation organized
under the laws of Puerto Rico, such as the Corporation, is considered to be from
Puerto Rico sources unless such corporation derives less than 20% of its gross
income from Puerto Rico sources during the three taxable years preceding the
year in which the interest is paid (or such part of such period as the
corporation has been in existence). In every year of its existence, the
Corporation has derived more than 20% of its gross income from Puerto Rico
sources, and it is, therefore, assumed that interest (including original issue
discount) on the Notes constitutes income from sources within Puerto Rico.
PUERTO RICO HOLDERS
Interest and Original Issue Discount on the Notes
Interest (including original issue discount) on a Note will be taxable to a
Puerto Rico Holder (as defined below) as ordinary income at the time it is
received or accrued, depending on the holder's method of accounting for tax
purposes. A "Puerto Rico Holder" is a beneficial owner who or that is (i) an
individual resident of Puerto Rico, (ii) a Puerto Rico corporation or
partnership, (iii) a non-resident alien engaged in trade or business in Puerto
Rico or (iv) a non-Puerto Rico corporation or partnership engaged in trade or
business in Puerto Rico.
Notes Purchased at a Premium
Any holder (other than an individual) that purchases a Note for an amount
in excess of its principal amount may elect to treat such excess as "amortizable
bond premium", in which case any amount required to be included in such holder's
income for Puerto Rico income tax purposes each year with respect to interest on
the Note will be reduced by the amount of amortizable bond premium allocable to
such year. Any election to amortize bond premium shall apply to all bonds (other
than bonds the interest on which is excluded from gross income) held by such
holder at the beginning of the first taxable year to which the election applies
or thereafter acquired, and is irrevocable without the consent of the Secretary
of the Treasury of Puerto Rico.
Sale or Retirement of Notes
A Puerto Rico Holder's tax basis in a Note will generally be its cost,
increased by any original issue discount recognized as income, and reduced by
the amount of any amortizable bond premium claimed as a deduction. A Puerto Rico
Holder, other than non-Puerto Rico corporations or partnerships and non-resident
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<PAGE> 24
aliens engaged in trade or business in Puerto Rico, will generally recognize
gain or loss on the sale or retirement of a Note equal to the difference between
the amount realized on such sale or retirement and the tax basis of the Note. In
the case of non-Puerto Rico corporations or partnerships and non-resident aliens
engaged in trade or business in Puerto Rico, any gain realized on the sale or
retirement of a Note will be subject to Puerto Rico tax only if it constitutes
income from sources within Puerto Rico or is treated as effectively connected
with the active conduct of a banking, financial or other similar business of the
holder in Puerto Rico. In general, gain from the sale or retirement of a Note
will be regarded as income from sources within Puerto Rico if the sale or
retirement of the Note occurs in Puerto Rico, i.e., if all right, title and
interest in the Note passes from the seller to the purchaser in Puerto Rico.
Retirement of the Notes in New York at the office of the Paying Agent and sale
of the Notes effected through transfer of beneficial ownership on the
Depository's records or the records of a U.S.-based participant thereof pursuant
to instructions given outside Puerto Rico would not be considered to have
occurred in Puerto Rico.
Any gain subject to tax in Puerto Rico on the sale or retirement of a Note
(other than a Note held by a holder primarily for sale to customers in the
ordinary course of his trade or business) will be a capital gain and will be
long-term capital gain if the holder held the Note for more than six months
prior to the sale or retirement. If the holder is a Puerto Rico resident
individual or a non-resident alien engaged in trade or business in Puerto Rico,
and the gain is a long-term capital gain, it will be taxable at a maximum rate
of 20%. If the holder is a Puerto Rico corporation or partnership, or a
non-Puerto Rico corporation or partnership engaged in trade or business in
Puerto Rico, and the gain is a long-term capital gain, it will be taxable at a
maximum rate of 25%.
NON-RESIDENT UNITED STATES CITIZENS
Interest and Original Issue Discount on the Notes
Interest (including original issue discount) on a Note held by a United
States citizen who is not a resident of Puerto Rico will be exempt from
withholding or other Puerto Rico taxes.
Sale or Retirement of Notes
The tax basis of a Note for Puerto Rico income tax purposes will generally
be its cost, increased by any original issue discount. A holder will realize
gain or loss on a sale or retirement of a Note equal to the difference between
the amount realized on such sale or retirement and the tax basis of the Note.
Any gain realized by a United States citizen not residing in Puerto Rico on
a sale or retirement of a Note will be subject to tax in Puerto Rico only if
such gain constitutes income from sources within Puerto Rico. In that event the
gain will be includable in an annual Puerto Rico income tax return due from such
holder. If the gain constitutes a long-term capital gain, it will be taxable at
a maximum rate of 20%. For a discussion of when such a gain would be regarded as
income from sources within Puerto Rico and when it would be considered a
long-term capital gain, see under "Income Tax -- Puerto Rico Holders -- Sale or
Retirement of Notes".
NON-PUERTO RICO HOLDERS
For purposes of this discussion, a "Non-Puerto Rico Holder" is any holder
who or that is (i) a nonresident individual who is not a United States citizen
and is not engaged in trade or business in Puerto Rico, or (ii) a non-Puerto
Rico corporation or partnership not engaged in trade or business in Puerto Rico.
Interest and Original Issue Discount on the Notes
Interest (including original issue discount) on the Notes received or
accrued by Non-Puerto Rico Holders will be exempt from any Puerto Rico
withholding or other income taxes, except in the case of any holder of a Note
that may be regarded as a "related person" with respect to the Corporation. For
this purpose, a "related person" generally will be one that directly or
indirectly owns 50% or more in value of the stock of the Corporation.
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<PAGE> 25
Sale or Retirements of Notes
The tax basis of a Note for Puerto Rico income tax purposes will generally
be the cost, increased by any original issue discount. A holder will realize
gain or loss on a sale or retirement of a Note equal to the difference between
the amount realized on such sale or retirement and the tax basis of the Note.
Any gain realized by a Non-Puerto Rico Holder on a sale or retirement of a
Note (other than Notes held primarily for sale to customers in the ordinary
course of the holder's trade or business) will be subject to a Puerto Rico tax
of 29%, but only if such gain constitutes income from sources within Puerto
Rico. For a discussion of when such a gain would be considered as income from
sources within Puerto Rico, see discussion under "Income Tax -- Puerto Rico
Holders -- Sale or Retirement of Notes".
PROPERTY TAX
The Notes will generally be exempt from the payment of Puerto Rico property
taxes pursuant to Article 3.11 of the MPTA.
MUNICIPAL LICENSE TAX
INDIVIDUALS
Interest (including original issue discount) on a Note held by an
individual is exempt from Puerto Rico municipal license taxes pursuant to
Section 2(a)(7)(A) of the MLTA.
CORPORATIONS AND PARTNERSHIPS
Puerto Rico corporations and partnerships and non Puerto Rico corporations and
partnerships engaged in trade or business in Puerto Rico
Interest (including original issue discount) on Notes held by a corporation
or partnership that is either organized under the laws of Puerto Rico or that is
engaged in trade or business in Puerto Rico will be subject to Puerto Rico
municipal license taxes in the municipality where an office or other commercial
establishment of such corporation or partnership is located, if such interest is
attributable to the operation conducted therein. In those cases, if the
corporation or partnership is engaged in a business other than a financial
business the interest will be subject to municipal license tax at a rate
determined by the municipality where the office or other commercial
establishment to which the income is attributable is located, which rate cannot
exceed one-half of one percent (.50%). If the corporation or partnership is
engaged in a financial business, the interest will be subject to the Puerto Rico
municipal license tax at a rate determined by said municipality, which rate
cannot exceed one-and-one-half percent (1.5%). As provided in Section 2(a)(6) of
the MLTA, the term "financial business" includes commercial banks, savings and
loan associations, mutual or savings banks, financing companies, insurance
companies, investment companies, brokerage houses, collection agencies and any
other type of activity of a similar nature carried out by any industry or
business.
Non-Puerto Rico corporations and partnerships not engaged in trade or business
in Puerto Rico
Interest (including original issue discount) on a Note may be subject to
municipal license taxes only if the recipient operates an office or other
establishment located in a municipality in Puerto Rico. Thus, interest on a Note
held by a Non-Puerto Rico corporation or partnership not engaged in trade or
business in Puerto Rico will not be subject to municipal license taxes.
ESTATE AND GIFT TAX
The transfer by gift or death of the Notes by a United States citizen who
acquired his citizenship by reason of birth or residence in Puerto Rico, and who
is a resident of Puerto Rico at the time of the gift or death, is exempt from
Puerto Rico estate and gift taxes.
S-25
<PAGE> 26
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the
Corporation to or through the Agents. The Agents, individually or in a
syndicate, may purchase Notes, as principal, from the Corporation for resale to
investors and other purchasers at varying prices relating to prevailing market
prices at the time of resale as determined by the applicable Agent(s) or, if so
specified in the applicable Pricing Supplement, for resale at a fixed offering
price. If agreed to by the Corporation and an Agent, such Agent may also utilize
its reasonable efforts on an agency basis to solicit offers to purchase the
Notes at 100% of the principal amount thereof, unless otherwise specified in the
applicable Pricing Supplement. The Corporation will pay a commission to an
Agent, ranging from .125% to .750% of the principal amount of each Note,
depending upon its stated maturity, sold through such Agent. Commissions payable
by the Corporation to the Agents with respect to Notes with stated maturities in
excess of 30 years that are sold through an Agent will be negotiated at the time
of such issuance. The Corporation may also sell Notes directly to investors on
its own behalf in those jurisdictions where it is authorized to do so.
In addition, the Agents may offer the Notes they have purchased as
principal to other dealers. The Agents may sell Notes to any dealer at a
discount and, unless otherwise specified in the applicable Pricing Supplement,
such discount allowed to any dealer will not be in excess of the discount to be
received by such Agent from the Corporation. Unless otherwise indicated in the
applicable Pricing Supplement, any Note sold to an Agent as principal will be
purchased by such Agent at a price equal to 100% of the principal amount thereof
less a percentage equal to the commission applicable to any agency sale of a
Note of identical maturity, and may be resold by the Agent to investors and
other purchasers as described above. After the initial public offering of Notes
to be resold to investors and other purchasers, the public offering price (in
the case of a fixed price public offering), concession and discount may be
changed.
The Corporation has reserved the right to accept offers to purchase Notes
through additional distributors on substantially the same terms and conditions
(including commission rates) as would apply to purchases of Notes by the Agents.
In addition, the Corporation has reserved the right to appoint additional agents
for the purpose of soliciting offers to purchase Notes. Such additional
distributors or agents, as the case may be, will be named in the applicable
Pricing Supplement.
The Corporation reserves the right to withdraw, cancel or modify the offer
made hereby without notice and may reject orders in whole or in part whether
placed directly with the Corporation or through an Agent. Each Agent will have
the right, in its discretion reasonably exercised, to reject any offer to
purchase Notes received by it in whole or in part.
Unless otherwise provided in a Foreign Currency, Multi-Currency and Indexed
Note Prospectus Supplement, payment of the purchase price of the Notes will be
required to be made in immediately available funds in The City of New York on
the date of settlement.
The Corporation has agreed to indemnify the Agents against and to make
contributions relating to certain civil liabilities, including liabilities under
the Securities Act of 1933. The Agents may be deemed to be "underwriters" within
the meaning of such Act. The Corporation has also agreed to reimburse the Agents
for certain expenses.
The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. No assurance can be given as
to the existence or liquidity of the secondary market for the Notes.
In connection with an offering of Notes purchased by one or more Agents as
principal on a fixed price basis, such Agent(s) will be permitted to engage in
certain transactions that stabilize the price of such Notes. Such transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of such Notes. If an Agent creates a short position in
such Notes, i.e., if it sells Notes in an aggregate principal amount exceeding
that set forth in the applicable Pricing Supplement, such Agent may reduce that
short position by purchasing Notes in the open market. In general, purchases of
Notes for the purpose of stabilization or to reduce a short position could cause
the price of Notes to be higher than it might be in the absence of such
purchases.
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<PAGE> 27
Neither the Corporation nor any of the Agents makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Corporation nor any of the Agents makes any representation that the Agents will
engage in any such transactions or that such transactions, once commenced, will
not be discontinued without notice.
VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for the Corporation by
Sullivan & Cromwell, New York, New York, and for the Agents by Brown & Wood LLP,
New York, New York. The validity of the Notes will be passed upon as to matters
of Puerto Rico law for the Corporation by Brunilda Santos de Alvarez, counsel to
the Corporation. Sullivan & Cromwell and Brown & Wood LLP will rely as to all
matters of the laws of the Commonwealth of Puerto Rico upon the opinion of
Brunilda Santos de Alvarez, Esq., counsel to the Corporation. The opinions of
Sullivan & Cromwell, Brunilda Santos de Alvarez, Esq., and Brown & Wood LLP will
be conditioned upon, and subject to certain assumptions regarding future action
required to be taken by the Corporation and the Trustee in connection with the
issuance and sale of any particular Note, the specific terms of Notes and other
matters which may affect the validity of the Notes but which cannot be
ascertained on the date of such opinions.
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<PAGE> 28
PROSPECTUS
DEBT SECURITIES
OF
POPULAR, INC.
OR
POPULAR INTERNATIONAL BANK, INC.
(UNCONDITIONALLY GUARANTEED
BY POPULAR, INC.)
OR
POPULAR NORTH AMERICA, INC.
(UNCONDITIONALLY GUARANTEED
BY POPULAR, INC.)
PREFERRED STOCK
OF
POPULAR, INC.
OR
POPULAR INTERNATIONAL BANK, INC.
(UNCONDITIONALLY GUARANTEED
BY POPULAR, INC.)
OR
POPULAR NORTH AMERICA, INC.
(UNCONDITIONALLY GUARANTEED
BY POPULAR, INC.)
---------------------
Popular, Inc. (formerly BanPonce Corporation) (the "Corporation") intends to
issue from time to time in one or more series its (i) unsecured debt securities,
which may be either senior or subordinated, and (ii) shares of preferred stock.
Popular International Bank, Inc. ("PIB") intends to issue from time to time in
one or more series its (i) unsecured debt securities, which may be either senior
or subordinated, and (ii) shares of preferred stock. Popular North America, Inc.
(formerly BanPonce Financial Corp.) ("PNA") intends to issue from time to time
in one or more series its (i) unsecured debt securities, which may be either
senior or subordinated, and (ii) shares of preferred stock. Unsecured debt
securities issued by PIB or PNA will be fully and unconditionally guaranteed as
to the payment of principal, premium, if any, and interest by the Corporation.
Shares of preferred stock issued by PIB or PNA will be fully and unconditionally
guaranteed as to the payment of dividends, redemption price, if any, and
liquidation preference, if any, by the Corporation. The foregoing debt
securities and shares of preferred stock are collectively referred to herein as
the "Securities." The Corporation's guarantees of debt securities or preferred
stock issued by PIB or PNA are collectively referred to herein as the
"Guarantees." The Securities will be limited to an aggregate initial offering
price not to exceed $1,000,000,000 or, in the case of debt securities, the
equivalent thereof in one or more foreign currencies, including composite
currencies. The Securities offered may be offered, separately or together, in
separate series, in amounts, at prices and on terms to be determined at the time
of sale and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
The subordinated debt securities when issued will be subordinated as
described herein under "Description of Debt Securities and Guarantees." Unless
otherwise indicated in the Prospectus Supplement, payment of the principal of
the subordinated debt securities may be accelerated only in the case of certain
events involving the bankruptcy, insolvency or reorganization of the
Corporation, PIB or PNA, as the case may be. There is no right of acceleration
of payment of subordinated debt securities in the case of a default in the
performance of any covenant of the Corporation, PIB or PNA, including the
payment of principal or interest.
The specific terms of the Securities in respect of which this Prospectus is
being delivered, including (i) in the case of debt securities, the issuer, the
specific designation, aggregate principal amount, denominations, maturity,
premium, if any, rate (which may be fixed or variable) and time of payment of
interest, if any, terms for redemption at the option of the Corporation, PIB,
PNA or the holder, if any, currency or currencies of denomination and payment,
if other than U.S. dollars, the terms, if any, for conversion into other debt
securities or preferred stock and any other terms in connection with the
offering and sale of the debt securities in respect of which this Prospectus is
being delivered, as well as the initial public offering price, and the principal
amounts, if any, to be purchased by underwriters and (ii) in the case of
preferred stock, the issuer, the specific title and stated value, number of
shares or fractional interests therein, any dividend, liquidation, redemption,
voting and other rights, the terms, if any, for conversion into other preferred
stock, the securities exchanges, if any, on which the preferred stock is to be
listed, the initial public offering price, and the number of shares, if any, to
be purchased by the underwriters, will be as set forth in the accompanying
Prospectus Supplement. All or a portion of the debt securities may be issued in
permanent global form.
The Securities may be sold to underwriters for public offering pursuant to
terms of offering fixed at the time of sale. In addition, the Securities may be
sold by the Corporation, PIB or PNA directly or through dealers or agents
designated from time to time, which agents may be affiliates of the Corporation.
The Prospectus Supplement will also set forth with respect to the sale of the
Securities in respect of which this Prospectus is being delivered the names of
the underwriters, dealers or agents, if any, together with the terms of
offering, the compensation of such underwriters and the net proceeds to the
Corporation.
---------------------
THE SECURITIES WILL BE UNSECURED OBLIGATIONS OF THE CORPORATION, PIB OR PNA,
AS THE CASE MAY BE, AND WILL NOT BE SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SECURITIES OFFICE OF THE OFFICE OF THE COMMISSIONER OF
FINANCIAL INSTITUTIONS OF THE COMMONWEALTH OF PUERTO RICO OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, SUCH
SECURITIES OFFICE OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
The date of this Prospectus is May 22, 1997
<PAGE> 29
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Corporation can be inspected and
copied at the Commission's public reference room located at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and the regional offices of the
Commission in New York (7 World Trade Center, New York, New York 10048) and
Chicago (Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661).
