<PAGE> 1
Filed Pursuant to Rule 424B(1)
Registration No. 333-03943
PRICING SUPPLEMENT
(TO PROSPECTUS DATED JULY 10, 1996 AND
PROSPECTUS SUPPLEMENT DATED JULY 10, 1996)
$100,000,000
STANDARD FEDERAL BANCORPORATION, INC.
7 3/4% FIXED RATE SUBORDINATED NOTES DUE JULY 17, 2006
[STANDARD FEDERAL LOGO]
The 7 3/4% Fixed Rate Subordinated Notes Due July 17, 2006 (the "Notes"),
are part of a series of Subordinated Medium-Term Notes of Standard Federal
Bancorporation, Inc. (the "Company") described in the accompanying Prospectus
and Prospectus Supplement. Interest on the Notes will be payable semiannually in
arrears on each January 17 and July 17 to the holder of record on each January 2
and July 2, respectively, commencing on January 17, 1997, and will be a per
annum rate equal to 7 3/4%. The Notes will mature on July 17, 2006, and will not
be subject to redemption prior to maturity. The Notes will be issued in
book-entry form through the facilities of The Depository Trust Company in
minimum denominations of $1,000 and integral multiples thereof.
The Notes will be unsecured and will be subordinated to all Senior
Indebtedness (as defined in the accompanying Prospectus) of the Company. PAYMENT
OF PRINCIPAL OF THE NOTES MAY BE ACCELERATED ONLY IN THE CASE OF CERTAIN EVENTS
INVOLVING THE BANKRUPTCY, INSOLVENCY OR REORGANIZATION OF THE COMPANY. THERE IS
NO RIGHT OF ACCELERATION IN THE CASE OF DEFAULT IN THE PAYMENT OF PRINCIPAL OF
OR INTEREST ON THE NOTES OR THE PERFORMANCE OF ANY OTHER OBLIGATION OF THE
COMPANY UNDER THE NOTES.
------------------------
SEE "RISK FACTORS" ON PAGE S-3 OF THE ACCOMPANYING PROSPECTUS SUPPLEMENT
FOR CERTAIN CONSIDERATIONS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
------------------------
THE SUBORDINATED NOTES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS
OF ANY SAVINGS BANK OR NON-BANK SUBSIDIARY OF THE COMPANY AND ARE NOT INSURED
BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRICING
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Note........................... 99.712% .65% 99.062%
- ---------------------------------------------------------------------------------------------------------
Total.............................. $99,712,000 $650,000 $99,062,000
- ---------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Plus accrued interest, if any, from July 17, 1996.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Supplemental Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $460,000.
------------------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in book-entry form through the facilities of
The Depository Trust Company on or about July 17, 1996.
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS SMITH BARNEY INC. UBS SECURITIES
FIRST OF MICHIGAN CORPORATION KEEFE, BRUYETTE & WOODS, INC. MCDONALD & COMPANY
RONEY & CO. SECURITIES, INC.
------------------------
The date of this Pricing Supplement is July 10, 1996.
<PAGE> 2
IT IS EXPECTED THAT DELIVERY OF THE NOTES WILL BE MADE AGAINST PAYMENT
THEREFORE ON OR ABOUT THE DATE SPECIFIED IN THE LAST PARAGRAPH OF THE COVER PAGE
OF THIS PRICING SUPPLEMENT, WHICH IS THE FIFTH BUSINESS DAY FOLLOWING THE DATE
HEREOF (SUCH SETTLEMENT CYCLE BEING HEREIN REFERRED TO AS "T+5"). PURCHASERS OF
THE NOTES SHOULD NOTE THAT TRADING OF THE NOTES ON THE DATE HEREOF AND THE NEXT
SUCCEEDING BUSINESS DAY MAY BE AFFECTED BY THE T+5 SETTLEMENT. SEE "SUPPLEMENTAL
PLAN OF DISTRIBUTION."
THE COMPANY
On May 1, 1995, Standard Federal Bancorporation, Inc. (the "Company"),
became the holding company for Standard Federal Bank (the "Bank"), a federally
chartered savings bank founded in 1893. The Bank converted to a publicly owned
stock chartered thrift institution in January 1987 and since then has
significantly increased its banking franchise. This growth has been achieved not
only through in-market mergers and acquisitions, but also by aggressively
developing its core businesses. Through a consistent focus on retail and
wholesale residential mortgage lending, retail deposit gathering, consumer
lending and residential mortgage loan servicing, the Bank has been able to
maintain its net interest margin, increase recurring fee income, maintain a high
level of asset quality and control its operating expenses. As a result, the
Company has experienced increased profitability over the past several years.
The Bank has significantly expanded its branch network geographically
through 21 mergers and acquisitions over the past 16 years. With $13.5 billion
in assets at March 31, 1996, the Company is the seventh largest publicly traded
thrift-related financial services organization, in terms of assets, in the
United States. With deposits of $9.4 billion at March 31, 1996, the Company,
through the Bank, has the largest deposit base of all thrift institutions
headquartered in the Midwest. These statistics do not reflect the Company's
acquisition of Bell Bancorp, Inc. ("Bell"), which was completed on June 7, 1996
(See "Recent Developments -- Acquisition of Bell Bancorp, Inc."). For purposes
of federal Prompt Corrective Action regulations, the Bank's regulators
categorized the Bank as well-capitalized, the highest possible rating,
throughout all of 1995.
The Company is primarily a consumer-oriented financial services
organization. Its principal business consists of obtaining funds in the form of
deposits and borrowings and investing those funds in various types of loans and
marketable securities. The origination of single-family home mortgage loans is
the Bank's primary lending activity. The Bank has been the largest originator,
based on dollar value, of single-family home mortgage loans in Michigan for
seven consecutive years. In 1995, the Bank was the tenth largest mortgage
originator, based upon dollar value, in the United States. The Bank also makes
consumer loans and non-real estate commercial loans and, to a much lesser
extent, commercial real estate loans. The Bank also conducts business through a
nationwide mortgage banking correspondent network.
The Bank currently (following the acquisition of Bell) conducts its retail
banking business from 180 full-service Banking Centers and 12 retail Home
Lending Centers located in Michigan, Illinois, Indiana and Ohio. The Bank's
largest concentration of branch offices is in southeast Michigan, where it has
four offices in the city of Detroit and 105 offices in the suburban Detroit
area. The Bank also has ten offices in north-central Michigan, five offices in
northern Michigan, 32 offices in the southwest Michigan/northwest Indiana
region, 11 offices in northeast Indiana, 14 offices in the greater Chicago,
Illinois market area and 11 offices in northwest Ohio. At March 31, 1996, the
largest percentage of loans held or serviced by the Bank related to properties
located in southeast Michigan. The Bank has 27 wholesale Loan Production Offices
which conduct business with correspondents nationwide. The Bank also owns and
operates over 370 automated teller machines located throughout its retail market
areas.