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov. This Prospectus
does not contain all of the information set forth in the Registration Statement
on Form S-3 which the Corporation has filed with the Commission under the
Securities Act of 1933 (the "Act"), to which reference is hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Corporation hereby incorporates by reference into this Prospectus the
following documents filed by the Corporation with the Commission:
1. The Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996, provided, however, that the information referred to in
Item 402(a)(8) of Regulation S-K promulgated by the Commission shall not be
deemed to be specifically incorporated by reference herein.
2. The Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
3. The Corporation's Current Reports on Form 8-K, dated January 9,
1997, February 19, 1997, April 7, 1997, May 7, 1997 and May 8, 1997.
4. The Corporation's Registration Statement on Form 8-A, dated August
18, 1988, filed pursuant to Section 12(g) of the Exchange Act, pursuant to
which the Corporation registered its Series A Participating Cumulative
Preferred Stock Purchase Rights.
5. The Corporation's Registration Statement on Form 8-A, dated June
17, 1994, as amended by the Corporation's Amendment on Form 8-A/A, dated
June 21, 1994, filed pursuant to Section 12(g) of the Exchange Act,
pursuant to which the Corporation registered its 8.35% Non-Cumulative
Monthly Income Preferred Stock, 1994 Series A.
All documents filed by the Corporation subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities and
the Guarantees pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
shall be deemed to be incorporated by reference into this Prospectus and to be a
part thereof 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
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.
Any person receiving a copy of this Prospectus, including any beneficial
owner, may obtain without charge, upon oral or written request, a copy of any of
the documents incorporated by reference herein, except for the exhibits to such
documents. Written requests should be mailed to Amilcar Jordan, Senior Vice
President, Popular, Inc., P.O. Box 362708, San Juan, Puerto Rico 00936-2708.
Telephone requests may be directed to (787) 765-9800.
2
<PAGE> 30
RECENT DEVELOPMENTS
On December 30, 1996, the Corporation announced an agreement for the
acquisition of Roig Commercial Bank ("Roig Commercial"). Roig Commercial
operates twenty-five branches, mainly located in the eastern part of Puerto
Rico, with assets of approximately $900 million and deposits of $650 million.
Applications for prior approval have been filed with the Federal Reserve and
local banking authorities, and the transaction is subject to their approval.
On January 24, 1997, the Corporation signed a definitive agreement to
acquire CBC Bancorp, Ltd. ("CBC"), the parent company of Capital Bank & Trust
and Capitol Bank of Westmont, through an indirect wholly owned subsidiary of the
Corporation pursuant to an Agreement and Plan of Merger by and among the
Corporation, CBC Interim, Inc. and CBC. CBC, with assets of $315 million and
deposits of $280 million at June 30, 1996, operates three branches in Chicago
and Westmont, Illinois through its banking subsidiaries. The Federal Reserve
approved the application for the acquisition of CBC on April 25, 1997. The
acquisition is subject to the Corporation's receipt of all other required
regulatory approvals.
At the annual meeting of stockholders on April 25, 1997, the Corporation's
shareholders approved amendments to the Corporation's Restated Articles of
Incorporation to change the name of the Corporation to Popular, Inc. from
BanPonce Corporation, and to increase the total number of authorized shares of
capital stock to 190,000,000. The authorized capital stock of the Corporation
consists of 180,000,000 shares of Common Stock, par value of $6.00 per share,
and 10,000,000 shares of Preferred Stock without par value.
On April 30, 1997, Popular North America, Inc. acquired all of the shares
of Seminole National Bank, a national bank headquartered in Florida with assets
at March 31, 1997 of approximately $28 million. The bank will operate under the
name Banco Popular, N.A. (Florida).
On May 8, 1997, the Corporation announced that its Board of Directors had
authorized the repurchase of up to 3,000,000 shares of outstanding common stock
to offset the issuance of shares in connection with recent proposed
acquisitions.
POPULAR, INC.
The Corporation is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and incorporated in 1984 under
the laws of the Commonwealth of Puerto Rico ("Puerto Rico"). The Corporation is
the largest financial institution in Puerto Rico, with consolidated assets of
$17.4 billion, total deposits of $10.5 billion and stockholders' equity of $1.3
billion at March 31, 1997. Based on total assets at December 31, 1996, the
Corporation was the 42nd largest bank holding company in the United States. At
the Corporation's annual meeting of shareholders held on April 25, 1997, the
Corporation's shareholders approved a proposal made by the Board of Directors to
change the name of BanPonce Corporation to Popular, Inc. The Corporation's
principal executive offices are located at 209 Munoz Rivera Avenue, Hato Rey,
Puerto Rico 00918 and its telephone number is (787) 765-9800.
The Corporation's principal subsidiary, Banco Popular de Puerto Rico
("Banco Popular" or the "Bank"), was incorporated over 100 years ago in 1893 and
is Puerto Rico's largest bank with total assets of $14.8 billion, deposits of
$9.9 billion and stockholders' equity of $1.1 billion at March 31, 1997. The
Bank accounted for 85% of the total consolidated assets of the Corporation at
March 31, 1997. A consumer-oriented bank, Banco Popular has the largest retail
franchise in Puerto Rico, operating 179 branches and 330 automated teller
machines. The Bank also has the largest trust operation in Puerto Rico and is
the largest servicer of mortgage loans for investors. In addition, it operates
the largest Hispanic bank branch network in the mainland United States with 29
branches in New York and an agency in Chicago. As of March 31, 1997, these
branches had a total of approximately $1.5 billion in deposits. The Bank also
operates seven branches in the U.S. Virgin Islands and one branch in the British
Virgin Islands. Banco Popular has three subsidiaries, Popular Leasing & Rental
Inc., Puerto Rico's largest vehicle leasing and daily rental company, Popular
Finance Inc. (formerly Popular Consumer Services, Inc.), a small-loan and
secondary mortgage company with 35 offices in Puerto Rico operating under the
name of Best Finance and Popular Mortgage, Inc., a mortgage loan company with
four offices in Puerto Rico operating under the name of Popular Mortgage
(formerly Puerto Rico Home Mortgage).
The Corporation has two other principal subsidiaries: Popular Securities,
Inc. (formerly BP Capital Markets) and PIB, which in turn owns all of the
outstanding stock of PNA. For additional information regarding PNA or PIB, see
"Popular North America, Inc." and "Popular International Bank Inc.",
respectively. Popular Securities, Inc. is a direct subsidiary of Popular, Inc.
and engages in the business of a
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<PAGE> 31
securities broker-dealer in Puerto Rico, with institutional brokerage, financial
advisory, and investment and security brokerage operations.
POPULAR INTERNATIONAL BANK INC.
Popular International Bank, Inc. ("PIB") is a wholly owned subsidiary of
the Corporation organized in 1992 under the laws of the Commonwealth of Puerto
Rico and operating as an "international banking entity" under the International
Banking Center Regulatory Act of Puerto Rico (the "IBC Act"). PIB owns all of
the outstanding capital stock of PNA. Summary consolidated financial statements
of PIB are included in the notes to the Corporation's consolidated financial
statements.
POPULAR NORTH AMERICA, INC.
Popular North America, Inc. ("PNA") (formerly BanPonce Financial Corp.), a
wholly owned subsidiary of PIB and an indirect, wholly owned subsidiary of the
Corporation, was organized in 1991 under the laws of the State of Delaware.
PNA owns all of the common stock of Pioneer Bancorp, Inc., a corporation
organized under the laws of the State of Delaware and headquartered in Chicago,
Illinois, and a registered bank holding company under the BHC Act, which,
through its wholly owned subsidiary River Associates Bancorp, Inc., a Delaware
corporation, owns Banco Popular, Illinois (formerly Pioneer Bank & Trust
Company), a bank organized under the laws of the State of Illinois with five
branches in that state. The deposits of Banco Popular, Illinois are insured by
the Federal Deposit Insurance Corporation (the "FDIC"). As of March 31, 1997,
the assets of Banco Popular, Illinois were $465.2 million and its deposits were
$371.8 million.
PNA owns all of the common stock of COMBANCORP, a corporation organized
under the laws of California and headquartered in Los Angeles, and a registered
bank holding company under the BHC Act. COMBANCORP owns Banco Popular, N.A.
(California) ("Banco Popular (California)"), a national bank with four branches
in California. The deposits of Banco Popular (California) are also insured by
the FDIC and it is subject to the supervision of the Office of the Comptroller
of the Currency. See "Certain Regulatory Matters". As of March 31, 1997, it had
assets of $136.4 million and deposits of $93.6 million.
As a result of the ownership of Banco Popular, Illinois and Banco Popular
(California), PNA and PIB are registered bank holding companies under the BHC
Act.
PNA is also the direct owner of all the common stock of Banco Popular, FSB,
a federal savings bank which acquired from the Resolution Trust Corporation
certain assets and all of the deposits of four New Jersey branches of the former
Carteret Federal Savings Bank, a federal savings bank under Resolution Trust
Corporation (the "RTC") conservatorship. The deposits of Banco Popular, FSB are
insured by the FDIC and it is subject to the supervision of the Office of Thrift
Supervision. See "Certain Regulatory Matters".
Banco Popular, FSB owns Equity One, a Delaware corporation (formerly Spring
Financial Services, Inc.) ("Equity One"). Equity One is a diversified consumer
finance company engaged in the business of making personal and mortgage loans
and providing dealer financing through 104 offices in 29 states with total
assets of $1.1 billion as of March 31, 1997. Equity One had initially been
acquired by PNA on September 30, 1991, prior to which time PNA had no
significant business operations.
Summary consolidated financial statements of PNA are included in the notes
to the Corporation's consolidated financial statements.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
OF THE CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
QUARTER ENDED --------------------------------
MARCH 31, 1997 1996 1995 1994 1993 1992
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding Interest on Deposits.......................... 2.0 2.0 2.0 2.6 3.0 2.9
Including Interest on Deposits.......................... 1.4 1.4 1.4 1.5 1.5 1.3
Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends:
Excluding Interest on Deposits.......................... 1.9 2.0 2.0 2.5 3.0 2.9
Including Interest on Deposits.......................... 1.4 1.4 1.4 1.5 1.5 1.3
</TABLE>
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For purposes of computing these consolidated ratios, earnings represent
income before income taxes, cumulative effect of a change in accounting
principles and equity in undistributed income of unconsolidated subsidiaries and
affiliates, plus fixed charges excluding capitalized interest. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits), the portion of net rental expense which is
deemed representative of the interest factor, the amortization of debt issuance
expense and capitalized interest.
USE OF PROCEEDS
The Corporation intends to use the net proceeds from the sale of the
Securities issued by the Corporation for general corporate purposes, including
investments in, or extensions of credit to, its existing and future
subsidiaries, for the acquisition of other banking and financial institutions
and repayment of outstanding borrowings. The Corporation does not at present
have any plans to use the proceeds from any offering for a material acquisition
or to repay outstanding borrowings. All or a substantial portion of the proceeds
from the sale of Securities issued by PNA will be loaned by PNA to its direct or
indirect subsidiaries, including Equity One, or used by PNA for general
corporate purposes. The net proceeds from the sale of Securities by PIB will be
loaned by PIB to its affiliates or used by PIB for general corporate purposes.
The precise amounts and timing of the application of proceeds will depend on
various factors existing at the time of offering of the Securities, including
the Corporation's subsidiaries' funding requirements and the availability of
other funds. Pending such use, the proceeds may be temporarily invested in
short-term obligations.
CERTAIN REGULATORY MATTERS
GENERAL
Each of the Corporation, PIB and PNA are bank holding companies subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act. As a bank holding
company, the Corporation's, PIB's and PNA's activities and those of their
banking and nonbanking subsidiaries are limited to the business of banking and
activities closely related or incidental to banking, and none of the
Corporation, PIB or PNA may directly or indirectly acquire the ownership or
control of more than 5% of any class of voting shares or substantially all of
the assets of any company in the United States, including a bank, without the
prior approval of the Federal Reserve Board. In addition, bank holding companies
are generally prohibited under the BHC Act from engaging in nonbanking
activities, subject to certain exceptions.
Banco Popular is considered a foreign bank for purposes of the
International Banking Act of 1978, as amended (the "IBA"). Under the IBA, Banco
Popular is not permitted to operate a branch or agency, that is located outside
of its "home state," except to the extent that a national bank with the same
home state is permitted to do so. See "-- Interstate Banking Legislation" below.
Puerto Rico is not considered a state for purposes of these geographic
limitations. Banco Popular has designated the state of New York as its home
state. In addition, some states have laws prohibiting or restricting foreign
banks from acquiring banks located in such states and treat Puerto Rico's banks
and bank holding companies as foreign banks for such purposes.
Banco Popular, Banco Popular, Illinois, Banco Popular (California) and
Banco Popular, FSB are subject to supervision and examination by applicable
federal and state banking agencies including, in the case of Banco Popular, the
Federal Reserve Board and the Office of the Commissioner of Financial
Institutions of Puerto Rico, in the case of Banco Popular, Illinois, the FDIC
and the Illinois Commissioner of Banks and Trust Companies, in the case of Banco
Popular (California), the Office of the Comptroller of the Currency (the "OCC")
and in the case of Banco Popular, FSB, the Office of Thrift Supervision (the
"OTS") and the FDIC. Banco Popular, Banco Popular, Illinois, Banco Popular
(California) and Banco Popular, FSB are subject to requirements and restrictions
under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted and
the interest that may be charged thereon, and limitations on the types of other
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of Banco
Popular, Banco Popular, Illinois, Banco Popular (California) and Banco Popular,
FSB. In addition to
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<PAGE> 33
the impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
HOLDING COMPANY STRUCTURE
Banco Popular, Banco Popular, Illinois, Banco Popular (California) and
Banco Popular, FSB are subject to restrictions under federal law that limit the
transfer of funds between them and the Corporation, PNA, PIB and the
Corporation's other nonbanking subsidiaries, whether in the form of loans, other
extensions of credit, investments or asset purchases. Such transfers by Banco
Popular, Banco Popular, Illinois, Banco Popular (California) or Banco Popular,
FSB, respectively, to the Corporation, PNA or PIB, as the case may be, or to any
one nonbanking subsidiary, are limited in amount to 10% of the transferring
institution's capital stock and surplus and, with respect to the Corporation and
all of its nonbanking subsidiaries, to an aggregate of 20% of the transferring
institution's capital stock and surplus. Furthermore, such loans and extensions
of credit are required to be secured in specified amounts.
Under Federal Reserve Board policy, a bank holding company, such as the
Corporation, PIB or PNA, is expected to act as a source of financial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. This support may be required at times when, absent such policy,
the bank holding company might not otherwise provide such support. In addition,
any capital loans by a bank holding company to any of its subsidiary depository
institutions are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary depository institution. 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
depository institution will be assumed by the bankruptcy trustee and entitled to
a priority of payment. Banco Popular, Banco Popular, Illinois, Banco Popular
(California) and Banco Popular, FSB are currently the only subsidiary depository
institutions of the Corporation, PIB and PNA.
Because the Corporation, PIB and PNA are holding companies, their right to
participate in the assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to the prior claims of the subsidiary's creditors
(including depositors in the case of subsidiary depository institutions) except
to the extent that the Corporation, PIB or PNA, as the case may be, may itself
be a creditor with recognized claims against the subsidiary.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution (which term includes both banks and savings associations), the
deposits of which are 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 any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined generally as the appointment of a conservator or a 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. Banco Popular, Banco Popular, Illinois, Banco Popular (California)
and Banco Popular, FSB are currently the only controlled FDIC-insured depository
institutions of the Corporation. In some circumstances (depending upon the
amount of the loss or anticipated loss suffered by the FDIC), cross-guarantee
liability may result in the ultimate failure or insolvency of one or more
insured depository institutions in a holding company structure. Any obligation
or liability owed by a subsidiary depository institution to its parent company
is subordinated to the subsidiary bank's cross-guarantee liability with respect
to commonly controlled insured depository institutions.
CAPITAL ADEQUACY
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies and member banks, the minimum guidelines for the ratio of
qualifying total capital ("Total capital") to risk-weighted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. At
least half of the Total capital is to be comprised of common equity, retained
earnings, minority interests in unconsolidated subsidiaries, noncumulative
perpetual preferred stock and a limited amount of cumulative perpetual preferred
stock, less goodwill and certain other intangible assets discussed below ("Tier
1 capital"). The remainder may
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<PAGE> 34
consist of a limited amount of subordinated debt, other preferred stock, certain
other instruments and a limited amount of loan and lease loss reserves ("Tier 2
capital").
The Federal Reserve Board has adopted regulations that require most
intangibles, including core deposit intangibles, to be deducted from Tier 1
Capital. The regulations, however, permit the inclusion of a limited amount of
intangibles related to purchased mortgage servicing rights and purchased credit
card relationships and include a "grandfather" provision permitting the
continued inclusion of certain existing intangibles.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies and member banks. These guidelines
provide for a minimum ratio of Tier 1 capital to total assets, less goodwill and
certain other intangible assets discussed below (the "leverage ratio") of 3% for
bank holding companies and member banks that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies and member banks will be required to maintain a leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be 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" and other indicia of
capital strength 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.
Under the Federal Reserve Board's requirements, the Corporation's and Banco
Popular's capital ratios at March 31, 1997 are set forth below:
<TABLE>
<CAPTION>
CORPORATION BANCO POPULAR
----------- -------------
<S> <C> <C>
Tier 1 capital.............................................. 13.35% 11.47%
Total capital............................................... 15.90% 12.73%
Leverage ratio.............................................. 7.71% 6.63%
</TABLE>
Banco Popular, Illinois, Banco Popular (California) and Banco Popular, FSB
are subject to similar capital requirements adopted by the FDIC, the OCC and the
OTS, respectively.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "-- FDICIA" below.
Bank regulators have in the past indicated their desire to raise capital
requirements applicable to banking organizations beyond current levels. However,
management is unable to predict whether and when higher capital requirements
would be imposed and, if so, at what levels or on what schedule.