The primary operating objective of the Company is to maximize both net
interest income and net income over the long term, while taking into
consideration both credit risk and interest rate risk. In pursuit of these
objectives, the Company follows the strategy of acquiring assets for investment
purposes and retaining portions of its loan production. The Company attempts to
achieve reasonable spreads through matching such assets with deposits and a
number of other funding sources. The Company has never made any foreign loans,
not does it participate as an investor in high-yield financing, highly leveraged
transactions or non-investment grade securities.
The Company's executive office is located at 2600 West Big Beaver Road,
Troy, Michigan 48084, and its telephone number at such office is (810) 643-9600.
PS-2
<PAGE> 3
USE OF PROCEEDS
The Company plans to use a portion of the net proceeds of this offering to
repay certain short term borrowings incurred after the Bell acquisition to
maintain the Bank's status as "well-capitalized" as of June 30, 1996. In
addition, the Company plans to invest a substantial portion of the net proceeds
of this offering in the Bank. All additional net proceeds will be retained by
the Company for general corporate purposes. In addition to the capital needs
arising from the recently completed Bell acquisition, additional capital could
be required if and when currently proposed legislation to resolve differences in
federal deposit insurance assessments between commercial banks and thrifts is
enacted. See "Recent Developments."
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of March 31, 1996, and as adjusted as of such date to give effect to (i) the
issuance of the Notes offered by this Pricing Supplement and the accompanying
Prospectus Supplement and Prospectus and (ii) the acquisition of Bell on June 7,
1996. This capitalization table should be read in conjunction with the financial
statements and related notes incorporated by reference in this Pricing
Supplement and the accompanying Prospectus Supplement and Prospectus.
<TABLE>
<CAPTION>
At March 31, 1996
Historical As Adjusted
- -------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
FHLB Advances and Other Borrowings:
Due within one year $1,203,756 $ 1,213,756
Due in 1 year to 2 years 8,992 8,992
Due in 2 years to 3 years 1,382,702 1,382,702
Due in 3 years to 4 years 13,482 13,482
Due in over 4 years 27,772 127,772
---------- -----------
2,636,704 2,746,704
Stockholders' Equity:
Serial preferred stock, no par value per share; 50,000,000
shares authorized; none issued -- --
Common stock, no par value per share; 150,000,000 shares
authorized; 31,289,495 shares issued and outstanding at
March 31, 1996 234,401 234,401
Retained earnings, partially restricted 689,910 689,910
Unrealized net gain on mortgage-backed securities available for
sale 14,932 14,932
---------- -----------
Total Stockholders' Equity 939,243 939,243
---------- -----------
Total Capitalization $3,575,947 $ 3,685,947
========== ===========
</TABLE>
The following table sets forth (i) historical capital ratios of the Bank at
March 31, 1996, (ii) pro forma capital ratios for each of the Company and the
Bank after giving effect to the Bell acquisition, the issuance of the Notes and
the contribution of the net proceeds from the offering to the Notes by the
Company to the Bank following repayment of the short term borrowings incurred
after the Bell acquisition, and (iii) existing regulatory requirements. See
"Recent Developments."
<TABLE>
<CAPTION>
The Company(1) The Bank Regulatory
Actual Pro forma Actual Pro forma Requirement(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Core capital ratio 5.96 % 4.78% 5.88 % 5.37% 3.00%
Tangible capital ratio 5.83 % 4.66% 5.75 % 5.26% 1.50%
Tier 1 risk-based ratio 12.14 % 9.76% 11.98 % 10.97% 4.00%
Risk-based capital ratio 12.60 % 10.24% 12.43 % 11.44% 8.00%
</TABLE>
(1) OTS capital regulations do not apply to savings and loan holding companies.
Ratios for the Company have been computed as if OTS regulations applicable
to the Bank applied to the Company.
PS-3
<PAGE> 4
CONSOLIDATED SUMMARY FINANCIAL DATA
The following tables set forth certain historical consolidated summary
financial data of the Company, which should be read in conjunction with, and is
qualified by reference to, the more detailed financial and other documents
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" in the Prospectus, including specifically the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, the Company's Notice of
Annual Meeting and Proxy Statement for its meeting held on April 23, 1996, the
Company's Form 10-Q for the Quarter Ended March 31, 1996 and the Company's
Current Report on Form 8-K dated June 14, 1996. The pro forma data reflects (i)
the issuance of the Notes offered by this Pricing Supplement and the
accompanying Prospectus Supplement and Prospectus and (ii) the acquisition of
Bell on June 7, 1996. See "Recent Developments."