FDICIA
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") federal banking regulators must take prompt corrective action in
respect of depository institutions that do not meet minimum capital
requirements. FDICIA and regulations thereunder establish five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." A depository institution
is deemed well capitalized if it maintains a leverage ratio of at least 5%, a
risk-based Tier 1 capital ratio of at least 6% and a risk-based Total capital
ratio of at least 10% and is not subject to any written agreement or directive
to meet a specific capital level. A depository institution is deemed adequately
capitalized if it is not well capitalized but maintains a leverage ratio of at
least 4% (or at least 3% if given the highest regulatory rating and not
experiencing or anticipating significant growth), a risk-based Tier 1 capital
ratio of at least 4% and a risk-based Total capital ratio of at least 8%. A
depository institution is deemed undercapitalized if it fails to meet the
standards for adequately capitalized institutions (unless it is deemed
significantly or critically undercapitalized). An institution is deemed
significantly undercapitalized if it has a leverage ratio of less than 3%, a
risk-based Tier 1 capital ratio of less than 3% or a risk-based Total capital
ratio of less than 6%. An institution is deemed critically undercapitalized if
it has
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<PAGE> 35
tangible equity equal to 2% or less of total assets. A 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 a less than satisfactory
examination rating in any one of four categories.
At March 31, 1997, Banco Popular, Banco Popular, Illinois, Banco Popular
(California) and Banco Popular, FSB were each well capitalized. An institution's
capital category, as determined by applying the prompt corrective action
provisions of law, may not constitute an accurate representation of the overall
financial condition or prospects of the Corporation or its banking subsidiaries,
and should be considered in conjunction with other available information
regarding the Corporation's financial condition and results of operations.
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
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the 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. If a depository institution fails to submit an acceptable
plan, it is treated as if it is 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 depository institutions are subject to appointment of a
receiver or conservator.
The capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions such as
the banking and savings association subsidiaries of the Corporation, PIB and
PNA, but they are not directly applicable to holding companies, such as the
Corporation, PIB or PNA which control such institutions. However, federal
banking agencies have indicated that, in regulating holding companies, they may
take appropriate action at the holding company level based on their assessment
of the effectiveness of supervisory actions imposed upon subsidiary insured
depository institutions pursuant to such provisions and regulations.
INTERSTATE BANKING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits bank holding companies, with Federal Reserve Board approval, to acquire
banks located in states other than the holding company's home state without
regard to whether the transaction is prohibited under state law. In addition,
commencing June 1, 1997, national and state banks with different home states
will be permitted to merge across state lines, with approval of the appropriate
federal banking agency, unless the home state of a participating bank passes
legislation prior to May 31, 1997 expressly prohibiting interstate mergers.
States may "opt in" to permit interstate branching by merger prior to June 1,
1997 and to permit de novo interstate branching. Once a bank has established
branches in a state through an interstate merger transaction, the bank may
establish and acquire additional branches at any location in the state where any
bank involved in the interstate merger transaction could have established or
acquired branches under applicable federal or state law. A bank that has
established a branch in a state through de novo branching may establish and
acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the state which has
opted out, whether through an acquisition or de novo. A foreign bank, like Banco
Popular, may branch interstate by merger or de novo to the same extent as
domestic banks in the foreign bank's home state, which, in the case of Banco
Popular, is New York.
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<PAGE> 36
Various other legislation, including proposals to overhaul the bank
regulatory system, expand bank and bank holding company powers and limit the
investments that a depository institution may make with insured funds, is from
time to time introduced in Congress. The Corporation, PIB and PNA cannot
determine the ultimate effect that such potential legislation, if enacted, or
implementing regulations, would have upon their financial condition or results
of operations.
DIVIDEND RESTRICTIONS
The principal source of cash flow for the Corporation is dividends from
Banco Popular. Various statutory provisions limit the amount of dividends Banco
Popular can pay to the Corporation without regulatory approval. As a member bank
subject to the regulation of the Federal Reserve Board, Banco Popular must
obtain the approval of the Federal Reserve Board for any dividend if the total
of all dividends declared by the bank in any calendar year would exceed the
total of its net profits, as defined by the Federal Reserve Board, for that
year, combined with its retained net profits for the preceding two years. In
addition, a member bank may not pay a dividend in an amount greater than its
undivided profits then on hand after deducting its losses and bad debts. For
this purpose, bad debts are generally defined to include the principal amount of
loans that are in arrears with respect to interest by six months or more unless
such loans are fully secured and in the process of collection. Moreover, for
purposes of this limitation, a member bank is not permitted to add the balance
in its allowance for loan losses account to its undivided profits then on hand.
A member bank may, however, net the sum of its bad debts as so defined against
the balance in its allowance for loan losses account and deduct from undivided
profits only bad debts as so defined in excess of that account. At March 31,
1997, Banco Popular could have declared a dividend of approximately $169.6
million without the approval of the Federal Reserve Board. Illinois law contains
similar limitations on the amount of dividends that Banco Popular, Illinois can
pay and the National Bank Act contains similar limitations on the amount of
dividends that Banco Popular (California) can pay. In addition, OTS regulations
limit the amount of capital distributions (whether by dividend or otherwise)
that any savings association may make without prior OTS approval, based upon the
savings association's regulatory capital levels. These limitations are
applicable to Banco Popular, FSB. Also, in connection with the acquisition by
Banco Popular, FSB, from the RTC of four New Jersey branches of the former
Carteret Federal Savings Bank, the RTC provided Banco Popular, FSB and the
Corporation interim financial assistance. Pursuant to the terms of such
financing, evidenced by a promissory note (which matures on January 20, 2000 but
is prepayable any time before then), Banco Popular, FSB may not, among other
things, declare or pay any stock dividends on its outstanding capital stock
(unless such dividends are used exclusively for payment of principal of or
interest on such promissory note) or make any distributions of its assets until
payment in full of such promissory note.
The payment of dividends by Banco Popular, Banco Popular, Illinois, Banco
Popular (California) or Banco Popular, FSB, may also be affected by other
regulatory requirements and policies, such as the maintenance of adequate
capital. If, in the opinion of the applicable regulatory authority, a depository
institution under its jurisdiction is engaged in, or is about to engage in, an
unsafe or unsound practice (that, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such depository institution cease
and desist from such practice. The Federal Reserve Board has issued a policy
statement that provides that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings. In addition, all
insured depository institutions are subject to the capital-based limitations
required by the FDICIA. See "FDICIA."
See "-- Puerto Rico Regulation" for a description of certain restrictions
on Banco Popular's ability to pay dividends under Puerto Rico law.
FDIC INSURANCE ASSESSMENTS
Banco Popular, Banco Popular, Illinois, Banco Popular (California) and
Banco Popular, FSB are subject to FDIC deposit insurance assessments.
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<PAGE> 37
Pursuant to FDICIA, the FDIC has adopted a risk-based assessment system,
under which the assessment rate for an insured depository institution varies
according to the level of risk incurred in its activities. An institution's risk
category is based partly upon whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. Each insured
depository institution is also assigned to one of the following "supervisory
subgroups": "A," "B" or "C". Group "A" institutions are financially sound
institutions with only a few minor weaknesses; group "B" institutions are
institutions that demonstrate weaknesses that, if not corrected, could result in
significant deterioration; and group "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 reduced the insurance premiums it charges on bank deposits insured
by the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000.00 for
"well capitalized" banks, effective January 1, 1996. On September 30, 1996, the
Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed into law.
DIFA repealed the statutory minimum premium, and currently premiums related to
deposits assessed by both the BIF and the Savings Association Insurance Fund
("SAIF") are to be assessed at a rate of between 0 cents and 27 cents per
$100.00 of deposits. DIFA also provides for a special one-time assessment
imposed on deposits insured by the SAIF to recapitalize the SAIF to bring the
SAIF up to statutory required levels. The Corporation accrued for the one-time
assessment in the third quarter of 1996.
DIFA also separates, effective January 1, 1997, the Financing Corporation
("FICO") assessment to service the interest on its bond obligations from the BIF
and SAIF assessments. The amount assessed on individual institutions by the FICO
will be in addition to the amount, if any, paid for deposit insurance according
to the FDIC's risk-related assessment rate schedules. FICO assessment rates for
the first semiannual period of 1997 were set at 1.30 basis points annually for
BIF-assessable deposits and 6.48 basis points annually for SAIF-assessable
deposits. (These rates may be adjusted quarterly to reflect changes in
assessment bases for the BIF and the SAIF. By law, the FICO rate on
BIF-assessable deposits must be one-fifth the rate on SAIF-assessable deposits
until the insurance funds are merged or until January 1, 2000, whichever occurs
first.) As of March 31, 1997, the Corporation had a BIF deposit assessment base
of approximately $9.8 billion and a SAIF deposit assessment base of
approximately $209 million.
BROKERED DEPOSITS
FDIC regulations adopted under FDICIA govern the receipt of brokered
deposits. Under these regulations, a bank cannot accept, rollover or renew
brokered deposits (which term is defined also to include any deposit with an
interest rate more than 75 basis points above prevailing rates) unless (i) it is
well capitalized, or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank that is adequately capitalized may not pay an interest
rate on any deposits in excess of 75 basis points over certain prevailing market
rates specified by regulation. There are no such restrictions on a bank that is
well capitalized. The Corporation does not believe the brokered deposits
regulation has had or will have a material effect on the funding or liquidity of
Banco Popular, Banco Popular, Illinois, Banco Popular (California) or Banco
Popular, FSB.
PUERTO RICO REGULATION
General
As a commercial bank organized under the laws of Puerto Rico, Banco Popular
is subject to supervision, examination and regulation by the Office of the
Commissioner of Financial Institutions of Puerto Rico (the "Office of the
Commissioner"), pursuant to the Puerto Rico Banking Act of 1933, as amended (the
"Banking Law").
Section 27 of the Banking Law requires that at least ten percent (10%) of
the yearly net income of the Bank be credited annually to a reserve fund. This
apportionment shall be done every year until the reserve fund shall be equal to
ten percent (10%) of the total deposits or the total paid-in capital, whichever
is greater. At the end of its most recent fiscal year, Banco Popular had an
adequate reserve fund established.
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Section 27 of the Banking Law also provides that when the expenditures of a
bank are greater than the receipts, the excess of the former over the latter
shall be charged against the undistributed profits of the bank, and the balance,
if any, shall be charged against the reserve fund, as a reduction thereof. If
there is no reserve fund sufficient to cover such balance in whole or in part,
the outstanding amount shall be charged against the capital account and no
dividend shall be declared until said capital has been restored to its original
amount and the reserve fund to 20% of the original capital.
Section 16 of the Banking Law requires every bank to maintain a legal
reserve which shall not be less than 20% of its demand liabilities, except
government deposits (federal, state and municipal) which are secured by actual
collateral. However, if a bank becomes a member of the Federal Reserve System,
the 20% legal reserve shall not be effective and the reserve requirements
demanded by the Federal Reserve System shall be applicable. However, pursuant to
an order of the Federal Reserve Board dated November 24, 1982, Banco Popular has
been exempted from such reserve requirements with respect to deposits payable in
Puerto Rico. As to those deposits, the Section 16 reserve requirements are
applicable.
Section 17 of the Banking Law permits Banco Popular to make loans to any
one person, firm, partnership or corporation, up to an aggregate amount of
fifteen percent (15%) of the paid-in capital and reserve fund of Banco Popular.
As of March 31, 1997, the legal lending limit for the Bank under this provision
was approximately $93 million. If such loans are secured by collateral worth at
least twenty-five percent (25%) more than the amount of the loan, the aggregate
maximum amount may reach one third of the paid-in capital of the Bank, plus its
reserve fund. There are no restrictions under Section 17 on the amount of loans
that are wholly secured by bonds, securities and other evidences of indebtedness
of the Government of the United States or Puerto Rico, or by current debt bonds,
not in default, of municipalities or instrumentalities of Puerto Rico.
Section 14 of the Banking Law authorizes Banco Popular to conduct certain
financial and related activities directly or through subsidiaries, including
finance leasing of personal property, making and servicing mortgage loans and
operating a small-loan company. Banco Popular engages in these activities
through its wholly owned subsidiaries, Popular Leasing & Rental, Inc., Popular
Mortgage, Inc., and Popular Consumer Services, Inc., respectively, all of which
are organized and operate in Puerto Rico.
The Finance Board, which is a part of the Office of the Commissioner, but
also includes as its members the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the President of the Planning
Board, and the President of the Government Development Bank for Puerto Rico, has
the authority to regulate the maximum interest rates and finance charges that
may be charged on loans to individuals and unincorporated businesses in Puerto
Rico. The current regulations of the Finance Board provide that the applicable
interest rate on loans to individuals and unincorporated businesses (including
real estate development loans but excluding certain other personal and
commercial loans secured by mortgages on real estate properties) is to be
determined by free competition. The Finance Board also has authority to regulate
the maximum finance charges on retail installment sales contracts, which are
currently set at 21%, and for credit card purchases, which are currently set at
26%. There is no maximum rate set for installment sales contracts involving
motor vehicles, commercial, agricultural and industrial equipment, commercial
electric appliances and insurance premiums.
IBC Act
Under the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not amend its articles of incorporation or issue
additional shares of capital stock or other securities convertible into
additional shares of capital stock unless such shares are issued directly to the
shareholders of PIB previously identified in the application to organize the
international banking entity, in which case notification to the Office of the
Commissioner must be given within ten business days following the date of the
issue. Pursuant to the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not initiate the sale, encumbrance, assignment, merger or
other transfer of shares if by such transaction a person or persons acting in
concert could acquire direct or indirect control of 10% or more of any class of
the Company's stock. Such authorization must be requested at least 30 days prior
to the transaction.
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PIB must submit to the Office of the Commissioner a report of its condition
and results of operation on a quarterly basis and its annual audited financial
statement at the close of its fiscal year. Under the IBC Act, PIB may not deal
with "domestic persons" as such term is defined in the IBC Act. Also, it may
only engage in those activities authorized in the IBC Act, the regulations
adopted thereunder and its license.
The IBC Act empowers the Office of the Commissioner to revoke or suspend,
after a hearing, the license of an international banking entity if, among other
things, it fails to comply with the IBC Act, regulations issued by the Office of
the Commissioner or the terms of its license, or if the Office of the
Commissioner finds that the business of the international banking entity is
conducted in a manner not consistent with the public interest.
DESCRIPTION OF DEBT SECURITIES
The Corporation's senior debt securities (the "Senior Debt Securities"),
may be issued from time to time in one or more series under an Indenture, dated
as of February 15, 1995, as supplemented by the First Supplemental Indenture
thereto, dated as of May 8, 1997 (collectively, the "Senior Indenture"), each
between the Corporation and The First National Bank of Chicago, as trustee (the
"Senior Trustee"). The Corporation's subordinated debt securities (the
"Subordinated Debt Securities") may be issued from time to time in one or more
series under an Indenture, dated as of November 30, 1995 (the "Subordinated
Indenture"), between the Corporation and The First National Bank of Chicago, as
trustee (the "Subordinated Trustee").
PIB's senior debt securities (the "PIB Senior Debt Securities") may be
issued from time to time in one or more series under an Indenture (the "PIB
Senior Indenture") among the Corporation, PIB and the trustee named in the
applicable Prospectus Supplement, as trustee (the "PIB Senior Trustee"). PIB's
subordinated debt securities ("PIB Subordinated Debt Securities") may be issued
from time to time in one or more series under an Indenture (the "PIB
Subordinated Indenture") among the Corporation, PIB and the trustee named in the
applicable Prospectus Supplement, as trustee (the "PIB Subordinated Trustee").
PNA's senior debt securities (the "PNA Senior Debt Securities") may be issued
from time to time in one or more series under an Indenture, dated as of October
1, 1991, as supplemented by the First Supplemental Indenture thereto, dated as
of February 28, 1995, and by the Second Supplemental Indenture thereto, dated as
of May 8, 1997 (collectively, the "PNA Senior Indenture"), each among the
Corporation, PNA and The First National Bank of Chicago (the successor trustee
to Citibank N.A.), as trustee (the "PNA Senior Trustee"). PNA's subordinated
debt securities (the "PNA Subordinated Debt Securities") may be issued from time
to time in one or more series under an Indenture (the "PNA Subordinated
Indenture") among the Corporation, PNA and the trustee named in the applicable
Prospectus Supplement, as trustee (the "PNA Subordinated Trustee"). The Senior
Debt Securities, the Subordinated Debt Securities, the PIB Senior Debt
Securities, the PIB Subordinated Debt Securities, the PNA Senior Debt Securities
and the PNA Subordinated Debt Securities are sometimes referred to collectively
as the "Debt Securities." The Senior Indenture, the Subordinated Indenture, the
PIB Senior Indenture, the PIB Subordinated Indenture, the PNA Senior Indenture
and the PNA Subordinated Indenture are sometimes referred to collectively as the
"Indentures," and the Senior Trustee, the Subordinated Trustee, the PIB Senior
Trustee, the PIB Subordinated Trustee, the PNA Senior Trustee and the PNA
Subordinated Trustee are sometimes referred to collectively as the "Trustees."
The statements under this caption are brief summaries of material provisions
contained in the Indentures and are qualified in their entirety by reference to
the Indentures, including the definition therein of certain terms, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
GENERAL
Each Indenture provides for the issuance of debt securities in one or more
series, and does not limit the principal amount of debt securities which may be
issued thereunder.
Reference is made to the Prospectus Supplement for the following terms of
the Debt Securities being offered hereby: (1) the specific title of the Debt
Securities; (2) whether the Debt Securities are Senior Debt
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Securities, Subordinated Debt Securities, PIB Senior Debt Securities, PIB
Subordinated Debt Securities, PNA Senior Debt Securities or PNA Subordinated
Debt Securities; (3) the aggregate principal amount of the Debt Securities; (4)
the percentage of their principal amount at which the Debt Securities will be
issued; (5) the date or dates on which the Debt Securities will mature; (6) the
rate or rates (which may be fixed or variable) per annum or the method for
determining such rate or rates, if any, at which the Debt Securities will bear
interest; (7) the times, if any, at which any such interest will be payable; (8)
any provisions relating to optional or mandatory redemption of the Debt
Securities; (9) the denominations in which the Debt Securities are authorized to
be issued; (10) the extent to which Debt Securities will be issuable in global
form and, if so, the identity of the Depositary for such global Debt Securities;
(11) the currency or units of two or more currencies in which the Debt
Securities are denominated, if other than United States dollars, and the
currency in which interest is payable if other than the currency in which the
Debt Securities are denominated; (12) the place or places at which the
Corporation, PIB or PNA will make payments of principal (and premium, if any)
and interest, if any, and the method of such payment; (13) the Person to whom
any Debt Security of such series will be payable, if other than the Person in
whose name that Debt Security (or one or more Predecessor Debt Securities) is
registered at the close of business on the Regular Record Date for such
interest; (14) whether the Debt Securities may be issued as Original Issue
Discount Securities; (15) whether the amount of payment of principal of or any
premium or interest on any Debt Security may be determined with reference to an
index, formula or other method and the manner in which such amount shall be
determined; (16) any additional covenants and Events of Default and the remedies
with respect thereto not currently set forth in the respective Indenture; and
(17) any other specific terms of Debt Securities.
One or more series of the Debt Securities may be issued as Discount
Securities. A "Discount Security" is a debt security, including any zero-coupon
security, which is issued at a price lower than the amount payable at the Stated
Maturity thereof and which provides that upon redemption or acceleration of the
Maturity thereof an amount less than the amount payable upon the Stated Maturity
thereof and determined in accordance with the terms thereof shall become due and
payable.
Unless otherwise indicated in the applicable Prospectus Supplement, the
covenants contained in the Indentures and the Debt Securities will not afford
holders of the Debt Securities protection in the event of a sudden decline in
credit rating that might result from a recapitalization, restructuring, or other
highly leveraged transaction.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Debt Securities of a series may be issuable in certificated or global form.
Debt Securities in certificated form may be presented for registration of
transfer (with the form of transfer endorsed thereon duly executed), at the
office of the Security Registrar or at the office of any transfer agent
designated by the Corporation, PIB or PNA, as the case may be, for such purpose
with respect to any series of Debt Securities and referred to in an applicable
Prospectus Supplement, without service charge and upon payment of any taxes and
other governmental charges as described in the relevant Indenture. Such transfer
or exchange will be effected upon the Security Registrar being satisfied with
the documents of title and identity of the Person making the request. The
Security Registrar with respect to the Debt Securities will be designated in the
applicable Prospectus Supplement. If a Prospectus Supplement refers to any
transfer agents (in addition to the Security Registrar) initially designated by
the Corporation, PIB or PNA with respect to any series of Debt Securities, the
Corporation, PIB or PNA, as the case may be, 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 acts, except that the Corporation, PIB or
PNA, as the case may be, will be required to maintain a transfer agent in each
Place of Payment for such series. The Corporation, PIB or PNA, as the case may
be, may at any time designate additional transfer agents with respect to any
series of Debt Securities.
In the event of any redemption in part, the Corporation, PIB or PNA, as the
case may be, shall not be required to (i) issue, register the transfer of or
exchange any Debt Security during a period beginning at the opening of business
15 days before the mailing of a notice of redemption of Debt Securities of like
tenor and of the series of which such Debt Security is a part and ending at the
close of business on the day of such mailing
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and (ii) register the transfer of or exchange any Debt Security so selected for
redemption, in whole or in part, except the unredeemed portion of any Debt
Security being redeemed in part.
PAYMENT AND PAYING AGENT
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium (if any) on any Debt Security will be made only
against surrender to the Paying Agent of such Debt Security. Unless otherwise
indicated in an applicable Prospectus Supplement, principal of and any premium
and interest on the Debt Securities will be payable, subject to any applicable
laws and regulations, at the office of such Paying Agent or Paying Agents as the
Corporation, PIB or PNA, as the case may be, may designate from time to time,
except that at the option of the Corporation, PIB or PNA, as the case may be,
payment of any interest may be made by check mailed to the address of the person
entitled thereto as such address shall appear in the Security Register with
respect to such Debt Securities. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of interest on a Debt Security on any Interest
Payment Date will be made to the Person in whose name such Debt Security (or
Predecessor Debt Security) is registered at the close of business on the Regular
Record Date for such interest.
The Paying Agent for payments with respect to Debt Securities of each
series will be specified in the applicable Prospectus Supplement. The
Corporation, PIB or PNA, as the case may be, may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that
the Corporation, PIB or PNA, as the case may be, will be required to maintain a
Paying Agent in each Place of Payment for each series of Debt Securities.
All moneys paid by the Corporation, PIB or PNA, as the case may be, to a
Paying Agent for the payment of the principal of and any premium or interest on
any Debt Security which remain unclaimed at the end of two years after such
principal, premium or interest shall have become due and payable will be repaid
to the Corporation, PIB or PNA, as the case may be, and the Holder of such Debt
Security will thereafter look only to the Corporation, PIB or PNA, as the case
may be, for payment thereof.
CERTAIN COVENANTS
Each of the Senior Indenture, the PIB Senior Indenture and the PNA Senior
Indenture provides that the Corporation, subject to the provisions described
under "Consolidation, Merger, Sale or Conveyance," will not sell, assign,
transfer, or otherwise dispose of, or permit Banco Popular to issue, sell,
assign, transfer or otherwise dispose of any shares of, or securities
convertible into or options to subscribe for, Voting Stock of Banco Popular
unless Banco Popular remains a Controlled Subsidiary (as defined below) of the
Corporation, and will not permit Banco Popular to merge or consolidate or
convey, transfer, lease or sell its properties substantially as an entirety,
unless the surviving corporation or transferee, as the case may be, is a
Controlled Subsidiary of the Corporation. There is no similar restriction in the
Subordinated Indenture, the PIB Subordinated Indenture or the PNA Subordinated
Indenture.
Each of the Senior Indenture, the PIB Senior Indenture and the PNA Senior
Indenture also provides that the Corporation will not, and it will not permit
any Material Banking Subsidiary (as defined below) at any time directly or
indirectly to, create, assume, incur or permit to exist any indebtedness for
borrowed money secured by a pledge, lien or other encumbrance on the Voting
Stock of any Material Banking Subsidiary without making effective provision
whereby the Debt Securities and the Guarantees (and, if the Corporation so
elects, any other indebtedness ranking on a parity with the Debt Securities and
the Guarantees) shall be secured equally and ratably with such secured
indebtedness so long as such other indebtedness shall be so secured; provided,
however, that the foregoing covenant shall not be applicable to liens for taxes
or assessments or governmental charges or levies not then due and delinquent or
the validity of which is being contested in good faith or which are less than
$10,000,000 in amount, liens created by or resulting from any litigation or
legal proceeding which is currently being contested in good faith by appropriate
proceedings or which involve claims of less than $10,000,000, or deposits to
secure (or in lieu of) surety, stay, appeal or customs bonds. There is no
similar restriction in the Subordinated Indenture, the PIB Subordinated
Indenture or the PNA Subordinated Indenture.
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For the purpose of the foregoing provisions, "Material Banking Subsidiary"
means any Controlled Subsidiary chartered as a banking corporation under
federal, state or Puerto Rican law that is a significant subsidiary of the
Corporation as defined in Rule 1-02 of Regulation S-X of the Rules and
Regulations of the Commission. "Controlled Subsidiary" means any corporation
more than 80% of the outstanding Voting Stock of which is owned by the
Corporation. As of the date of this Prospectus, Banco Popular is the only
"Material Banking Subsidiary" of the Corporation.
REDEMPTION
General
If the Debt Securities of a series provide for mandatory redemption by the
Corporation, PIB or PNA, as the case may be, or redemption at the election of
the Corporation, PIB or PNA, as the case may be, unless otherwise provided in
the applicable Prospectus Supplement, such redemption shall be on not less than
30 nor more than 60 days' notice and, in the event of redemption of Debt
Securities of a series of like tenor in part, the Debt Securities to be redeemed
will be selected by the Trustee in such usual manner as it shall deem fair and
appropriate. Notice of such redemption will be mailed to Holders of Debt
Securities of such series to their last addresses as they appear on the register
of the Debt Securities of such series.
For Taxation
Should the Corporation or PIB, on the occasion of the next payment in
respect of any series of the Debt Securities, be obliged to pay any Additional
Amounts as are referenced in "Taxation by the Commonwealth of Puerto Rico"
below, due to a change in law, regulation or interpretation, the Corporation,
PIB or PNA, as the case may be, may, at its option, on the giving of not less
than 30 nor more than 60 days' notice to the Holders of the Debt Securities of
each series, redeem such series of the Debt Securities as a whole at a
redemption price of 100% of the principal amount thereof with the accrued
interest to the date fixed for redemption or such other redemption price as set
forth in the applicable Prospectus Supplement.
GLOBAL SECURITIES
The Debt Securities may be issued in whole or in part in the form of one or
more Global Securities that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the Prospectus Supplement relating
to such Debt Securities. Unless and until it is exchangeable in whole or in part
for Debt Securities in definitive form, a Global Security may not be transferred
except as a whole by the Depositary for such Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement, if any, with respect to a
series of Debt Securities will be described in the Prospectus Supplement
relating to such series. The Corporation, PIB and PNA anticipate that the
following provisions will apply to all depositary arrangements.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the Depositary for such Global Security or its
nominee ("Participant") or persons that may hold interests through Participants.
Such accounts shall be designated by the underwriters or agents with respect to
the Debt Securities underwritten or solicited by them or by the Corporation, PIB
or PNA in the case of Debt Securities offered and sold directly by the
Corporation, PIB or PNA, as the case may be. The Corporation, PIB or PNA, as the
case may be, will obtain confirmation from the Depositary that upon the issuance
of a Global Security the Depositary for such Global Security will credit, on its
book-entry registration and transfer system, the Participants' accounts with the
respective principal amounts of the Debt Securities represented by such Global
Security. Ownership of beneficial interests in such Global Security will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by the Depositary (with respect to interests of
Participants) and on the records of Participants (with respect to interests of
persons held through Participants). The laws of some states may require that
certain purchasers of securities take physical delivery
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of such securities in definitive form. Such limits and such laws may impair the
ability to own, transfer or pledge beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Debt
Securities represented by such Global Security for all purposes under the
Indentures. Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to have the Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of the Debt Securities in definitive form and will not
be considered the owners or Holders thereof under the Indentures. Accordingly,
each person owning a beneficial interest in such a Global Security must rely on
the procedures of the Depositary and, if such person is not a Participant, on
the procedures of the Participant through which such person owns its interests,
to exercise any rights of a Holder under the applicable Indenture. The
Corporation, PIB and PNA understand that under existing industry practices, in
the event that the Corporation, PIB or PNA, as the case may be, requests any
action of Holders or that an owner of a beneficial interest in such a Global
Security desires to give or take any action that a Holder is entitled to give or
take under the applicable Indenture, the Depositary would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize beneficial owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of, and premium and interest, if any, on Debt
Securities registered in the name of a Depositary or its nominee will be made to
the Depositary or its nominee, as the case may be, as the registered owner of
the Global Security representing such Debt Securities. None of the Corporation,
PIB, PNA, the Trustee, any Paying Agent or any other agent of the Corporation,
PIB, PNA or the Trustee will have any responsibility or liability for any aspect
of the records relating to payments made on account of beneficial ownership
interests in the Global Security for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Corporation, PIB or PNA, as the case may be, will obtain confirmation
from the Depositary that upon receipt of any payment of principal of, or premium
or interest on, a Global Security, the Depositary will immediately credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Security
as shown on the records of the Depositary. Payments by Participants to owners of
beneficial interests in such Global Security held through such Participants will
be the responsibility of such Participants, as is now the case with securities
held for the accounts of customers registered in "street names."
If the Depositary for any Debt Securities represented by a Global Security
notifies the Corporation, PIB or PNA, as the case may be, that it is unwilling
or unable to continue as Depositary or ceases to be a clearing agency registered
under the Exchange Act and a successor Depositary is not appointed by the
Corporation, PIB or PNA, as the case may be, then within ninety days after
receiving such notice or becoming aware that Depositary is no longer so
registered, the Corporation, PIB or PNA, as the case may be, will issue such
Debt Securities in definitive form in exchange for such Global Security. In
addition, if an event of default, or an event which with notice or the lapse of
time or both would become an event of default, with respect to the Debt
Securities of a series has occurred and is continuing or either the Corporation,
PIB or PNA, as the case may be, at any time and in its sole discretion
determines not to have the Debt Securities represented by one or more Global
Securities, the Corporation, PIB or PNA, as the case may be, will issue Debt
Securities in definitive form in exchange for all of the Global Securities
representing such Debt Securities.
TAXATION BY THE COMMONWEALTH OF PUERTO RICO
All payments of, or in respect of, principal of, and any premium or
interest on, the Debt Securities and all payments pursuant to the Guarantees
will be made without withholding or deduction for, or on account of, any present
or future taxes, duties, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of Puerto Rico or by or with any district,
municipality or other political subdivision thereof or
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authority therein having power to tax unless such taxes, duties, assessments or
governmental charges are required by law to be withheld or deducted.
In the event that the Corporation or PIB is required by law to deduct or
withhold any amounts in respect of taxes, duties, assessments or governmental
charges, the Corporation or PIB, as the case may be, will pay such additional
amounts of, or in respect of, principal, premium and interest as will result
(after deduction of the said taxes, duties, assessments or governmental charges)
in the payment to the Holders of the Debt Securities, of the amounts which would
otherwise have been payable in respect to the Debt Securities in the absence of
such deduction or withholding ("Additional Amounts"), except that no such
Additional Amounts shall be payable:
(i) to any Holder of a Debt Security or any interest therein or rights
in respect thereof where such deduction or withholding is required by
reason of such Holder having some connection with Puerto Rico or any
political subdivision or taxing authority thereof or therein other than the
mere holding of and payment in respect of such Debt Security;
(ii) in respect of any deduction or withholding that would not have
been required but for the presentation by the Holder of a Debt Security for
payment on a date more than 30 days after Maturity or the date on which
payment thereof is duly provided for, whichever occurs later; or
(iii) in respect of any deduction or withholding that would not have
been required but for the failure to comply with any certification,
identification or other reporting requirements concerning the nationality,
residence, identity or connection with Puerto Rico, or any political
subdivision or taxing authority thereof or therein, of the Holder of a Debt
Security or any interest therein or rights in respect thereof, if
compliance is required by Puerto Rico, or any political subdivision or
taxing authority thereof or therein, as a precondition to exemption from
such deduction or withholding.
GOVERNING LAW
The Indentures, the Debt Securities and the Guarantees of the Debt
Securities of PIB and PNA will be governed by, and construed in accordance with,
the laws of the State of New York.
TERMS APPLICABLE TO THE SENIOR DEBT SECURITIES OR
SUBORDINATED DEBT SECURITIES
MODIFICATION OF THE SENIOR AND SUBORDINATED INDENTURES
The Senior and Subordinated Indentures contain provisions permitting the
Corporation and the respective Trustees, with the consent of Holders of not less
than a majority in principal amount of the Senior Debt Securities or
Subordinated Debt Securities which are affected by the modification, to modify
the particular Indenture or any supplemental indenture or the rights of the
Holders of the Senior Debt Securities or Subordinated Debt Securities issued
under such Indenture; provided that no such modification may, without the
consent of the Holder of each Outstanding Senior Debt Security or Subordinated
Debt Security affected thereby, (a) change the stated maturity date of the
principal of, or any installment of principal of or interest, if any, on, any
Senior Debt Security or Subordinated Debt Security, (b) reduce the principal
amount of, or premium or rate of interest, if any, on, any Senior Debt Security
or Subordinated Debt Security, (c) reduce the amount of principal of an Original
Issue Discount Security payable upon acceleration of the maturity thereof, (d)
change the place or coin or currency of payment of principal of, or premium or
interest, if any, on, any Senior Debt Security or Subordinated Debt Security,
(e) impair the right to institute suit for the enforcement of any payment on or
with respect to any Senior Debt Security or Subordinated Debt Security, (f)
reduce the percentage in principal amount of Outstanding Senior Debt Securities
or Subordinated Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (g) modify (with certain exceptions) any provision of the Indenture
which requires the consent of the Holder of each Outstanding Senior Debt
Security or Subordinated Debt Security affected thereby or
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(h) with respect to the Subordinated Indenture, modify the subordination
provisions in a manner adverse to Holders of Outstanding Subordinated Debt
Securities.
SUBORDINATION
Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions shall apply to the Subordinated Debt Securities.
The payment of the principal of, premium, if any, and interest on the
Subordinated Debt Securities will, to the extent set forth in the Subordinated
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined below) of the Corporation. In certain events
of insolvency, the payment of the principal of, premium, if any, and interest on
the Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, also be effectively subordinated in right of payment to
the prior payment in full of all Other Financial Obligations (as defined below)
of the Corporation. As of March 31, 1997, $1,827 million aggregate principal
amount of Senior Indebtedness and $65 million of Other Financial Obligations of
the Corporation were outstanding. Upon any payment or distribution of assets to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceedings of the Corporation, the holders of
all Senior Indebtedness of the Corporation will first be entitled to receive
payment in full of all amounts due or to become due thereon before the Holders
of the Subordinated Debt Securities will be entitled to receive any payment in
respect of the principal of, premium, if any, or interest on the Subordinated
Debt Securities. If, upon any such payment or distribution of assets to
creditors, there remain, after giving effect to such subordination provisions in
favor of the holders of Senior Indebtedness of the Corporation, any amounts of
cash, property or securities available for payment or distribution in respect of
Subordinated Debt Securities (as defined in the Subordinated Indenture,
"Corporation Excess Proceeds") and if, at such time, any person entitled to
payment pursuant to the terms of Other Financial Obligations of the Corporation
has not received payment in full of all amounts due or to become due on or in
respect of such Other Financial Obligations of the Corporation, then such
Corporation Excess Proceeds shall first be applied to pay or provide for the
payment in full of such Other Financial Obligations of the Corporation before
any payment or distribution may be made in respect of the Subordinated Debt
Securities. In the event of the acceleration of the maturity of any Subordinated
Debt Securities, the holders of all Senior Indebtedness of the Corporation will
first be entitled to receive payment in full of all amounts due or to become due
thereon before the Holders of the Subordinated Debt Securities will be entitled
to receive any payment of the principal of, premium, if any, or interest on the
Subordinated Debt Securities. Accordingly, in case of such an acceleration, all
Senior Indebtedness of the Corporation would have to be repaid before any
payment could be made in respect of the Subordinated Debt Securities. No
payments on account of principal, premium, if any, or interest in respect of the
Subordinated Debt Securities may be made if there shall have occurred and be
continuing a default in any payment with respect to any Senior Indebtedness of
the Corporation, or an event of default with respect to any Senior Indebtedness
of the Corporation permitting the holders thereof to accelerate the maturity
thereof, or if any judicial proceeding shall be pending with respect to any such
default.