<TABLE>
<CAPTION>
Pro Forma
Quarter Ended Year Ended
(In thousands, Quarter Ended March 31, March 31, December 31, Year Ended December 31,
except per share data) 1996 1995 1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY STATEMENT OF
OPERATIONS:
Total interest income $ 242,487 $ 215,361 $ 271,402 $1,039,627 $ 925,703 $ 774,996
Total interest expense 154,361 136,615 175,422 684,249 603,219 444,349
------------ ------------ ------------ ----------- ------------ ------------
Net interest income 88,126 78,746 95,980 355,378 322,484 330,647
Provision for (recovery of)
losses 605 (1,025) 1,612 4,702 1,304 184
------------ ------------ ------------ ----------- ------------ ------------
Net interest income after
provision for (recovery of)
losses 87,521 79,771 94,368 350,676 321,180 330,463
Non-interest income 18,235 15,909 19,276 68,246 65,033 54,667
Other expenses 54,165 50,326 60,888 227,353 198,012 198,527
------------ ------------ ------------ ----------- ------------ ------------
Income before provision for
federal income taxes 51,591 45,354 52,756 191,569 188,201 186,603
Provision for federal income
taxes 19,400 16,300 20,542 71,946 68,700 67,600
------------ ------------ ------------ ----------- ------------ ------------
Net income 32,191 29,054 32,214 119,623 119,501 119,003
============ ============ ============ =========== ============ ============
Earnings per share $ 1.00 $ 0.90 $ 1.00 $ 3.70 $ 3.70 $ 3.70
============ ============ ============ =========== ============ ============
Dividends per share $ 0.19 $ 0.17 $ 0.19 $ 0.70 $ 0.70 $ 0.62
============ ============ ============ =========== ============ ============
Dividend payout ratio 19.00% 18.89% 19.00% 18.92% 18.92% 16.76%
============ ============ ============ =========== ============ ============
PERFORMANCE RATIOS:
Return on average assets 0.95% 0.95% N/A N/A 0.93% 1.05%
Return on average equity 13.89% 14.10% N/A N/A 13.93% 15.68%
Interest rate spread during
the period 2.46% 2.50% N/A N/A 2.36% 2.90%
Net interest margin on
average earning assets 2.73% 2.75% N/A N/A 2.64% 3.11%
Operating expense ratio 49.69% 50.10% N/A N/A 48.63% 48.60%
Earnings to fixed charges:
Including interest on
deposits 1.33x 1.33x 1.29x 1.28x 1.31x 1.42x
Excluding interest on
deposits 2.21x 2.02x 2.17x 1.97x 2.01x 2.48x
<CAPTION>
(In thousands,
except per share data) 1993 1992 1991
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY STATEMENT OF OPERATIONS
Total interest income $ 715,059 $ 758,181 $ 828,801
Total interest expense 426,428 498,586 616,996
------------ ----------- -----------
Net interest income 288,631 259,595 211,805
Provision for (recovery of)
losses 11,311 11,728 11,990
------------ ----------- -----------
Net interest income after
provision for (recovery of)
losses 277,320 247,867 199,815
Non-interest income 53,965 44,514 45,435
Other expenses 151,323 143,468 138,960
------------ ----------- -----------
Income before provision for
federal income taxes 179,962 148,913 106,290
Provision for federal income
taxes 64,400 53,300 40,488
------------ ----------- -----------
Net income 115,562 95,613 65,802
============ =========== ===========
Earnings per share $ 3.60 $ 3.00 $ 2.11
============ =========== ===========
Dividends per share $ 0.54 $ 0.46 $ 0.40
============ =========== ===========
Dividend payout ratio 15.00% 15.33% 18.96%
============ =========== ===========
PERFORMANCE RATIOS:
Return on average assets 1.17% 1.00% 0.70%
Return on average equity 17.61% 16.93% 13.37%
Interest rate spread during
the period 2.86% 2.62% 2.15%
Net interest margin on
average earning assets 3.10% 2.89% 2.38%
Operating expense ratio 44.08% 47.44% 52.71%
Earnings to fixed charges:
Including interest on
deposits 1.42x 1.30x 1.17x
Excluding interest on
deposits 2.31x 1.85x 1.46x
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
At March 31, At March 31, At December 31,
1996 1995 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $13,505,427 $12,469,998 $15,266,734 $13,275,608 $12,076,933
Investment securities 218,395 567,807 237,834 227,774 369,049
Mortgage-backed securities 2,941,299 2,456,330 3,147,312 3,189,433 2,527,476
Loans receivable 9,666,512 8,821,466 10,008,230 9,197,725 8,488,385
Cost in excess of fair value
of net assets acquired 137,813 147,696 220,357 135,874 151,381
Deposits 9,449,204 8,484,960 11,053,529 9,151,929 8,150,121
Borrowings 2,636,704 2,812,870 2,746,704 2,818,217 2,772,715
Stockholders' equity 939,243 836,745 939,243 916,263 812,824
Equity-to-asset ratio 6.95% 6.71% 6.15% 6.90% 6.73%
Book value per share 30.02 26.54 30.02 29.38 25.79
Tangible book value per
share 25.61 21.78 22.98 25.02 20.93
Share price at end of period 42.50 26.88 42.50 39.38 24.00
CAPITAL RATIOS:
Core capital ratio 5.88% 5.74% 5.37% 5.82% 6.10%
Tangible capital ratio 5.75% 5.56% 5.26% 5.67% 5.53%
Tier 1 risk-based ratio 11.98% 11.46% 10.97% 12.08% 12.35%
Risk-based capital ratio 12.43% 11.91% 11.44% 12.53% 12.83%
ASSET QUALITY:
Nonperforming assets to
total assets 0.45% 0.45% N/A 0.39% 0.43%
Allowance coverage of
nonperforming loans 64.95% 74.22% N/A 75.13% 85.51%
Ratio of allowances to total
loans 0.38% 0.39% N/A 0.38% 0.41%
Ratio of net charge-offs to
average loans (0.02)% (0.02)% N/A 0.01% 0.02%
<CAPTION>
1993 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $10,905,397 $9,544,731 $9,513,922
Investment securities 316,379 543,149 939,328
Mortgage-backed securities 2,438,169 3,175,781 3,918,852
Loans receivable 7,435,063 5,247,577 4,048,668
Cost in excess of fair value
of net assets acquired 149,914 120,568 128,960
Deposits 7,790,555 6,527,603 6,188,550
Borrowings 1,989,350 2,081,312 2,474,762
Stockholders' equity 710,500 609,071 524,765
Equity-to-asset ratio 6.52% 6.38% 5.52%
Book value per share 22.68 19.56 16.98
Tangible book value per
share 17.41 15.54 12.67
Share price at end of period 30.00 23.25 18.25
CAPITAL RATIOS:
Core capital ratio 6.01% 6.14% 5.25%
Tangible capital ratio 5.08% 5.14% 4.18%
Tier 1 risk-based ratio 12.16% 13.14% 11.39%
Risk-based capital ratio 12.74% 13.53% 11.81%
ASSET QUALITY:
Nonperforming assets to
total assets 0.71% 0.75% 0.73%
Allowance coverage of
nonperforming loans 66.61% 46.70% 44.63%
Ratio of allowances to total
loans 0.45% 0.53% 0.58%
Ratio of net charge-offs to
average loans 0.18% 0.17% 0.09%
</TABLE>
PS-4
<PAGE> 5
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was 2.21 for the quarter ended March
31, 1996, and 2.01 for the year ended December 31, 1995. This ratio was
calculated by dividing the sum of fixed charges into the sum of earnings,
excluding interest on deposits. The ratio of earnings to fixed charges,
including interest on deposits, was 1.33 for the quarter ended March 31, 1996,
and 1.31 for the year ended December 31, 1995. For information related to prior
years, see "Ratio of Earnings to Fixed Charges" in the accompanying Prospectus.
RECENT DEVELOPMENTS
RESULTS OF OPERATIONS -- FIRST QUARTER OF 1996
The Company's net income totaled $32.2 million, or $1.00 per share, during
the three months ended March 31, 1996. This represents an annualized return on
average assets ("ROA") of 0.95% and an annualized return on average
stockholders' equity ("ROE") of 13.89%. This earning performance represents an
increase of 11% when compared to the $29.1 million, or $0.90 per share, recorded
during the same period in 1995 (ROA of 0.95% and ROE of 14.10%).
Net interest income increased 12% during the first quarter of 1996,
totaling $88.1 million, compared to $78.7 million recorded in the same period
last year. The Company's net interest margin was 2.73% of average earning assets
during the first quarter of 1996, compared to 2.75% during the same period in
1995, and 2.61% during the fourth quarter of 1995.
During the first three months of 1996, the Company's provision for losses
totaled $0.6 million. During this same time period, the Company's non-performing
assets increased by $9.0 million, or 17%, while its allowance for loan losses
increased by 3%. The Company's ratio of non-performing assets to total assets
for the first quarter of 1996 was 0.45%. This increase in non-performing assets
is primarily attributable to increasing consumer delinquencies for all types of
loans nationwide. Nonetheless, the Company's non-performing assets remain below
industry averages. The adequacy of the allowance for loan losses is evaluated
regularly and is determined by management's judgment concerning the amount of
risk inherent in the Company's various portfolios. At March 31, 1996, secured
non-performing assets totaled 97.7% of total non-performing assets.
Total operating expenses were $54.2 million for the quarter ended March 31,
1996, an increase of 8% compared to $50.3 million incurred during the same
period in 1995. The ratio of general and administrative expenses to average
assets for the quarter ended March 31, 1996, was 1.48%, compared to 1.52% for
the same period in 1995. This decrease in the expense ratio is the result of
efficiencies realized from comparatively higher mortgage lending volumes.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1995
The Company's 1995 net income totaled $119.5 million, or $3.70 per share,
representing an ROA of 0.93% and an ROE of 13.93%. This earnings performance is
comparable to the $119.0 million, or $3.70 per share, recorded for the year
ended December 31, 1994 (ROA of 1.05% and ROE of 15.68%).
Net interest income decreased 2.5% during the year ended December 31, 1995,
totaling $322.5 million compared to the $330.6 million recorded during 1994. The
Company's net interest margin was 2.64% of average earning assets during the
year ended December 31, 1995, compared to 3.11% during the same period in 1994.
During 1995, the Company's provision for losses totaled $1.3 million.
During this same time period, the Company's non-performing assets increased by
$0.2 million, or less than 1%, while its allowances for loan losses increased by
$0.4 million, or 1%. The Company's 1995 year-end ratio of non-performing assets
to total assets of 0.39% is low when compared to either industry standards or
the Company's capital levels. At December 31, 1995, secured non-performing
assets totaled 97.3% of total non-performing assets.
Total operating expenses were $198.0 million for the year ended December
31, 1995, compared to $198.5 million incurred during 1994. The ratio of general
and administrative expenses to average assets for the year ended December 31,
1995 was 1.42%, compared to 1.62% for the same period in 1994. This decrease in
the expense ratio is due to efficiencies realized from acquisitions completed in
1995 and a significantly increased volume of single-family mortgage loan
originations.
PS-5
<PAGE> 6
ACQUISITION OF BELL BANCORP, INC.
On June 7, 1996, the Company completed its acquisition of Bell. The
purchase price, including payments made with respect to outstanding stock
options, approximated $354.5 million. Bell, through its principal subsidiary,
Bell Federal Savings and Loan Association ("Bell Federal"), operated 14
full-service branch offices in the greater Chicago, Illinois, market, and had
total assets of $1.9 billion and total deposits of $1.6 billion at June 7, 1996.
The transaction is being accounted for as a purchase and is anticipated to
result in goodwill (excess of purchase price over the underlying market value of
assets and liabilities) of between approximately $75.0 and $80.0 million.
PROPOSED LEGISLATION REGARDING BIF-SAIF DISPARITY
Various Committees of Congress and various federal regulatory banking
agencies, including the FDIC, are currently discussing changes to the federal
deposit insurance system to narrow or eliminate the difference in financial
characteristics between the Bank Insurance Fund ("BIF") and the Savings
Association Insurance Fund ("SAIF"). One of the proposals being discussed would,
among other things, assess savings associations, such as the Bank, a one-time
fee to bring the SAIF fund into parity with the BIF fund. In the event that such
proposal was to become law, the Bank would then be required to record a one-time
charge to earnings of approximately $57.0 million, or $1.77 per share,
after-tax, based on aggregate March 31, 1995, insured deposit balances.
Thereafter, the Bank's annual deposit insurance expense would be reduced for the
foreseeable future by approximately 80% to 100% of current premiums. A premium
reduction of this magnitude would represent annual after-tax cost savings to the
Company of approximately $11.0 million to $14.9 million (i.e., $0.37 per share
to $0.46 per share), based upon the actual aggregate 1995 deposit insurance
premiums incurred by the Bank and Bell. If such proposal is enacted during the
second half of 1996, and the Bank then recognizes this one-time charge to its
earnings and, therefore, its capital as well, without the additional capital to
be contributed by the Company to the Bank from the net proceeds of this
offering, the Bank could temporarily fall below the minimum levels of capital
necessary to be categorized as "well capitalized" by the federal banking
agencies.
PROPOSED LEGISLATION ELIMINATING THE THRIFT CHARTER
Legislation which would generally require federal savings associations,
such as the Bank, to convert to a national bank or a state charter has been
proposed in Congress. In addition, such proposal would require that all savings
and loan holding companies, such as the Company, convert to bank holding
companies. It is uncertain to what extent existing powers of savings
associations, such as the Bank, and savings and loan holding companies, such as
the Company, would be grandfathered. In addition, unless such legislation
provides otherwise, a charter conversion could result in recapture of deductions
for bad debt previously taken by a federal association for tax purposes. It is
uncertain whether such proposed legislation will be passed, and, if passed, in
what form it will be passed. As a result, management cannot accurately assess
the effect such legislation might have on the Company.
PROPOSED LEGISLATION REGARDING BAD DEBT RESERVES
Under Section 593 of the Internal Revenue Code of 1986, as amended (the
"Code"), certain thrift institutions, such as the Bank, are permitted to
establish a tax reserve for bad debts and to make annual additions thereto,
which additions may, within specified limitations, be deducted in arriving at
their taxable income. Under legislation proposed both by Congress and by
President Clinton, Section 593 would be repealed thereby permitting the Bank to
deduct bad debts only as they occur. In addition, the Bank would be required to
recapture over a six-year period the excess of the balance of its bad debt
reserves as of December 31, 1995 over the balance of such reserves as of
December 31, 1987. However, under the proposed legislation, such recapture
requirements would be suspended for each of two successive taxable years
beginning January 1, 1996, in which the Bank originates a minimum amount of
certain residential loans based upon the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding 1996. The
Bank has previously recorded a liability relating to the possible recapture of
the applicable portion of the Bank's bad debt reserve, in accordance with
generally accepted accounting principles. It is anticipated that any recapture
of the Bank's bad debt reserves pursuant to such legislation, if enacted as
proposed, would not have a material adverse effect on the Company's consolidated
financial condition or results of operations.