By reason of such subordination, in the event of the insolvency of the
Corporation, creditors of the Corporation who are not holders of Senior
Indebtedness of the Corporation or the Subordinated Debt Securities may recover
less, ratably, than holders of Senior Indebtedness of the Corporation and may
recover more, ratably, than Holders of the Subordinated Debt Securities.
"Senior Indebtedness" of the Corporation is defined in the Subordinated
Indenture to mean the principal of, premium, if any, and interest on (i) all
indebtedness of the Corporation for money borrowed (including indebtedness of
others guaranteed by the Corporation) other than the Subordinated Debt
Securities, whether outstanding on the date of the Subordinated Indenture or
thereafter created, assumed or incurred and (ii) any amendments, renewals,
extensions, modifications and refundings of any such indebtedness, unless in
either case in the instrument creating or evidencing any such indebtedness or
pursuant to which it is outstanding it is provided that such indebtedness is not
superior in right of payment to the Subordinated Debt Securities. For the
purposes of this definition, "indebtedness for money borrowed" is defined as (i)
any obligation of, or any obligation guaranteed by, the Corporation for the
repayment of borrowed money, whether or not evidenced by
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<PAGE> 46
bonds, debentures, notes or other written instruments, (ii) any deferred payment
obligation of, or any such obligation guaranteed by, the Corporation for the
payment of the purchase price of property or assets evidenced by a note or
similar instrument and (iii) any obligation of, or any such obligation
guaranteed by, the Corporation for the payment of rent or other amounts under a
lease of property or assets which obligation is required to be classified and
accounted for as a capitalized lease on the balance sheet of the Corporation
under generally accepted accounting principles.
"Other Financial Obligations" of the Corporation is defined in the
Subordinated Indenture to mean all obligations of the Corporation to make
payment pursuant to the terms of financial instruments, such as (i) securities
contracts and foreign currency exchange contracts, (ii) derivative instruments,
such as swap agreements (including interest rate and currency and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange agreements, options,
commodity futures contracts, commodity options contracts and (iii) similar
financial instruments; provided that the term Other Financial Obligations shall
not include (x) obligations on account of Senior Indebtedness of the Corporation
and (y) obligations on account of indebtedness for money borrowed ranking pari
passu with or subordinate to the Subordinated Debt Securities.
EVENTS OF DEFAULT
Senior Indenture
An Event of Default with respect to Senior Debt Securities of any series is
defined in the Senior Indenture as being: default for 30 days in payment of any
interest on Senior Debt Securities of such series; default in payment of
principal of, or premium, if any, on any Senior Debt Securities of such series;
default in deposit of any mandatory sinking fund payment required by the Senior
Debt Securities of such series; default for 60 days after notice, in performance
or breach of any other covenant or warranty in the Senior Indenture (except for
a covenant expressly relating to a series of Senior Debt Securities other than
that series of Senior Debt Securities) or in the Senior Debt Securities of such
series; acceleration of the Senior Debt Securities of any other series or any
other indebtedness for borrowed money of the Corporation or any Material Banking
Subsidiary, in each case exceeding $10,000,000 in an aggregate principal amount,
as a result of a default under the terms of the instrument or instruments under
which such indebtedness is issued or secured, unless such acceleration is
annulled within 30 days after written notice as provided in the Indenture,
provided that if such default is remedied or cured by the Corporation or any
Material Banking Subsidiary or waived by holders of such indebtedness, the Event
of Default by reason thereof shall be deemed to have been thereupon remedied,
cured or waived; certain events of bankruptcy, insolvency or reorganization with
respect to the Corporation or any Material Banking Subsidiary; or any other
Event of Default specified in the applicable Prospectus Supplement. In case an
Event of Default with respect to Senior Debt Securities of any series shall
occur and be continuing, the Senior Trustee or the Holders of not less than 25%
in principal amount of the Senior Debt Securities of such series then
outstanding may declare the principal of all such Senior Debt Securities of such
series to be due and payable. The Corporation is required to furnish to the
Senior Trustee annually a statement as to the performance by the Corporation of
its obligations under the Senior Indenture and as to any default in such
performance. Under certain circumstances any declaration of acceleration with
respect to Senior Debt Securities of any series may be rescinded and past
defaults (except a default in the payment of principal of or interest on the
Senior Debt Securities) may be waived by the Holders of a majority in aggregate
principal amount of the Senior Debt Securities of such series then outstanding.
The Senior Indenture provides that the Senior Trustee may withhold notice to the
Holders of Senior Debt Securities of any series of any continuing default
(except in the payment of the principal of (or premium, if any) or interest on
any Senior Debt Securities of such series) if such Senior Trustee considers it
in the interest of Holders of such series of Senior Debt Securities to do so.
Subordinated Indenture
An Event of Default with respect to the Subordinated Debt Securities of any
series is defined in the Subordinated Indenture as being certain events
involving a bankruptcy, insolvency or reorganization of the Corporation. If an
Event of Default with respect to Subordinated Debt Securities of any series
shall have
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<PAGE> 47
occurred and be continuing, either the Subordinated Trustee or the Holders of
not less than 25% in aggregate principal amount of the Subordinated Debt
Securities of such series then outstanding may declare the principal of the
Subordinated Debt Securities of such series to be due and payable immediately.
The Corporation is required to furnish to the Subordinated Trustee annually a
statement as to the performance by the Corporation of its obligations under the
Subordinated Indenture and as to any default in such performance. Under certain
circumstances, any declaration of acceleration with respect to Subordinated Debt
Securities of any series may be rescinded and past defaults (except a default in
the payment of principal of or interest on the Subordinated Debt Securities) may
be waived by the Holders of a majority in aggregate principal amount of the
Subordinated Debt Securities of such series then outstanding. The Subordinated
Indenture provides that the Subordinated Trustee may withhold notice to the
Holders of the Subordinated Debt Securities of any series of any continuing
default (except in the payment of the principal of (or premium, if any) or
interest on any Subordinated Debt Securities of such series) if the Subordinated
Trustee considers it in the interest of the Holders of such series of
Subordinated Debt Securities to do so.
The Subordinated Indenture does not provide for any right of acceleration
of the payment of principal of a series of Subordinated Debt Securities upon a
default in the payment of principal or interest or in the performance of any
covenant or agreement in the Subordinated Debt Securities of the particular
series or in the Subordinated Indenture.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Corporation has covenanted in the Senior and Subordinated Indentures
that it will not merge or consolidate with any other corporation or sell,
convey, transfer or lease all or substantially all of its assets to any person,
firm or corporation unless the Corporation is the continuing corporation or the
successor corporation expressly assumes the obligations under any outstanding
Senior Debt Securities and Subordinated Debt Securities and the respective
Senior and Subordinated Indentures and the Corporation or such successor
corporation is not, immediately after such merger, consolidation, sale or
conveyance, in default in the performance of any of the covenants or conditions
of the respective Indenture. The Indentures do not contain any other covenant
which restricts the Corporation's ability to merge or consolidate with any other
corporation, sell, convey, transfer or lease all or substantially all of its
assets to any persons, firm or corporation or otherwise engage in restructuring
transactions.
TERMS APPLICABLE TO THE PNA SENIOR DEBT SECURITIES OR PNA
SUBORDINATED DEBT SECURITIES
MODIFICATION OF THE PNA SENIOR AND PNA SUBORDINATED INDENTURES
The PNA Senior and PNA Subordinated Indentures contain provisions
permitting the Corporation, PNA and the respective PNA Trustees, with the
consent of Holders of not less than a majority in principal amount of the PNA
Senior Debt Securities or PNA Subordinated Debt Securities that are affected by
the modification, to modify the particular Indenture or any supplemental
indenture or the rights of the Holders of the PNA Senior Debt Securities or PNA
Subordinated Debt Securities issued under such Indenture, provided that no such
modification may, without the consent of the Holder of each Outstanding PNA
Senior Debt Security or PNA Subordinated Debt Security affected thereby, (a)
change the stated maturity date of the principal of, or any installment of
principal of or interest, if any, on, any PNA Senior Debt Security or PNA
Subordinated Debt Security, (b) reduce the principal amount of, or premium or
rate of interest, if any, on, any PNA Senior Debt Security or PNA Subordinated
Debt Security, (c) reduce the amount of principal of an Original Issue Discount
PNA Senior Debt Security or PNA Subordinated Debt Security payable upon
acceleration of the maturity thereof, (d) change the place or coin or currency
of payment of principal of, or premium or interest, if any, on, any PNA Senior
Debt Security or PNA Subordinated Debt Security, (e) impair the right to
institute suit for the enforcement of any payment on or with respect to any PNA
Senior Debt Security or PNA Subordinated Debt Security, (f) modify or affect in
any manner adverse to Holders the terms and conditions of the obligations of the
Guarantor in respect of the due and punctual payment of principal or any premium
and interest, sinking fund payment or Additional Amounts in respect of the PNA
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<PAGE> 48
Senior Debt Securities or PNA Subordinated Debt Securities, (g) reduce the
percentage in principal amount of Outstanding PNA Senior Debt Securities or PNA
Subordinated Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (h) modify (with certain exceptions) any provision of the Indenture
that requires the consent of the Holder of each Outstanding PNA Senior Debt
Security or PNA Subordinated Debt Security affected thereby or (i) with respect
to the PNA Subordinated Indenture, modify the subordination provisions in a
manner adverse to Holders of Outstanding PNA Subordinated Debt Securities.
SUBORDINATION
Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions shall apply to the PNA Subordinated Debt Securities and the
guarantee of them by the Corporation.
The payment of the principal of, premium, if any, and interest on the PNA
Subordinated Debt Securities and the Corporation's Guarantees thereof (the "PNA
Subordinated Guarantees") will, to the extent set forth in the PNA Subordinated
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined below) of PNA or the Corporation, as the
case may be. In certain events of insolvency, the payment of the principal of,
premium, if any, and interest on the PNA Subordinated Debt Securities and any
payments with respect to the PNA Subordinated Guarantees will, to the extent set
forth in the PNA Subordinated Indenture, also be effectively subordinated in
right of payment to the prior payment in full of all Other Financial Obligations
(as defined below) of PNA or the Corporation, as the case may be. As of March
31, 1997, $1,058 million aggregate principal amount of Senior Indebtedness and
$25 million of Other Financial Obligations of PNA were outstanding. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of PNA or the Corporation, the holders of all Senior Indebtedness
thereof will first be entitled to receive payment in full of all amounts due or
to become due thereon before the Holders of the PNA Subordinated Debt Securities
or the PNA Subordinated Guarantees will be entitled to receive any payment in
respect of the principal of, premium, if any, or interest on the PNA
Subordinated Debt Securities or the PNA Subordinated Guarantees, as the case may
be. If, upon any such payment or distribution of assets to creditors, there
remain, after giving effect to such subordination provisions in favor of the
holders of Senior Indebtedness of PNA and the Corporation, any amounts of cash,
property or securities available for payment or distribution in respect of PNA
Subordinated Debt Securities or the PNA Subordinated Guarantees (as defined in
the PNA Subordinated Indenture, "PNA Excess Proceeds") and if, at such time, any
person entitled to payment pursuant to the terms of Other Financial Obligations
of PNA or the Corporation has not received payment in full of all amounts due or
to become due on or in respect of such Other Financial Obligations of PNA or the
Corporation, then such PNA Excess Proceeds shall first be applied to pay or
provide for the payment in full of such Other Financial Obligations of PNA or
the Corporation, as the case may be, before any payment or distribution may be
made in respect of the PNA Subordinated Debt Securities or the PNA Subordinated
Guarantees. In the event of the acceleration of the maturity of any PNA
Subordinated Debt Securities, the holders of all Senior Indebtedness of PNA or
the Corporation, as the case may be, will first be entitled to receive payment
in full of all amounts due or to become due thereon before the Holders of the
PNA Subordinated Debt Securities or the PNA Subordinated Guarantees will be
entitled to receive any payment of the principal of, premium, if any, or
interest on the PNA Subordinated Debt Securities or the PNA Subordinated
Guarantees, as the case may be. Accordingly, in case of such an acceleration,
all Senior Indebtedness of PNA or the Corporation would have to be repaid before
any payment could be made in respect of the PNA Subordinated Debt Securities or
the PNA Subordinated Guarantees, as the case may be. No payments on account of
principal, premium, if any, or interest in respect of the PNA Subordinated Debt
Securities or the PNA Subordinated Guarantees may be made if there shall have
occurred and be continuing a default in any payment with respect to any Senior
Indebtedness of PNA or the Corporation, an event of default with respect to any
Senior Indebtedness of PNA or the Corporation permitting the holders thereof to
accelerate the maturity thereof, or if any judicial proceeding shall be pending
with respect to any such default.
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<PAGE> 49
By reason of such subordination, in the event of the insolvency of PNA or
the Corporation, creditors of PNA or the Corporation who are not holders of
Senior Indebtedness, the PNA Subordinated Debt Securities or the PNA
Subordinated Guarantees may recover less, ratably, than holders of Senior
Indebtedness of PNA or the Corporation, as the case may be, and may recover
more, ratably, than Holders of the PNA Subordinated Debt Securities or the PNA
Subordinated Guarantees.
"Senior Indebtedness" of PNA is defined in the PNA Subordinated Indenture
to mean the principal of, premium, if any, and interest on (i) all indebtedness
of PNA for money borrowed (including indebtedness of others guaranteed by PNA)
other than the PNA Subordinated Debt Securities, whether outstanding on the date
of the PNA Subordinated Indenture or thereafter created, assumed or incurred and
(ii) any amendments, renewals, extensions, modifications and refundings of any
such indebtedness, unless in either case in the instrument creating or
evidencing any such indebtedness or pursuant to which it is outstanding it is
provided that such indebtedness is not superior in right of payment to the PNA
Subordinated Debt Securities. For the purposes of this definition, "indebtedness
for money borrowed" is defined as (i) any obligation of, or any obligation
guaranteed by, PNA for the repayment of borrowed money, whether or not evidenced
by bonds, debentures, notes or other written instruments, (ii) any deferred
payment obligation of, or any such obligation guaranteed by, PNA for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument, and (iii) any obligation of, or any such obligation guaranteed by,
PNA for the payment of rent or other amounts under a lease of property or assets
which obligation is required to be classified and accounted for as a capitalized
lease on the balance sheet of PNA under generally accepted accounting
principles.
"Other Financial Obligations" of PNA is defined in the PNA Subordinated
Indenture to mean all obligations of PNA to make payment pursuant to the terms
of financial instruments, such as (i) securities contracts and foreign currency
exchange contracts, (ii) derivative instruments, such as swap agreements
(including interest rate and currency and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar agreements, interest rate
agreements, foreign exchange agreements, options, commodity futures contracts,
commodity options contracts and (iii) similar financial instruments; provided
that the term Other Financial Obligations shall not include (x) obligations on
account of Senior Indebtedness of PNA and (y) obligations on account of
indebtedness for money borrowed ranking pari passu with or subordinate to the
PNA Subordinated Debt Securities.
"Senior Indebtedness" of the Corporation is defined in the PNA Subordinated
Indenture to mean the principal of, premium, if any, and interest on (i) all
indebtedness of the Corporation for money borrowed (including indebtedness of
others guaranteed by the Corporation other than the PNA Subordinated
Guarantees), whether outstanding on the date of the PNA Subordinated Indenture
or thereafter created, assumed or incurred and (ii) any amendments, renewals,
extensions, modifications and refundings of any such indebtedness, unless in
either case in the instrument creating or evidencing any such indebtedness or
pursuant to which it is outstanding it is provided that such indebtedness is not
superior in right of payment to the PNA Subordinated Guarantees. For the
purposes of this definition, "indebtedness for money borrowed" is defined as (i)
any obligation of, or any obligation guaranteed by, the Corporation for the
repayment of borrowed money, whether or not evidenced by bonds, debentures,
notes or other written instruments, (ii) any deferred payment obligation of, or
any such obligation guaranteed by, the Corporation for the payment of the
purchase price of property or assets evidenced by a note or similar instrument,
and (iii) any obligation of, or any such obligation guaranteed by, the
Corporation for the payment of rent or other amounts under a lease of property
or assets which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of the Corporation under generally
accepted accounting principles.
"Other Financial Obligations" of the Corporation is defined in the PNA
Subordinated Indenture to mean all obligations of the Corporation to make
payment pursuant to the terms of financial instruments, such as (i) securities
contracts and foreign currency exchange contracts, (ii) derivative instruments,
such as swap agreements (including interest rate and currency and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange agreements, options,
commodity futures contracts, commodity options contracts and (iii) similar
financial instruments; provided that the term Other Financial Obligations shall
not include (x) obligations on account of Senior Indebtedness
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<PAGE> 50
and (y) obligations on account of indebtedness for money borrowed ranking pari
passu with or subordinate to the PNA Subordinated Guarantees.