PS-6
<PAGE> 7
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Medium-Term Notes as set
forth and described in the accompanying Prospectus and Prospectus Supplement, to
which description reference is hereby made.
The 7 3/4% Fixed Rate Subordinated Notes Due July 17, 2006 (the "Notes")
are part of a series of Subordinated Medium-Term Notes of Standard Federal
Bancorporation, Inc. (the "Company"), described in the accompanying Prospectus
and Prospectus Supplement. The Notes will bear interest at the rate per annum
shown on the cover of this Pricing Supplement from July 17, 1996, or from the
most recent date to which interest has been paid. Interest will be payable
semiannually on January 17 and July 17 of each year, commencing, January 17,
1997, to the person in whose names the Notes are registered at the close of
business on the preceding January 2 or July 2, as the case may be. Interest
payable at maturity will be payable to the person to whom principal shall be
payable. The Notes will mature on July 17, 2006, and may not be redeemed prior
to maturity.
The Notes will be issued in book-entry form through the facilities of The
Depository Trust Company in minimum denominations of $1,000 and integral
multiples thereof. See "Description of the Notes" in the accompanying Prospectus
Supplement.
The indebtedness of the Company evidenced by the Notes, including principal
and interest, is unsecured and subordinate and junior in right of payment to the
Company's Senior Indebtedness (as defined in Prospectus). In the event of any
liquidation, dissolution, winding-up, reorganization, assignment for the benefit
of creditors, marshalling of assets and liabilities or any bankruptcy,
insolvency, receivership or similar proceedings of the Company, all of the
Company's Senior Indebtedness shall be entitled to be paid in full before any
payment shall be made on account of the principal of or interest on the Notes.
In the event of any such proceeding, after payment in full of all sums owing
with respect to such Senior Indebtedness, the holders of the Notes, together
with the holders of any obligations of the Company ranking on a parity with the
Notes, shall be entitled to be paid from the remaining assets of the Company the
unpaid principal of, and the unpaid interest on, the Notes or such other
obligations before payment or other distribution, whether in cash, property, or
otherwise, shall be made on account of any capital stock or any obligations of
the Company ranking junior to the Notes.
Upon completion of this offering, the Company will have no outstanding Debt
Securities as of such date which would rank senior to, on a parity with or
subordinate to the Notes.
As described in the accompanying Prospectus, payment of the principal of
the Subordinated Notes may be accelerated only in the case of certain events
involving the bankruptcy, insolvency or reorganization of the Company. THERE IS
NO RIGHT OF ACCELERATION IN THE CASE OF DEFAULT IN THE PAYMENT OF PRINCIPAL OF
OR INTEREST ON THE NOTES OR THE PERFORMANCE OF ANY OTHER OBLIGATION OF THE
COMPANY UNDER THE NOTES.
Settlement for the Notes will be made by the Underwriters in immediately
available funds. As long as the Notes are represented by Global Securities, all
payments of principal and interest will be made by the Company in immediately
available funds, provided the Depositary makes its Same-Day Funds Settlement
System available to the Company.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, as long as
the Notes are represented by Global Securities registered in the name of the
Depositary or its nominee, the Notes will trade in the Depositary's Same-Day
Funds Settlement System, and secondary market trading activity in the Notes will
therefore be required by the Depositary to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
Any certificate for the Notes will bear the following legend: "This Note is
not a savings account, deposit or other obligation of a savings bank and is not
insured by the Savings Association Insurance Fund or the Bank Insurance Fund of
the Federal Deposit Insurance Corporation or any other government agency."
PS-7
<PAGE> 8
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Terms Agreement, dated
July 10, 1996, which incorporates provisions from the Distribution Agreement,
dated July 10, 1996, the Company has agreed to sell to each of the Underwriters
named below (the "Underwriters"), and each of the Underwriters has severally
agreed to purchase, the respective principal amount of the Notes set forth
opposite its name below:
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Notes
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................... $ 50,000,000
Lehman Brothers Inc.......................................................... 10,000,000
Smith Barney Inc............................................................. 10,000,000
UBS Securities LLC........................................................... 10,000,000
First of Michigan Corporation................................................ 5,000,000
Keefe, Bruyette & Woods, Inc................................................. 5,000,000
McDonald & Company Securities, Inc........................................... 5,000,000
Roney & Co. LLC.............................................................. 5,000,000
------------
Total............................................................. $100,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Notes directly to the public at the public offering price set forth on the cover
page of this Pricing Supplement, and to certain dealers at such price less a
concession not in excess of .4% of the principal amount per Note. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of .25% of the principal amount per Note to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that they intend to make a
market in the Notes but are not obligated to do so and may discontinue any
market making at any time without notice. The Notes will not be listed on any
stock exchange, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in such market if one
develops.
It is expected that delivery of the Notes will be made against payment
therefore on or about the date specified in the last paragraph of the cover page
of this Pricing Supplement, which is the fifth business day following the date
hereof. Under Rule 15c6-1 adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, trades in the secondary
market generally are required to settle in three business days, unless the
parties to any such trade expressly agree otherwise. Accordingly, purchasers who
wish to trade the Notes on the date hereof or the next succeeding business day
will be required, by virtue of the fact that the Notes initially will settle in
T+5, to specify an alternate settlement cycle at the time of any such trade to
prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes
on the date hereof or the next succeeding business day should consult their own
advisor.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Plan of Distribution" in the accompanying Prospectus and
Prospectus Supplement.
PS-8
<PAGE> 9
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 10, 1996)
$200,000,000
STANDARD FEDERAL BANCORPORATION, INC.
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
[STANDARD FEDERAL LOGO]
Standard Federal Bancorporation, Inc. (the "Company"), may offer from
time to time up to $200,000,000 aggregate initial offering price, or the
equivalent thereof in one or more foreign or composite currencies, of its Senior
Medium-Term Notes (the "Senior Notes") and Subordinated Medium-Term Notes (the
"Subordinated Notes") Due Nine Months or More From Date of Issue (collectively,
the "Notes"). Such aggregate initial offering price is subject to reduction as a
result of the sale by the Company of other Debt Securities described in the
accompanying Prospectus. Each Note will mature on any day nine months or more
from the date of issue, as specified in the applicable pricing supplement hereto
(each, a "Pricing Supplement"), and may be subject to redemption at the option
of the Company or repayment at the option of the Holder thereof, in each case,
(Continued on next page.)
------------------------
SEE "RISK FACTORS" ON PAGE S-3 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE
PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
PRICE TO AGENT'S DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) COMPANY(1)(3)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Per Note............................ 100% .125% - .750% 99.875% - 99.25%
- --------------------------------------------------------------------------------------------------------
Total(4)............................ $200,000,000 $250,000 - $1,500,000 $199,750,000 - $198,500,000
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Lehman Brothers Inc., Smith Barney Inc., UBS Securities LLC, First of
Michigan Corporation, Keefe, Bruyette & Woods, Inc., McDonald & Company
Securities, Inc., and Roney & Co. LLC (the "Agents"), may purchase Notes, as
principal, from the Company, 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, or, if so specified in the applicable
Pricing Supplement, 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 (as described below) of a Note
of identical maturity. If agreed to by the Company and an Agent, such Agent
may 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 Company will pay a
commission to the Agent, ranging from .125% to .75% of the principal amount
of a Note, depending upon its stated maturity, sold through such Agent.
Commissions with respect to Notes with stated maturities in excess of 30
years that are sold through an Agent will be negotiated between the Company
and such Agent at the time of such sale. See "Plan of Distribution."
(2) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $610,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
------------------------
The Notes are being offered on a continuous basis by the Company to or
through the Agents. Unless otherwise specified in the applicable Pricing
Supplement, the Notes will not be listed on any securities exchange and there
can be no assurance that the Notes offered hereby will be sold or that there
will be a secondary market for the Notes or that there will be liquidity in such
market if one develops. The Company reserves the right to cancel or modify the
offer made hereby without notice. The Company or an Agent, if it solicits the
offer on an agency basis, may reject any offer to purchase Notes in whole or in
part. See "Plan of Distribution."
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS SMITH BARNEY INC. UBS SECURITIES
FIRST OF MICHIGAN CORPORATION KEEFE, BRUYETTE & WOODS, INC. MCDONALD & COMPANY
RONEY & CO. SECURITIES, INC.
------------------------
The date of this Prospectus Supplement is July 10, 1996.
<PAGE> 10
(Continued from previous page)
in whole or in part, prior to its Stated Maturity Date, as specified in the
applicable Pricing Supplement. In addition, each Note may be denominated and/or
payable in United States dollars or a foreign or composite currency, as
specified in the applicable Pricing Supplement. The Notes, other than Foreign
Currency Notes, will be issued in minimum denominations of $1,000 and integral
multiples thereof, unless otherwise specified in the applicable Pricing
Supplement, while Foreign Currency Notes will be issued in the minimum
denominations specified in the applicable Pricing Supplement. The Subordinated
Notes will be subordinated to all existing and future Senior Indebtedness (as
defined in the accompanying Prospectus) of the Company. See "Description of Debt
Securities -- Subordination" in the accompanying Prospectus.
Unless otherwise specified in the applicable Pricing Supplement, Notes will
bear interest at fixed rates ("Fixed Rate Notes") or at floating rates
("Floating Rate Notes"). The applicable Pricing Supplement will specify whether
a Floating Rate Note is a Regular Floating Rate Note, a Floating Rate/Fixed Rate
Note or an Inverse Floating Rate Note and whether the rate of interest thereon
is determined by reference to one or more of the CD Rate, the CMT Rate, the
Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the Federal
Funds Rate, LIBOR, the Prime Rate or the Treasury Rate (each, an "Interest Rate
Basis"), or any other interest rate basis or formula, as adjusted by any Spread
and/or Spread Multiplier. Interest on each Floating Rate Note will accrue from
its date of issue and, unless otherwise specified in the applicable Pricing
Supplement, will be payable monthly, quarterly, semiannually or annually in
arrears, as specified in the applicable Pricing Supplement, and on the Maturity
Date. Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually, as specified in the applicable Pricing
Supplement. Interest on each Fixed Rate Note will accrue from its date of issue
and, unless otherwise specified in the applicable Pricing Supplement, will be
payable semiannually in arrears on July 1 and January 1 of each year and on the
Maturity Date. Notes may also be issued that do not bear any interest currently
or that bear interest at a below market rate. See "Description of Notes."
The interest rate, or formula for the determination of the interest rate,
if any, applicable to each Note and the other variable terms thereof will be
established by the Company on the date of issue of such Note and will be
specified in the applicable Pricing Supplement. Interest rates or formula and
other terms of Notes are subject to change by the Company, but no change will
affect any Note already issued or as to which an offer to purchase has been
accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or in certificated form (a "Certificated Note"), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities") deposited
with or on behalf of The Depository Trust Company (the "Depositary") and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners).
THE NOTES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY
SAVINGS BANK OR NON-BANK SUBSIDIARY OF THE COMPANY AND ARE NOT INSURED BY THE
SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
------------------------
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY AN AGENT AS PRINCIPAL ON A
FIXED OFFERING PRICE BASIS, SUCH AGENT MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF NOTES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 11
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes that result from such Notes being denominated or payable in
or determined by reference to a currency or composite currency other than United
States dollars or to one or more interest rate, currency or other indices or
formulas. Such Notes are not an appropriate investment for investors who are
unsophisticated with respect to foreign currency transactions or transactions
involving the applicable interest rate index or currency index or other indices
or formulas.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more currencies or composite currencies (including
exchange rates and swap indices between currencies or composite currencies),
commodities, interest rates or other indices or formulas, either directly or
inversely, entails significant risks that are not associated with similar
investments in a conventional fixed rate or floating rate debt security. Such
risks include, without limitation, the possibility that such indices or formulas
may be subject to significant changes, that the resulting interest rate will be
less than that payable on a conventional fixed rate or floating rate debt
security issued by the Company at the same time, that the repayment of principal
and/or premium, if any, can occur at times other than that expected by the
investor, and that the investor could lose all or a substantial portion of
principal and/or premium, if any, payable on the Maturity Date (as defined under
"Description of Notes -- General"). Such risks depend on a number of
interrelated factors, including economic, financial and political events, over
which the Company has no control. Additionally, if the formula used to determine
the amount of principal, premium, if any, and/or interest, if any, payable with
respect to such Notes contains a multiplier or leverage factor, the effect of
any change in the applicable index or indices or formula or formulas will be
magnified. In recent years, values of certain indices and formulas have been
highly volatile and such volatility may be expected to continue in the future.
Fluctuations in the value of any particular index or formula that have occurred
in the past are not necessarily indicative, however, of fluctuations that may
occur in the future.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Company may be expected to redeem such Notes when
prevailing interest rates are relatively low, an investor might not be able to
reinvest the redemption proceeds at an effective interest rate as high as the
interest rate on such Notes.