EVENTS OF DEFAULT
PNA Senior Indenture
An Event of Default with respect to PNA Senior Debt Securities of any
series is defined in the PNA Senior Indenture as being: default for 30 days in
payment of any interest on PNA Senior Debt Securities of such series; default in
payment of principal of (or premium, if any) on any PNA Senior Debt Securities
of such series; default in deposit of any mandatory sinking fund payment
required by the PNA Senior Debt Securities of such series; default for 60 days,
after notice, in performance or breach of any other covenant or warranty in the
PNA Senior Indenture (except for a covenant expressly relating to a series of
PNA Senior Debt Securities other than that series of PNA Senior Debt Securities)
or in the PNA Senior Debt Securities of such series; acceleration of the PNA
Senior Debt Securities of any other series or any other indebtedness for
borrowed money of the Corporation, PNA or any Material Banking Subsidiary, in
each case exceeding $10,000,000 in an aggregate principal amount, as a result of
a default under the terms of the instrument or instruments under which such
indebtedness is issued or secured, unless such acceleration is annulled within
30 days after written notice as provided in the Indenture, provided that if such
default is remedied or cured by the Corporation, PNA or any Material Banking
Subsidiary or waived by the holders of such indebtedness, the Event of Default
by reason thereof shall be deemed to have been thereupon remedied, cured or
waived; certain events of bankruptcy, insolvency or reorganization of the
Corporation, any Material Banking Subsidiary or PNA; or any other Event of
Default specified in the applicable Prospectus Supplement. In case an Event of
Default with respect to PNA Senior Debt Securities of any series shall occur and
be continuing, the PNA Senior Trustee or the Holders of not less than 25% in
principal amount of the PNA Senior Debt Securities of such series then
outstanding may declare the principal of all the PNA Senior Debt Securities of
such series to be due and payable. The Corporation and PNA are required to
furnish to the PNA Senior Trustee annually a statement or statements as to the
performance by the Corporation and PNA of their respective obligations under the
PNA Senior Indenture of such series and as to any default in such performance.
Under certain circumstances any declaration of acceleration with respect to PNA
Senior Debt Securities of any series may be rescinded and past defaults (except
a default in the payment of principal of or interest on the PNA Senior Debt
Securities) may be waived by the Holders of a majority in aggregate principal
amount of the PNA Senior Debt Securities of such series then outstanding. The
PNA Senior Indenture provides that the PNA Senior Trustee may withhold notice to
the Holders of PNA Senior Debt Securities of any series of any continuing
default (except in the payment of the principal of (or premium, if any) or
interest on any PNA Senior Debt Securities of such series) if such PNA Senior
Trustee considers it in the interest of Holders of such series of PNA Senior
Debt Securities to do so.
PNA Subordinated Indenture
An Event of Default with respect to the PNA Subordinated Debt Securities of
any series is defined in the PNA Subordinated Indenture as being certain events
involving a bankruptcy, insolvency or reorganization of the Corporation or PNA.
If an Event of Default with respect to PNA Subordinated Debt Securities of any
series shall have occurred and be continuing, either the PNA Subordinated
Trustee or the Holders of not less than 25% in aggregate principal amount of the
PNA Subordinated Debt Securities of such series then outstanding may declare the
principal of the PNA Subordinated Debt Securities of such series to be due and
payable immediately. The Corporation and PNA are required to furnish to the PNA
Subordinated Trustee annually a statement as to the performance by the
Corporation and PNA of their respective obligations under the PNA Subordinated
Indenture and as to any default in such performance. Under certain
circumstances, any declaration of acceleration with respect to PNA Subordinated
Debt Securities of any series may be rescinded and past defaults (except a
default in the payment of principal of or interest on the PNA Subordinated Debt
Securities) may be waived by the Holders of a majority in aggregate principal
amount of the PNA Subordinated Debt Securities of such series then outstanding.
The PNA Subordinated Indenture provides that the PNA Subordinated Trustee may
withhold notice to the Holders of the PNA Subordinated
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<PAGE> 51
Debt Securities of any series of any continuing default (except in the payment
of the principal of (or premium, if any) or interest on any PNA Subordinated
Debt Securities of such series) if the PNA Subordinated Trustee considers it in
the interest of the Holders of such series of PNA Subordinated Debt Securities
to do so.
The PNA Subordinated Indenture does not provide for any right of
acceleration of the payment of principal of a series of PNA Subordinated Debt
Securities upon a default in the payment of principal or interest or in the
performance of any covenant or agreement in the PNA Subordinated Debt Securities
of the particular series, in the PNA Subordinated Indenture or in the PNA
Subordinated Guarantees.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Each of the Corporation and PNA has covenanted in the PNA Senior and PNA
Subordinated Indentures that it will not merge or consolidate with any other
corporation or sell, convey, transfer or lease all or substantially all of its
assets to any person, firm or corporation unless the Corporation or PNA, as the
case may be, is the continuing corporation or the successor corporation
expressly assumes the obligations under any outstanding PNA Senior Debt
Securities and PNA Subordinated Debt Securities and the PNA Subordinated
Guarantees and the respective PNA Senior and PNA Subordinated Indentures and the
Corporation or PNA, as the case may be, or such successor corporation is not,
immediately after such merger, consolidation, sale or conveyance, in default in
the performance of any of the covenants or conditions of the respective
Indenture. The Indentures do not contain any other covenant that restricts the
Corporation's or PNA's ability to merge or consolidate with any other
corporation, sell, convey, transfer or lease all or substantially all of its
assets to any person, firm or corporation or otherwise engage in restructuring
transactions.
GUARANTEE
PNA Senior Debt Securities
The Corporation will guarantee the punctual payment of the principal of,
premium, if any, and interest on the PNA Senior Debt Securities, when and as the
same are due and payable. The guarantee is absolute and unconditional,
irrespective of any circumstance that might otherwise constitute a legal or
equitable discharge of a surety or guarantor. To evidence the guarantee, a
Guarantee, executed by the Corporation, will be endorsed on each PNA Senior Debt
Security. Holders of the PNA Senior Debt Securities may proceed directly against
the Corporation in the event of default under the PNA Senior Debt Securities
without first proceeding against PNA. The Guarantees will rank pari passu with
all other unsecured and unsubordinated obligations of the Corporation.
PNA Subordinated Debt Securities
The Corporation will guarantee, on a subordinated basis, the punctual
payment of the principal of, premium, if any, and interest on the PNA
Subordinated Debt Securities, when and as the same are due and payable. The
guarantee is absolute and unconditional, irrespective of any circumstance that
might otherwise constitute a legal or equitable discharge of a surety or
guarantor. To evidence the guarantee, a Guarantee, executed by the Corporation,
will be endorsed on each PNA Subordinated Debt Security. Holders of the PNA
Subordinated Debt Securities may proceed directly against the Corporation in the
event of default under the PNA Subordinated Debt Securities without first
proceeding against PNA. The PNA Subordinated Guarantees will rank pari passu
with all other unsecured and subordinated obligations of the Corporation. See
"Subordination."
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TERMS APPLICABLE TO THE PIB SENIOR DEBT SECURITIES
OR PIB SUBORDINATED DEBT SECURITIES
MODIFICATION OF THE PIB SENIOR AND PIB SUBORDINATED INDENTURES
The PIB Senior and PIB Subordinated Indentures contain provisions
permitting the Corporation, PIB and the respective PIB Trustees, with the
consent of Holders of not less than a majority in principal amount of the PIB
Senior Debt Securities or PIB Subordinated Debt Securities that are affected by
the modification, to modify the particular Indenture or any supplemental
indenture or the rights of the Holders of the PIB Senior Debt Securities or PIB
Subordinated Debt Securities issued under such Indenture; provided that no such
modification may, without the consent of the Holder of each outstanding PIB
Senior Debt Security or PIB Subordinated Debt Security affected thereby, (a)
change the stated maturity date of the principal of, or any installment of
principal of or interest, if any, on, any PIB Senior Debt Security or PIB
Subordinated Debt Security, (b) reduce the principal amount of, or premium or
rate of interest, if any, on, any PIB Senior Debt Security or PIB Subordinated
Debt Security, (c) reduce the amount of principal of an Original Issue Discount
Security payable upon acceleration of the maturity thereof, (d) change the place
or coin or currency of payment of principal of, or premium or interest, if any,
on, any PIB Senior Debt Security or PIB Subordinated Debt Security, (e) impair
the right to institute suit for the enforcement of any payment on or with
respect to any PIB Senior Debt Security or PIB Subordinated Debt Security, (f)
modify or affect in any manner adverse to Holders the terms and conditions of
the obligations of the Guarantor in respect of the due and punctual payment of
principal or any premium and interest, sinking fund payment or Additional
Amounts in respect of the PIB Senior Debt Securities or PIB Subordinated Debt
Securities, (g) reduce the percentage in principal amount of Outstanding PIB
Senior Debt Securities or PIB Subordinated Debt Securities of any series, the
consent of whose Holders is required for modification or amendment of the
Indenture or for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults, (h) modify (with certain exceptions) any
provision of the Indenture that requires the consent of the Holder of each
Outstanding PIB Senior Debt Security or PIB Subordinated Debt Security affected
thereby or (i) with respect to the PIB Subordinated Indenture, modify the
subordination provisions in a manner adverse to Holders of Outstanding PIB
Subordinated Debt Securities.
SUBORDINATION
Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions shall apply to the PIB Subordinated Debt Securities and the
guarantee of them by the Corporation.
The payment of the principal of, premium, if any, and interest on the PIB
Subordinated Debt Securities and the Corporation's Guarantees thereof (the "PIB
Subordinated Guarantees") will, to the extent set forth in the PIB Subordinated
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined below) of PIB or the Corporation, as the
case may be. In certain events of insolvency, the payment of the principal of,
premium, if any, and interest on the PIB Subordinated Debt Securities and any
payments with respect to the PIB Subordinated Guarantees will, to the extent set
forth in the PIB Subordinated Indenture, also be effectively subordinated in
right of payment to the prior payment in full of all Other Financial Obligations
(as defined below) of PIB or the Corporation, as the case may be. As of March
31, 1997, no Senior Indebtedness and no Other Financial Obligations of PIB were
outstanding. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of PIB or the Corporation, the holders of all Senior Indebtedness
thereof will first be entitled to receive payment in full of all amounts due or
to become due thereon before the Holders of the PIB Subordinated Debt Securities
or the PIB Subordinated Guarantees will be entitled to receive any payment in
respect of the principal of, premium, if any, or interest on the PIB
Subordinated Debt Securities or the PIB Subordinated Guarantees, as the case may
be. If, upon any such payment or distribution of assets to creditors, there
remain, after giving effect to such subordination provisions in favor of the
holders of Senior Indebtedness of PIB and the Corporation, any amounts of cash,
property or securities available for payment or distribution in respect of PIB
Subordinated Debt Securities or the PIB Subordinated Guarantees (as defined in
the PIB
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Subordinated Indenture, "PIB Excess Proceeds") and if, at such time, any person
entitled to payment pursuant to the terms of Other Financial Obligations of PIB
or the Corporation has not received payment in full of all amounts due or to
become due on or in respect of such Other Financial Obligations of PIB or the
Corporation, then such PIB Excess Proceeds shall first be applied to pay or
provide for the payment in full of such Other Financial Obligations of PIB or
the Corporation, as the case may be, before any payment or distribution may be
made in respect of the PIB Subordinated Debt Securities or the PIB Subordinated
Guarantees. In the event of the acceleration of the maturity of any PIB
Subordinated Debt Securities, the holders of all Senior Indebtedness of PIB or
the Corporation, as the case may be, will first be entitled to receive payment
in full of all amounts due or to become due thereon before the Holders of the
PIB Subordinated Debt Securities or the PIB Subordinated Guarantees will be
entitled to receive any payment of the principal of, premium, if any, or
interest on the PIB Subordinated Debt Securities or the PIB Subordinated
Guarantees, as the case may be. Accordingly, in case of such an acceleration,
all Senior Indebtedness of PIB or the Corporation would have to be repaid before
any payment could be made in respect of the PIB Subordinated Debt Securities or
the PIB Subordinated Guarantees, as the case may be. No payments on account of
principal, premium, if any, or interest in respect of the PIB Subordinated Debt
Securities or the PIB Subordinated Guarantees may be made if there shall have
occurred and be continuing a default in any payment with respect to any Senior
Indebtedness of PIB or the Corporation, an event of default with respect to any
Senior Indebtedness of PIB or the Corporation permitting the holders thereof to
accelerate the maturity thereof, or if any judicial proceeding shall be pending
with respect to any such default.
By reason of such subordination, in the event of the insolvency of PIB or
the Corporation, creditors of PIB or the Corporation who are not holders of
Senior Indebtedness, the PIB Subordinated Debt Securities or the PIB
Subordinated Guarantees may recover less, ratably, than holders of Senior
Indebtedness of PIB or the Corporation, as the case may be, and may recover
more, ratably, than Holders of the PIB Subordinated Debt Securities or the PIB
Subordinated Guarantees.
"Senior Indebtedness" of PIB is defined in the PIB Subordinated Indenture
to mean the principal of, premium, if any, and interest on (i) all indebtedness
of PIB for money borrowed (including indebtedness of others guaranteed by PIB)
other than the PIB Subordinated Debt Securities, whether outstanding on the date
of the PIB Subordinated Indenture or thereafter created, assumed or incurred and
(ii) any amendments, renewals, extensions, modifications and refundings of any
such indebtedness, unless in either case in the instrument creating or
evidencing any such indebtedness or pursuant to which it is outstanding it is
provided that such indebtedness is not superior in right of payment to the PIB
Subordinated Debt Securities. For the purposes of this definition, "indebtedness
for money borrowed" is defined as (i) any obligation of, or any obligation
guaranteed by, PIB for the repayment of borrowed money, whether or not evidenced
by bonds, debentures, notes or other written instruments, (ii) any deferred
payment obligation of, or any such obligation guaranteed by, PIB for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument, and (iii) any obligation of, or any such obligation guaranteed by,
PIB for the payment of rent or other amounts under a lease of property or assets
which obligation is required to be classified and accounted for as a capitalized
lease on the balance sheet of PIB under generally accepted accounting
principles.
"Other Financial Obligations" of PIB is defined in the PIB Subordinated
Indenture to mean all obligations of PIB to make payment pursuant to the terms
of financial instruments, such as (i) securities contracts and foreign currency
exchange contracts, (ii) derivative instruments, such as swap agreements
(including interest rate and currency and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar agreements, interest rate
agreements, foreign exchange agreements, options, commodity futures contracts,
commodity options contracts and (iii) similar financial instruments; provided
that the term Other Financial Obligations shall not include (x) obligations on
account of Senior Indebtedness of PIB and (y) obligations on account of
indebtedness for money borrowed ranking pari passu with or subordinate to the
PIB Subordinated Debt Securities.
"Senior Indebtedness" of the Corporation is defined in the PIB Subordinated
Indenture to mean the principal of, premium, if any, and interest on (i) all
indebtedness of the Corporation for money borrowed (including indebtedness of
others guaranteed by the Corporation other than the PIB Subordinated
Guarantees), whether outstanding on the date of the PIB Subordinated Indenture
or thereafter created, assumed or
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incurred and (ii) any amendments, renewals, extensions, modifications and
refundings of any such indebtedness, unless in either case in the instrument
creating or evidencing any such indebtedness or pursuant to which it is
outstanding it is provided that such indebtedness is not superior in right of
payment to the PIB Subordinated Guarantees. For the purposes of this definition,
"indebtedness for money borrowed" is defined as (i) any obligation of, or any
obligation guaranteed by, the Corporation for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Corporation for the payment of the purchase price of property
or assets evidenced by a note or similar instrument, and (iii) any obligation
of, or any such obligation guaranteed by, the Corporation for the payment of
rent or other amounts under a lease of property or assets which obligation is
required to be classified and accounted for as a capitalized lease on the
balance sheet of the Corporation under generally accepted accounting principles.
"Other Financial Obligations" of the Corporation is defined in the PIB
Subordinated Indenture to mean all obligations of the Corporation to make
payment pursuant to the terms of financial instruments, such as (i) securities
contracts and foreign currency exchange contracts, (ii) derivative instruments,
such as swap agreements (including interest rate and currency and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange agreements, options,
commodity futures contracts, commodity options contracts and (iii) similar
financial instruments; provided that the term Other Financial Obligations shall
not include (x) obligations on account of Senior Indebtedness and (y)
obligations on account of indebtedness for money borrowed ranking pari passu
with or subordinate to the PIB Subordinated Guarantees.
EVENTS OF DEFAULT
PIB Senior Indenture
An Event of Default with respect to PIB Senior Debt Securities of any
series is defined in the PIB Senior Indenture as being: default for 30 days in
payment of any interest on PIB Senior Debt Securities of such series; default in
payment of principal of (or premium on, if any) any PIB Senior Debt Securities
of such series; default in deposit of any mandatory sinking fund payment
required by the PIB Senior Debt Securities of such series; default for 60 days,
after notice, in performance or breach of any other covenant or warranty in the
PIB Senior Indenture (except for a covenant expressly relating to a series of
PIB Senior Debt Securities other than that series of PIB Senior Debt Securities)
or in the PIB Senior Debt Securities of such series; acceleration of the PIB
Senior Debt Securities of any other series or any other indebtedness for
borrowed money, of the Corporation, PIB or any Material Banking Subsidiary, in
each case in an aggregate principal amount exceeding $10,000,000, as a result of
a default under the terms of the instrument or instruments under which such
indebtedness is issued or secured, unless such acceleration is annulled within
30 days after written notice as provided in the Indenture, provided that if such
default is remedied or cured by the Corporation, PIB or any Material Banking
Subsidiary or waived by holders of such indebtedness, the Event of Default by
reason thereof shall be deemed to have been thereupon remedied, cured or waived;
certain events of bankruptcy, insolvency or reorganization with respect to the
Corporation, PIB or any Material Banking Subsidiary; or any other Event of
Default specified in the applicable Prospectus Supplement. In case an Event of
Default with respect to PIB Senior Debt Securities of any series shall occur and
be continuing, the PIB Senior Trustee or the Holders of not less than 25% in
principal amount of the PIB Senior Debt Securities of such series then
outstanding may declare the principal of all the PIB Senior Debt Securities of
such series to be due and payable. The Corporation and PIB are required to
furnish to the PIB Senior Trustee annually a statement as to the performance by
the Corporation and PIB of their respective obligations under the PIB Senior
Indenture and as to any default in such performance. Under certain circumstances
any declaration of acceleration with respect to PIB Senior Debt Securities of
any series may be rescinded and past defaults (except a default in the payment
of principal of or interest on the PIB Senior Debt Securities) may be waived by
the Holders of a majority in aggregate principal amount of the PIB Senior Debt
Securities of such series then outstanding. The PIB Senior Indenture provides
that the PIB Senior Trustee may withhold notice to the Holders of PIB Senior
Debt Securities of any series of any continuing default (except in the payment
of the principal of (or
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premium, if any) or interest on any PIB Senior Debt Securities of such series)
if such PIB Senior Trustee considers it in the interest of Holders of such
series of PIB Senior Debt Securities to do so.