The Notes will not have an established trading market when issued, and
there can be no assurance of a secondary market for the Notes or the liquidity
of such market if one develops. See "Plan of Distribution."
The secondary market for Notes will be affected by a number of factors
independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or formulas, including the complexity and
volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest, if any, in respect of such Notes,
the time remaining to the maturity of such Notes, the outstanding amount of such
Notes, any redemption features of such Notes, the amount of other debt
securities linked to such index or formula and the level, direction and
volatility of market interest rates generally. Such factors also will affect the
market value of such Notes. In addition, certain Notes may be designed for
specific investment objectives or strategies and, therefore, may have a more
limited secondary market and experience more price volatility than conventional
debt securities. Investors may not be able to sell such Notes readily or at
prices that will enable investors to realize their anticipated yield. No
investor should purchase Notes unless such investor understands and is able to
bear the risk that such Notes may not be readily saleable, that the value of
such Notes will fluctuate over time and that such fluctuations may be
significant.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes (as defined under "Description of
Notes -- General") entails significant risks that are not associated with a
similar investment in a debt security denominated and payable in United States
dollars. Such risks include, without limitation, the possibility of significant
changes in the rate of exchange between the United States dollar and the
Specified Currency (as defined below under "Description of Notes -- General")
and the possibility of the imposition or modification of exchange controls by
the applicable governments or monetary authorities. Such risks generally depend
on factors over which the Company has no control, such as economic, financial
and political events and the supply and demand for the applicable currencies or
S-3
<PAGE> 12
composite currencies. In addition, if the formula used to determine the amount
of principal, premium, if any, and/or interest, if any, payable with respect to
Foreign Currency Notes contains a multiplier or leverage factor, the effect of
any change in the applicable currencies or composite currencies will be
magnified. In recent years, rates of exchange between the United States dollar
and foreign currencies or composite currencies have been highly volatile and
such volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations that may occur in the future. Depreciation of the
Specified Currency applicable to a Foreign Currency Note against the United
States dollar would result in a decrease in the United States dollar-equivalent
yield of such Foreign Currency Note, in the United States dollar-equivalent
value of the principal and premium, if any, payable on the Maturity Date of such
Foreign Currency Note, and, generally, in the United States dollar-equivalent
market value of such Foreign Currency Note.
Governments or monetary authorities have imposed from time to time, and may
in the future impose or revise, exchange controls at or prior to the date on
which any payment of principal of, or premium, if any, or interest, if any, on,
a Foreign Currency Note is due, which could affect exchange rates as well as the
availability of the Specified Currency on such date. Even if there are no
exchange controls, it is possible that the Specified Currency would not be
available on the applicable payment date due to other circumstances beyond the
control of the Company. In such cases, the Company will be entitled to satisfy
its obligations in respect of such Foreign Currency Note in United States
dollars. See "Special Provisions Relating to Foreign Currency Notes --
Availability of Specified Currency."
CREDIT RATINGS
Any credit ratings assigned to the Company's medium-term note program may
not reflect the potential impact of all risks related to structure and other
factors on the market value of the Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in the Notes and the suitability of such Notes in light of
their particular circumstances.
DESCRIPTION OF NOTES
The Senior Notes will be issued as a series of Debt Securities under an
Indenture, dated as of July 10, 1996, as amended or supplemented from time to
time (the "Senior Indenture"), and the Subordinated Notes will be issued as a
series of Debt Securities under an Indenture dated as of July 10, 1996, as
amended or supplemented from time to time (the "Subordinated Indenture" and
collectively with the Senior Indenture, the "Indenture") between the Company and
The Chase Manhattan Bank, N.A., as trustee (the "Trustee"). The Indenture is
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
following summary of certain provisions of the Notes and the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
actual provisions of the Notes and the Indenture. Capitalized terms used but not
defined herein shall have the meanings given to them in the accompanying
Prospectus, the Notes or the Indenture, as the case may be. The term "Debt
Securities," as used in this Prospectus Supplement, refers to all debt
securities, including the Notes, issued and issuable from time to time under the
Indenture. The following description of Notes will apply to each Note offered
hereby unless otherwise specified in the applicable Pricing Supplement.
GENERAL
The Notes will be unsecured obligations of the Company. The Senior Notes
will rank on a parity with other unsecured and unsubordinated indebtedness of
the Company. The Subordinated Notes will be subordinate in right of payment to
all existing and future Senior Indebtedness of the Company as described under
"Description of Debt Securities -- Subordination" in the accompanying
Prospectus. The Indenture does not limit the aggregate initial offering price of
Debt Securities that may be issued thereunder and Debt Securities may be issued
thereunder from time to time in one or more series up to the aggregate initial
offering price from time to time authorized by the Company for each series. The
Company may, from time to time, without the consent of the Holders of the Notes,
provide for the issuance of Notes or other Debt Securities under the Indenture
in addition to the $200,000,000 aggregate initial offering price of Notes
offered hereby.
The Notes are currently limited to up to $200,000,000 aggregate initial
offering price, or the equivalent thereof in one or more foreign or composite
currencies. The Notes will be offered on a continuous basis and will mature on
S-4
<PAGE> 13
any day nine months or more from their dates of issue (each, a "Stated Maturity
Date"), as specified in the applicable Pricing Supplement. Unless otherwise
specified in the applicable Pricing Supplement, interest-bearing Notes will
either be Fixed Rate Notes or Floating Rate Notes, as specified in the
applicable Pricing Supplement. Notes may also be issued that do not bear any
interest currently or that bear interest at a below market rate.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, will be made in, United States dollars. The Notes also may be
denominated in, and payments of principal, premium, if any, and/or interest, if
any, may be made in, one or more foreign currencies or composite currencies
("Foreign Currency Notes"). See "Special Provisions Relating to Foreign Currency
Notes -- Payment of Principal, Premium, if any, and Interest, if any." The
currency or composite currency in which a Note is denominated, whether United
States dollars or otherwise, is herein referred to as the "Specified Currency."
References herein to "United States dollars," "U.S. dollars" or "$" are to the
lawful currency of the United States of America (the "United States").
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for the Notes in the applicable Specified Currencies. At the
present time, there are limited facilities in the United States for the
conversion of United States dollars into foreign currencies or composite
currencies and vice versa, and commercial banks do not generally offer
non-United States dollar checking or savings account facilities in the United
States. Each applicable Agent is prepared to arrange for the conversion of
United States dollars into the Specified Currency in which the related Foreign
Currency Note is denominated in order to enable the purchaser to pay for such
Foreign Currency Note, provided that a request is made to such Agent on or prior
to the fifth Business Day (as hereinafter defined) preceding the date of
delivery of such Foreign Currency Note, or by such other day as determined by
such Agent. Each such conversion will be made by an Agent on such terms and
subject to such conditions, limitations and charges as such Agent may from time
to time establish in accordance with its regular foreign exchange practices. All
costs of exchange will be borne by the purchaser of each such Foreign Currency
Note. See "Special Provisions Relating to Foreign Currency Notes."