PIB Subordinated Indenture
An Event of Default with respect to the PIB Subordinated Debt Securities of
any series is defined in the PIB Subordinated Indenture as being certain events
involving a bankruptcy, insolvency or reorganization of the Corporation or PIB.
If an Event of Default with respect to PIB Subordinated Debt Securities of any
series shall have occurred and be continuing, either the PIB Subordinated
Trustee or the Holders of not less than 25% in aggregate principal amount of the
PIB Subordinated Debt Securities of such series then outstanding may declare the
principal of the PIB Subordinated Debt Securities of such series to be due and
payable immediately. The Corporation and PIB are required to furnish to the PIB
Subordinated Trustee annually a statement as to the performance by the
Corporation and PIB of their respective obligations under the PIB Subordinated
Indenture and as to any default in such performance. Under certain
circumstances, any declaration of acceleration with respect to PIB Subordinated
Debt Securities of any series may be rescinded and past defaults (except a
default in the payment of principal of or interest on the PIB Subordinated Debt
Securities) may be waived by the Holders of a majority in aggregate principal
amount of the PIB Subordinated Debt Securities of such series then outstanding.
The PIB Subordinated Indenture provides that the PIB Subordinated Trustee may
withhold notice to the Holders of the PIB Subordinated Debt Securities of any
series of any continuing default (except in the payment of the principal of (or
premium, if any) or interest on any PIB Subordinated Debt Securities of such
series) if the PIB Subordinated Trustee considers it in the interest of the
Holders of such series of PIB Subordinated Debt Securities to do so.
The PIB Subordinated Indenture does not provide for any right of
acceleration of the payment of principal of a series of PIB Subordinated Debt
Securities upon a default in the payment of principal or interest or in the
performance of any covenant or agreement in the PIB Subordinated Debt Securities
of the particular series, in the PIB Subordinated Indenture or in the PIB
Subordinated Guarantees.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
Each of the Corporation and PIB has covenanted in the PIB Senior and PIB
Subordinated Indentures that it will not merge or consolidate with any other
corporation or sell, convey, transfer or lease all or substantially all of its
assets to any person, firm or corporation unless the Corporation or PIB, as the
case may be, is the continuing corporation or the successor corporation
expressly assumes the obligations under any outstanding PIB Senior Debt
Securities and Subordinated Debt Securities and the PIB Subordinated Guarantees
and the respective PIB Senior and PIB Subordinated Indentures and the
Corporation, or PIB, as the case may be, or such successor corporation is not,
immediately after such merger, consolidation, sale or conveyance, in default in
the performance of any of the covenants or conditions of the respective
Indenture. The Indentures do not contain any other covenant that restricts the
Corporation's or PIB's ability to merge or consolidate with any other
corporation, sell, convey, transfer or lease all or substantially all of its
assets to any persons, firm or corporation or otherwise engage in restructuring
transactions.
GUARANTEE
PIB Senior Debt Securities
The Corporation will guarantee the punctual payment of the principal of,
premium, if any, and interest on the PIB Senior Debt Securities, when and as the
same are due and payable. The guarantee is absolute and unconditional,
irrespective of any circumstance that might otherwise constitute a legal or
equitable discharge of a surety or guarantor. To evidence the guarantee, a
Guarantee, executed by the Corporation, will be endorsed on each PIB Senior Debt
Security. Holders of the PIB Senior Debt Securities may proceed directly against
the Corporation in the event of default under the PIB Senior Debt Securities
without first proceeding against PIB. The Guarantees will rank pari passu with
all other unsecured and unsubordinated obligations of the Corporation.
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PIB Subordinated Debt Securities
The Corporation will guarantee, on a subordinated basis, the punctual
payment of the principal of, premium, if any, and interest on the PIB
Subordinated Debt Securities, when and as the same are due and payable. The
guarantee is absolute and unconditional, irrespective of any circumstance that
might otherwise constitute a legal or equitable discharge of a surety or
guarantor. To evidence the guarantee, a Guarantee, executed by the Corporation,
will be endorsed on each PIB Subordinated Debt Security. Holders of the PIB
Subordinated Debt Securities may proceed directly against the Corporation in the
event of default under the PIB Subordinated Debt Securities without first
proceeding against PIB. The PIB Subordinated Guarantees will rank pari passu
with all other unsecured and subordinated obligations of the Corporation. See
"Subordination."
DESCRIPTION OF PREFERRED STOCK OF THE CORPORATION
The following summary contains a description of certain general terms of
the Corporation's preferred stock (the "Preferred Stock") to which any
Prospectus Supplement may relate. Certain terms of any series of the Preferred
Stock offered by any Prospectus Supplement will be described in the Prospectus
Supplement relating thereto. If so indicated in the Prospectus Supplement, the
terms of any series may differ from the terms set forth below. The following
summary description of certain provisions of the Preferred Stock is subject to
and qualified in its entirety by reference to the provisions of the
Corporation's Restated Certificate of Incorporation, as amended, the
Certificates of Designation describing the Corporation's 8.35% Non-Cumulative
Monthly Income Preferred Stock, 1994 Series A (the "Series A Preferred Stock")
and the Corporation's Series A Participating Preferred Stock (the "Series A
Participating Preferred Stock"), respectively, and the Certificate of Resolution
(the "Certificate of Resolution") relating to each particular series of the
Preferred Stock, each of which will be filed or incorporated by reference, as
the case may be, as an exhibit to the Registration Statement of which this
Prospectus is a part at or prior to the time of the issuance of such Preferred
Stock.
GENERAL
Under the Corporation's Restated Certificate of Incorporation, the Board of
Directors of the Corporation is authorized, without further stockholder action,
to provide for the issuance of up to 10,000,000 shares of preferred stock (of
which 4,000,000 shares have been designated and issued as Series A Preferred
Stock and 350,000 shares have been authorized and designated but not issued for
the Series A Participating Preferred Stock), without par value, in one or more
series, with such designations of titles; dividend rates; special or relative
rights in the event of a liquidation, distribution or sale of assets or
dissolution or winding up of the Corporation; sinking fund provisions;
redemption or purchase account provisions; conversion provisions; and voting
rights, as shall be set forth as and when established by the Board of Directors
of the Corporation. The shares of any series of Preferred Stock will be, when
issued, fully paid and non-assessable and holders thereof shall have no
preemptive rights in connection therewith.
The liquidation preference of any series of the Preferred Stock is not
necessarily indicative of the price at which shares of such series of Preferred
Stock will actually trade at or after the time of their issuance. The market
price of any series of Preferred Stock can be expected to fluctuate with changes
in market and economic conditions, the financial condition and prospects of the
Corporation and other factors that generally influence the market prices of
securities.
RANK
Any series of Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of common stock of the Corporation and to all equity securities issued
by the Corporation the terms of which specifically provide that such equity
securities will rank junior to the Preferred Stock (collectively referred to as
the "Junior Securities"); (ii) on a parity with all equity securities issued by
the Corporation the terms of which specifically provide that such equity
securities will rank on a parity with the Preferred Stock (collectively referred
to as the "Parity Securities"); and (iii) junior
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to all equity securities issued by the Corporation the terms of which
specifically provide that such equity securities will rank senior to the
Preferred Stock. As used in any Certificate of Resolution for these purposes,
the term "equity securities" will not include debt securities convertible into
or exchangeable for equity securities.
DIVIDENDS
Holders of each series of Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation out of
funds legally available therefor, cash dividends at such rates and on such dates
as are set forth in the Prospectus Supplement relating to such series of
Preferred Stock. Dividends will be payable to holders of record of the Preferred
Stock as they appear on the books of the Corporation on such record dates as
shall be fixed by the Board of Directors. Dividends on any series of Preferred
Stock may be cumulative or non-cumulative. The Corporation's ability to pay
dividends on its Preferred Stock is subject to policies established by the
Federal Reserve Board. See "Certain Regulatory Matters -- Dividend
Restrictions."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities unless dividends shall have been
paid or set apart for such payment on the Preferred Stock. If full dividends are
not so paid, the Preferred Stock shall share dividends pro rata with the Parity
Securities.
The holders of any series of shares of Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive the
dividend payable on such shares (except that holders of shares called for
redemption on a redemption date occurring between such record date and the
dividend payment date shall not be entitled to receive such dividend on such
dividend payment date but instead will receive accrued and unpaid dividends to
such redemption date) on the corresponding dividend payment date notwithstanding
the conversion thereof or the Corporation's default in payment of the dividend
due. Except as provided above, the Corporation will make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted shares or for
dividends on the shares of preferred stock or issued upon conversion.
CONVERSION
The Prospectus Supplement for any series of Preferred Stock will state the
terms, if any, on which shares of that series are convertible into shares of
another series of preferred stock of the Corporation.
For any series of Preferred Stock which is convertible, the Corporation
shall at all times reserve and keep available, out of the aggregate of its
authorized but unissued preferred stock or preferred stock held in its treasury
or both, for the purpose of effecting the conversion of the shares of such
series of Preferred Stock, the full number of shares of preferred stock then
deliverable upon the conversion of all outstanding shares of such series.
No fractional shares or scrip representing fractional shares of preferred
stock will be issued upon the conversion of shares of any series of convertible
Preferred Stock. Each holder to whom fractional shares would otherwise be issued
will instead be entitled to receive, at the Corporation's election, either (a) a
cash payment equal to the current market price of such holder's fractional
interest or (b) a cash payment equal to such holder's proportionate interest in
the net proceeds (following the deduction of applicable transaction costs) from
the sale promptly by an agent, on behalf of such holders, of shares of preferred
stock representing the aggregate of such fractional shares.
EXCHANGEABILITY
If so determined by the Board of Directors of the Corporation, the holders
of shares of Preferred Stock of any series may be obligated at any time or at
maturity to exchange such shares for preferred stock or debt securities of the
Corporation. The terms of any such exchange and any such preferred stock or debt
securities will be described in the Prospectus Supplement relating to such
series of Preferred Stock.
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REDEMPTION
A series of Preferred Stock may be redeemable at any time, in whole or in
part, at the option of the Corporation or the holder thereof upon terms and at
the redemption prices set forth in the Prospectus Supplement relating to such
series.
In the event of partial redemptions of Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors of the
Corporation or by any other method determined to be equitable by the Board of
Directors.
On or after a redemption date, unless the Corporation defaults in the
payment of the redemption price, dividends will cease to accrue on shares of
Preferred Stock called for redemption and all rights of holders of such shares
will terminate except for the right to receive the redemption price.
Under current regulations, bank holding companies may not exercise any
option to redeem shares of preferred stock included as Tier 1 capital, or
exchange such preferred stock for debt securities, without the prior approval of
the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not
permit such a redemption unless (1) the shares are redeemed with the proceeds of
a sale by the bank holding company of common stock or perpetual preferred stock
or (2) the Federal Reserve Board determines that the bank holding company's
condition and circumstances warrant the reduction of a source of permanent
capital.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, holders of each series of Preferred Stock that ranks senior to
the Junior Securities will be entitled to receive out of assets of the
Corporation available for distribution to shareholders, before any distribution
is made on any Junior Securities, including Common Stock, distributions upon
liquidation in the amount set forth in the Prospectus Supplement relating to
such series of Preferred Stock, plus an amount equal to any declared and unpaid
dividends. If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the Preferred
Stock of any series and any other Parity Securities are not paid in full, the
holders of the Preferred Stock of such series and the Parity Securities will
share ratably in any such distribution of assets of the Corporation in
proportion to the full liquidation preferences to which each is entitled. After
payment of the full amount of the liquidation preference to which they are
entitled, the holders of such series of Preferred Stock will not be entitled to
any further participation in any distribution of assets of the Corporation.
VOTING RIGHTS
Except as indicated in the Prospectus Supplement relating to a particular
series of Preferred Stock, or except as expressly required by applicable law,
the holders of the Preferred Stock will have no voting rights.
Under regulations adopted by the Federal Reserve Board, if the holders of
shares of any series of Preferred Stock of the Corporation become entitled to
vote for the election of directors, 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%
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
BHC Act. In addition, at such time as such series is deemed a class of voting
securities, (i) any other bank holding company may be required to obtain the
approval of the Federal Reserve Board to acquire or retain 5% or more of such
series, and (ii) any person other than a bank holding company may be required to
file with the Federal Reserve Board under the Change in Bank Control Act to
acquire or retain 10% or more of such series.
Section 12 of the Banking Law requires the prior approval of the Office of
the Commissioner to obtain control of any bank organized under the Banking Law.
The Banking Law requires that in any transfer of voting and outstanding capital
stock of any bank organized under the laws of Puerto Rico to any person or
entity that, upon consummation of the transfer, will become the owner, directly
or indirectly, of more than 5% of the voting and outstanding capital stock of
said bank, the parties to the transfer shall inform the Office of the
Commissioner of the proposed transfer at least 60 days prior to the date such
transfer is to be effected. The
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Banking Law does not contain any provision allowing for the extension of such
60-day time period. The transfer requires the approval of the Office of the
Commissioner if it results in a change of control of the bank. For the purposes
of Section 12 of the Banking Law, the term "control" means the power to,
directly or indirectly, direct or influence decisively the administration or the
norms of the bank. The Department of the Treasury (predecessor to the Office of
the Commissioner) made a determination that the foregoing provisions of the
Banking Law are applicable to a change in control of the Corporation in a letter
dated April 9, 1985.
Pursuant to Section 12(d) of the Banking Law, as soon as the Office of the
Commissioner receives notice of a proposed transaction that may result in the
control or in a change of control of a bank, the Office of the Commissioner
shall have the duty to make the necessary investigations. The Office of the
Commissioner shall issue authorization for the transfer of control of the bank
if the results of his investigations are in his judgment satisfactory. The
decision of the Office of the Commissioner is final and unreviewable.
DESCRIPTION OF PREFERRED STOCK OF PIB
The following summary contains a description of certain general terms of
PIB's preferred stock (the "PIB Preferred Stock") to which any Prospectus
Supplement may relate. Certain terms of any series of the Preferred Stock
offered by any Prospectus Supplement will be described in the Prospectus
Supplement relating thereto. If so indicated in the Prospectus Supplement, the
terms of any series may differ from the terms set forth below. The following
summary description of certain provisions of the PIB Preferred Stock is subject
to and qualified in its entirety by reference to the provisions of PIB's
Certificate of Incorporation, as amended, and the Certificate of Amendment
relating to each particular series of the PIB Preferred Stock, each of which
will be filed or incorporated by reference, as the case may be, as an exhibit to
the Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such PIB Preferred Stock.
The authorized capital stock of PIB consists of 1,000,000 shares of Common
Stock, par value $5.00 per share, and 25,000,000 shares of preferred stock, par
value $25.00 per share. The preferred stock is issuable in one or more series,
with such terms, and at such times and for such consideration as the Board of
Directors of PIB determines. As of the date of this Prospectus, no shares of
preferred stock of PIB were issued and outstanding. All of the common stock of
PIB is owned by the Corporation.
GENERAL
Under PIB's Certificate of Incorporation, the Board of Directors of the
Corporation is authorized, without further stockholder action, to provide for
the issuance of up to 25,000,000 shares of preferred stock, par value $25.00 per
share, in one or more series, with such designations of titles; dividend rates;
special or relative rights in the event of a liquidation, distribution or sale
of assets or dissolution or winding up of PIB; sinking fund provisions; any
redemption or purchase account provisions; conversion provisions; and voting
rights, as shall be set forth as and when established by the Board of Directors
of PIB. The shares of any series of PIB Preferred Stock will be, when issued,
fully paid and nonassessable and holders thereof shall have no preemptive rights
in connection therewith.
The liquidation preference of any series of the PIB Preferred Stock is not
necessarily indicative of the price at which shares of such series of PIB
Preferred Stock will actually trade at or after the time of their issuance. The
market price of any series of PIB Preferred Stock can be expected to fluctuate
with changes in market and economic conditions, the financial condition and
prospects of the Corporation and PIB and other factors that generally influence
the market prices of securities.
RANK
Any series of PIB Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of common stock of PIB and to all equity securities issued by PIB the
terms of which specifically provide that such equity securities will rank junior
to the PIB Preferred Stock (collectively referred to as the "PIB Junior
Securities"); (ii) on a parity with all equity securities issued
32
<PAGE> 60
by PIB, the terms of which specifically provide that such equity securities will
rank on a parity with the PIB Preferred Stock (collectively referred to as the
"PIB Parity Securities"); and (iii) junior to all equity securities issued by
PIB, the terms of which specifically provide that such equity securities will
rank senior to the PIB Preferred Stock (collectively referred to as the "PIB
Senior Securities"). As used in any Certificate of Amendment for these purposes,
the term "equity securities" will not include debt securities convertible into
or exchangeable for equity securities.
DIVIDENDS
Holders of each series of PIB Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of PIB out of funds legally
available therefor, cash dividends at such rates and on such dates as are set
forth in the Prospectus Supplement relating to such series of the PIB Preferred
Stock. Dividends will be payable to holders of record of the PIB Preferred Stock
as they appear on the books of PIB on such record dates as shall be fixed by the
Board of Directors. Dividends on any series of PIB Preferred Stock may be
cumulative or non-cumulative. PIB's ability to pay dividends on its Preferred
Stock is subject to policies established by the Federal Reserve Board. See
"Certain Regulatory Matters -- Dividend Restrictions."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any PIB Parity Securities unless dividends shall have
been paid or set apart for such payment on the PIB Preferred Stock. If full
dividends are not so paid, the PIB Preferred Stock shall share dividends pro
rata with the PIB Parity Securities.
The holders of any series of shares of PIB Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive the
dividend payable on such shares (except that holders of shares called for
redemption on a redemption date occurring between such record date and the
dividend payment date shall not be entitled to receive such dividend on such
dividend payment date but instead will receive accrued and unpaid dividends to
such redemption date) on the corresponding dividend payment date notwithstanding
the conversion thereof or PIB's default in payment of the dividend due. Except
as provided above, PIB will make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the shares of
preferred stock issued upon conversion.
CONVERSION
The Prospectus Supplement for any series of the PIB Preferred Stock will
state the terms, if any, on which shares of that series are convertible into
shares of another series of preferred stock of PIB.
For any series of PIB Preferred Stock which is convertible, PIB shall at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued preferred stock or shares of preferred
stock held in its treasury or both, for the purpose of effecting the conversion
of the shares of such series of PIB Preferred Stock, the full number of shares
of preferred stock then deliverable upon the conversion of all outstanding
shares of such series.
No fractional shares or scrip representing fractional shares of preferred
stock will be issued upon the conversion of shares of any series of convertible
PIB Preferred Stock. Each holder to whom fractional shares would otherwise be
issued will instead be entitled to receive, at PIB's election, either (a) a cash
payment equal to the current market price of such holder's fractional interest
or (b) a cash payment equal to such holder's proportionate interest in the net
proceeds (following the deduction of applicable transaction costs) from the sale
promptly by an agent, on behalf of such holders, of shares of preferred stock
representing the aggregate of such fractional shares.
EXCHANGEABILITY
If so determined by the Board of Directors of PIB, the holders of shares of
PIB Preferred Stock of any series may be obligated at any time or at maturity to
exchange such shares for preferred stock or debt
33
<PAGE> 61
securities of PIB. The terms of any such exchange and any such preferred stock
or debt securities will be described in the Prospectus Supplement relating to
such series of PIB Preferred Stock.
REDEMPTION
A series of PIB Preferred Stock may be redeemable at any time, in whole or
in part, at the option of PIB or the holder thereof upon terms and at the
redemption prices set forth in the Prospectus Supplement relating to such
series.
In the event of partial redemptions of PIB Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors of PIB or by
any other method determined to be equitable by the Board of Directors.
On or after a redemption date, unless PIB defaults in the payment of the
redemption price, dividends will cease to accrue on shares of PIB Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
Under current regulations, bank holding companies may not exercise any
option to redeem shares of preferred stock included as Tier 1 capital, or
exchange such preferred stock for debt securities, without the prior approval of
the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not
permit such a redemption unless (1) the shares are redeemed with the proceeds of
a sale by the bank holding company of common stock or perpetual preferred stock
or (2) the Federal Reserve Board determines that the bank holding company's
condition and circumstances warrant the reduction of a source of permanent
capital.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
PIB, holders of each series of PIB Preferred Stock that ranks senior to the PIB
Junior Securities will be entitled to receive out of assets of PIB available for
distribution to shareholders, before any distribution is made on any PIB Junior
Securities, including common stock, distributions upon liquidation in the amount
set forth in the Prospectus Supplement relating to such series of Preferred
Stock, plus an amount equal to any accrued and unpaid dividends. If upon any
voluntary or involuntary liquidation, dissolution or winding up of PIB the
amounts payable with respect to the PIB Preferred Stock of any series and any
other PIB Parity Securities are not paid in full, the holders of the PIB
Preferred Stock of such series and the PIB Parity Securities will share ratably
in any such distribution of assets of PIB in proportion to the full liquidation
preferences to which each is entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of such series of
PIB Preferred Stock will not be entitled to any further participation in any
distribution of assets of PIB.
VOTING RIGHTS
Except as indicated in the Prospectus Supplement relating to a particular
series of PIB Preferred Stock, or except as expressly required by applicable
law, the holders of the PIB Preferred Stock will have no voting rights.
Under regulations adopted by the Federal Reserve Board, if the holders of
shares of any series of PIB Preferred Stock become entitled to vote for the
election of directors, 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% if it
otherwise exercises a "controlling influence" over PIB) may then be subject to
regulation as a bank holding company in accordance with the BHC Act. In
addition, at such time as such series is deemed a class of voting securities,
(i) any other bank holding company may be required to obtain the approval of the
Federal Reserve Board to acquire or retain 5% or more of such series, and (ii)
any person other than a bank holding company may be required to file with the
Federal Reserve Board under the Change in Bank Control Act to acquire or retain
10% or more of such series.
34
<PAGE> 62
GUARANTEE
The Corporation will fully and unconditionally guarantee the punctual
payment of (i) any accrued and unpaid dividends, whether or not declared, on the
PIB Preferred Stock of any series, (ii) the redemption price for any shares of
PIB Preferred Stock called or redemption at the option of PIB or the holder
thereof in accordance with the terms of such series of PIB Preferred Stock,
(iii) the liquidation preference of PIB Preferred Stock and (iv) any additional
amounts with respect to a series of PIB Preferred Stock.
The Guarantee of the PIB Preferred Stock shall constitute an unsecured
obligation of the Corporation and will rank junior to all liabilities of the
Corporation. The Guarantee will rank senior to the Corporation's common stock
and shall have such rank relative to the preferred stock of the Corporation as
shall be specified in the applicable Prospectus Supplement.
DESCRIPTION OF PREFERRED STOCK OF PNA
The following summary contains a description of certain general terms of
PNA's preferred stock (the "PNA Preferred Stock") to which any Prospectus
Supplement may relate. Certain terms of any series of the PNA Preferred Stock
offered by any Prospectus Supplement will be described in the Prospectus
Supplement relating thereto. If so indicated in the Prospectus Supplement, the
terms of any series may differ from the terms set forth below. The following
summary description of certain provisions of the PNA Preferred Stock is subject
to and qualified in its entirety by reference to the provisions of PNA's
Certificate of Incorporation, as amended, and the Certificate of Designation
relating to each particular series of the PNA Preferred Stock, each of which
will be filed or incorporated by reference, as the case may be, as an exhibit to
the Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such PNA Preferred Stock.
The authorized capital stock of PNA consists of 10,000 shares of Common
Stock, par value $1.00 per share, and 1,000 shares of preferred stock, par value
$.01 per share. The preferred stock is issuable in one or more series, with such
terms, and at such times and for such consideration as the Board of Directors of
PNA determines. As of the date of this Prospectus, no shares of preferred stock
of PNA were issued and outstanding. All of the common stock of PNA is owned by
PIB.
GENERAL
Under PNA's Certificate of Incorporation, the Board of Directors of the
Corporation is authorized, without further stockholder action, to provide for
the issuance of up to 1,000 shares of preferred stock, par value $.01 per share,
in one or more series, with such designations of titles; dividend rates; special
or relative rights in the event of a liquidation, distribution or sale of assets
or dissolution or winding up of PNA; sinking fund provisions; any redemption or
purchase account provisions; conversion provisions; and voting rights, as shall
be set forth as and when established by the Board of Directors of PNA. The
shares of any series of PNA Preferred Stock will be, when issued, fully paid and
nonassessable and holders thereof shall have no preemptive rights in connection
therewith.
The liquidation preference of any series of the PNA Preferred Stock is not
necessarily indicative of the price at which shares of such series of PNA
Preferred Stock will actually trade at or after the time of their issuance. The
market price of any series of PNA Preferred Stock can be expected to fluctuate
with changes in market and economic conditions, the financial condition and
prospects of the Corporation and PNA and other factors that generally influence
the market prices of securities.
RANK
Any series of PNA Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of common stock of PNA and to all equity securities issued by PNA the
terms of which specifically provide that such equity securities will rank junior
to the PNA Preferred Stock (collectively referred to as the "PNA Junior
Securities"); (ii) on a parity with all equity securities issued by PNA, the
terms of which specifically provide that such equity securities will rank on a
parity with
35
<PAGE> 63
the PNA Preferred Stock (collectively referred to as the "PNA Parity
Securities"); and (iii) junior to all equity securities issued by PNA, the terms
of which specifically provide that such equity securities will rank senior to
the PNA Preferred Stock (collectively referred to as the "PNA Senior
Securities"). As used in any Certificate of Designation for these purposes, the
term "equity securities" will not include debt securities convertible into or
exchangeable for equity securities.
DIVIDENDS
Holders of each series of PNA Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of PNA out of funds legally
available therefor, cash dividends at such rates and on such dates as are set
forth in the Prospectus Supplement relating to such series of the PNA Preferred
Stock. Dividends will be payable to holders of record of the PNA Preferred Stock
as they appear on the books of PNA on such record dates as shall be fixed by the
Board of Directors. Dividends on any series of PNA Preferred Stock may be
cumulative or non cumulative. PNA's ability to pay dividends on its Preferred
Stock is subject to policies established by the Federal Reserve Board. See
"Certain Regulatory Matters -- Dividend Restrictions."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any PNA Parity Securities unless dividends shall have
been paid or set apart for such payment on the PNA Preferred Stock. If full
dividends are not so paid, the PNA Preferred Stock shall share dividends pro
rata with the PNA Parity Securities.
The holders of any series of shares of PNA Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive the
dividend payable on such shares (except that holders of shares called for
redemption on a redemption date occurring between such record date and the
dividend payment date shall not be entitled to receive such dividend on such
dividend payment date but instead will receive accrued and unpaid dividends to
such redemption date) on the corresponding dividend payment date notwithstanding
the conversion thereof or PNA's default in payment of the dividend due. Except
as provided above, PNA will make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the shares of
preferred stock issued upon conversion.
CONVERSION
The Prospectus Supplement for any series of the PNA Preferred Stock will
state the terms, if any, on which shares of that series are convertible into
shares of another series of preferred stock of PNA.
For any series of PNA Preferred Stock which is convertible, PNA shall at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued preferred stock or shares of preferred
stock held in its treasury or both, for the purpose of effecting the conversion
of the shares of such series of PNA Preferred Stock, the full number of shares
of preferred stock then deliverable upon the conversion of all outstanding
shares of such series.
No fractional shares or scrip representing fractional shares of preferred
stock will be issued upon the conversion of shares of any series of convertible
PNA Preferred Stock. Each holder to whom fractional shares would otherwise be
issued will instead be entitled to receive, at PNA's election, either (a) a cash
payment equal to the current market price of such holder's fractional interest
or (b) a cash payment equal to such holder's proportionate interest in the net
proceeds (following the deduction of applicable transaction costs) from the sale
promptly by an agent, on behalf of such holders, of shares of preferred stock
representing the aggregate of such fractional shares.
EXCHANGEABILITY
If so determined by the Board of Directors of PNA, the holders of shares of
PNA Preferred Stock of any series may be obligated at any time or at maturity to
exchange such shares for preferred stock or debt securities of PNA. The terms of
any such exchange and any such preferred stock or debt securities will be
described in the Prospectus Supplement relating to such series of PNA Preferred
Stock.
36
<PAGE> 64
REDEMPTION
A series of PNA Preferred Stock may be redeemable at any time, in whole or
in part, at the option of PNA or the holder thereof upon terms and at the
redemption prices set forth in the Prospectus Supplement relating to such
series.
In the event of partial redemptions of PNA Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors of PNA or by
any other method determined to be equitable by the Board of Directors.
On or after a redemption date, unless PNA defaults in the payment of the
redemption price, dividends will cease to accrue on shares of PNA Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
Under current regulations, bank holding companies may not exercise any
option to redeem shares of preferred stock included as Tier 1 capital, or
exchange such preferred stock for debt securities, without the prior approval of
the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not
permit such a redemption unless (1) the shares are redeemed with the proceeds of
a sale by the bank holding company of common stock or perpetual preferred stock
or (2) the Federal Reserve Board determines that the bank holding company's
condition and circumstances warrant the reduction of a source of permanent
capital.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
PNA, holders of each series of PNA Preferred Stock that ranks senior to the PNA
Junior Securities will be entitled to receive out of assets of PNA available for
distribution to shareholders, before any distribution is made on any PNA Junior
Securities, including common stock, distributions upon liquidation in the amount
set forth in the Prospectus Supplement relating to such series of Preferred
Stock, plus an amount equal to any accrued and unpaid dividends. If upon any
voluntary or involuntary liquidation, dissolution or winding up of PNA the
amounts payable with respect to the PNA Preferred Stock of any series and any
other PNA Parity Securities are not paid in full, the holders of the PNA
Preferred Stock of such series and the PNA Parity Securities will share ratably
in any such distribution of assets of PNA in proportion to the full liquidation
preferences to which each is entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of such series of
PNA Preferred Stock will not be entitled to any further participation in any
distribution of assets of PNA.
VOTING RIGHTS
Except as indicated in the Prospectus Supplement relating to a particular
series of PNA Preferred Stock, or except as expressly required by applicable
law, the holders of the PNA Preferred Stock will have no voting rights.
Under regulations adopted by the Federal Reserve Board, if the holders of
shares of any series of PNA Preferred Stock become entitled to vote for the
election of directors, 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% if it
otherwise exercises a "controlling influence" over PNA) may then be subject to
regulation as a bank holding company in accordance with the BHC Act. In
addition, at such time as such series is deemed a class of voting securities,
(i) any other bank holding company may be required to obtain the approval of the
Federal Reserve Board to acquire or retain 5% or more of such series, and (ii)
any person other than a bank holding company may be required to file with the
Federal Reserve Board under the Change in Bank Control Act to acquire or retain
10% or more of such series.
GUARANTEE
The Corporation will fully and unconditionally guarantee the punctual
payment of (i) any accrued and unpaid dividends, whether or not declared, on the
PNA Preferred Stock of any series, (ii) the redemption price for any shares of
PNA Preferred Stock called for redemption at the option of PNA or the holder
thereof
37
<PAGE> 65
in accordance with the terms of such series of PNA Preferred Stock, (iii) the
liquidation preference of PNA Preferred Stock and (iv) any additional amounts
with respect to a series of PNA Preferred Stock.
The Guarantee of the PNA Preferred Stock shall constitute an unsecured
obligation of the Corporation and will rank junior to all liabilities of the
Corporation. The Guarantee will rank senior to the Corporation's common stock
and shall have such rank relative to the preferred stock of the Corporation as
shall be specified in the applicable Prospectus Supplement.
VALIDITY OF OFFERED SECURITIES
The validity of the Preferred Stock and the PIB Preferred Stock will be
passed upon for the Corporation and PIB by Brunilda Santos de Alvarez, counsel
to the Corporation. The validity of the Senior Debt Securities, the Subordinated
Debt Securities, the PIB Senior Debt Securities, the PIB Subordinated Debt
Securities and the Guarantees will be passed upon for the Corporation and PIB by
Ms. Alvarez as to matters of the laws of the Commonwealth of Puerto Rico and by
Sullivan & Cromwell as to matters of New York law. The validity of the PNA
Preferred Stock, the PNA Senior Debt Securities and the PNA Subordinated Debt
Securities will be passed upon for PNA by Sullivan & Cromwell. The validity of
the Securities will be passed upon for any underwriters or agents by counsel
named in the Prospectus Supplement.
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1996 have been so incorporated in reliance on the report of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
PLAN OF DISTRIBUTION
The Corporation, PIB or PNA, as the case may be, may sell Securities to or
through underwriting syndicates represented by managing underwriters, or through
one or more underwriters without a syndicate for public offering and sale by
them, or may sell Securities to investors directly or through agents. Any such
underwriter or agent involved in the offer and sale of the Securities will be
named in the Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. In connection with the sale of the Securities, underwriters
may be deemed to have received compensation from the Corporation, PIB or PNA, as
the case may be, in the form of underwriting discounts or commissions and may
also receive commissions from purchasers of the Securities for whom they may act
as agent. Underwriters may sell the Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any compensation paid by the Corporation, PIB or PNA, as the case may be,
to underwriters or agents in connection with the offering of the Securities, and
any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Securities may
be deemed to be underwriting discounts and commissions under the Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with Corporation, PIB or PNA, as the case may be, to indemnification against
certain civil liabilities, including liabilities under the Act.
38
<PAGE> 66
All Securities will be a new issue of securities with no established
trading market. Any underwriters to whom Securities are sold by the Corporation,
PIB or PNA, as the case may be, for public offering and sale may make a market
in such 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 as to the liquidity of the trading market for any Securities.
Certain of the underwriters and their associates may be customers of,
lenders to, engage in transactions with, and perform services for, the
Corporation or its subsidiaries in the ordinary course of business.
39
<PAGE> 67
======================================================
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR BY THE AGENTS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PROSPECTUS SUPPLEMENT ----
<S> <C>
Recent Developments................... S-3
Description of Notes.................. S-3
United States Taxation................ S-15
Certain Puerto Rico Tax
Considerations...................... S-22
Supplemental Plan of Distribution..... S-26
Validity of the Notes................. S-27
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Recent Developments................... 3
Popular, Inc.......................... 3
Popular International Bank Inc........ 4
Popular North America, Inc............ 4
Consolidated Ratios of Earnings to
Fixed Charges of the Corporation.... 4
Use of Proceeds....................... 5
Certain Regulatory Matters............ 5
Description of Debt Securities........ 12
Terms Applicable to the Senior Debt
Securities or Subordinated Debt
Securities.......................... 17
Terms Applicable to the PNA Senior
Debt Securities or PNA Subordinated
Debt Securities..................... 20
Terms Applicable to the PIB Senior
Debt Securities or PIB Subordinated
Debt Securities..................... 25
Description of Preferred Stock of the
Corporation......................... 29
Description of Preferred Stock of
PIB................................. 32
Description of Preferred Stock of
PNA................................. 35
Validity of Offered Securities........ 38
Experts............................... 38
Plan of Distribution.................. 38
</TABLE>
======================================================
======================================================
$1,000,000,000
POPULAR, INC.
MEDIUM-TERM NOTES, SERIES 3,
DUE NINE MONTHS OR MORE
FROM DATE OF ISSUE
---------------------
PROSPECTUS SUPPLEMENT
---------------------
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON
FIRST CHICAGO CAPITAL
MARKETS, INC.
MAY 23, 1997
======================================================