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of Notes
purchased in any single transaction. Interest rates or formula and other terms
of Notes are subject to change by the Company from time to time, but no such
change will affect any Note already issued or as to which an offer to purchase
has been accepted by the Company.
Each Note will be issued in fully registered form as a Book-Entry Note or a
Certificated Note. The authorized denominations of each Note other than a
Foreign Currency Note will be $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while the authorized
denominations of each Foreign Currency Note will be specified in the applicable
Pricing Supplement.
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Notes will be made by the Company through the Trustee to the
Depositary. See "-- Book-Entry Notes." Unless otherwise specified in the Pricing
Supplement, in the case of Certificated Notes, payment of principal and premium,
if any, due on the Stated Maturity Date or any prior date on which the
principal, or an installment of principal, of each Certificated Note becomes due
and payable, whether by the declaration of acceleration, notice of redemption at
the option of the Company, notice of the Holder's option to elect repayment or
otherwise (the Stated Maturity Date or such prior date, as the case may be, is
herein referred to as the "Maturity Date" with respect to the principal of the
applicable Note repayable on such date) will be made in immediately available
funds upon presentation and surrender thereof (or, in the case of any repayment
on an Optional Repayment Date, upon presentation and surrender thereof and a
duly completed election form in accordance with the provisions described below)
at the office or agency maintained by the Company for such purpose in the
Borough of Manhattan, the City of New York. The office of the Trustee in the
Borough of Manhattan, the City of New York, will initially be designated as such
office or agency. Payment of interest, if any, due on the Maturity Date of each
Certificated Note will be made to the person to whom payment of the principal
and premium, if any, shall be made. Payment of interest, if any, due on each
Certificated Note on any Interest Payment Date (as hereinafter defined) other
than the Maturity Date will be made by check mailed to the address of the Holder
entitled thereto as such address shall appear in the Security Register of the
Company. Notwithstanding the foregoing, a Holder of $10,000,000 (or, if the
applicable Specified Currency is other than United States dollars, the
equivalent thereof in such Specified Currency) or more in aggregate principal
amount of Notes
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(whether having identical or different terms and provisions) will be entitled to
receive interest payments, if any, on any Interest Payment Date other than the
Maturity Date by wire transfer of immediately available funds if appropriate
wire transfer instructions have been received in writing by the Trustee not less
than 15 days prior to such Interest Payment Date. Any such wire transfer
instructions received by the Trustee shall remain in effect until revoked by
such Holder. For special payment terms applicable to Foreign Currency Notes, see
"Special Provisions Relating to Foreign Currency Notes -- Payment of Principal,
Premium, if any, and Interest, if any."
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that, with respect to Foreign Currency
Notes, such day is also not a day on which banking institutions are authorized
or required by law, regulation or executive order to close in the Principal
Financial Center (as hereinafter defined) of the country issuing the Specified
Currency (or, in the case of European Currency Units ("ECU"), is not a day that
appears as an ECU non-settlement day on the display designated as "ISDE" on the
Reuter Monitor Money Rates Service (or a day so designated by the ECU Banking
Association) or, if ECU non-settlement days do not appear on that page (and are
not so designated), is not a day on which payments in ECU cannot be settled in
the international interbank market); provided, further, that, with respect to
Notes as to which LIBOR is an applicable Interest Rate Basis, such day is also a
London Business Day (as hereinafter defined). "London Business Day" means (i) if
the Index Currency (as hereinafter defined) is other than ECU, any day on which
dealings in such Index Currency are transacted in the London interbank market or
(ii) if the Index Currency is ECU, any day that does not appear as an ECU
non-settlement day on the display designated as "ISDE" on the Reuter Monitor
Money Rates Service (or a day so designated by the ECU Banking Association) or,
if ECU non-settlement days do not appear on that page (and are not so
designated), is not a day on which payments in ECU cannot be settled in the
international interbank market.
"Principal Financial Center" means the capital city of the country issuing
the Specified Currency or, solely with respect to the calculation of LIBOR, the
Index Currency, except that with respect to United States dollars, Australian
dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs and ECUs,
the Principal Financial Center shall be The City of New York, Sydney, Frankfurt,
Amsterdam, Milan, Zurich and Luxembourg, respectively.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "-- Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the
Company for such purpose in the Borough of Manhattan, The City of New York. No
service charge will be made by the Company or the Trustee for any such
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith (other than exchanges pursuant to the
Indenture not involving any transfer).
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the Company
on any date on and after the applicable Initial Redemption Date in whole or from
time to time in part in increments of $1,000 or such other minimum denomination
specified in such Pricing Supplement (provided that any remaining principal
amount thereof shall be at least $1,000 or such minimum denomination), at the
applicable Redemption Price (as hereinafter defined), together with unpaid
interest accrued to the date of redemption, on notice given not more than 60 nor
less than 30 calendar days prior to the date of redemption and in accordance
with the provisions of the Indenture. "Redemption Price," with respect to a
Note, means an amount equal to the Initial Redemption Percentage specified in
the applicable Pricing Supplement (as adjusted by the Annual Redemption
Percentage Reduction, if applicable) multiplied by the unpaid principal amount
to be redeemed. The Initial Redemption Percentage, if any, applicable to a Note
shall decline at each anniversary of the Initial Redemption Date by an amount
equal to the applicable Annual Redemption Percentage Reduction, if any, until
the Redemption Price is equal to 100% of the unpaid principal amount to be
redeemed. See also "-- Original Issue Discount Notes."
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REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by the Company at the option of the Holders
thereof prior to the Stated Maturity Date only if one or more Optional Repayment
Dates are specified in the applicable Pricing Supplement. If so specified, the
Notes will be subject to repayment at the option of the Holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued to the date of repayment. For any Note to be repaid, such Note must be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its Corporate Trust Office (or such other
address of which the Company shall from time to time notify the Holders) not
more than 60 nor less than 30 calendar days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable. See also
"-- Original Issue Discount Notes."
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any portion
of the Book-Entry Notes represented by such Global Securities repaid must
instruct the Participant (as hereinafter defined) through which they own their
interest to direct the Depositary to exercise the repayment option on their
behalf by delivering the related Global Security and duly completed election
form to the Trustee as aforesaid. In order to ensure that such Global Security
and election form are received by the Trustee on a particular day, the
applicable Beneficial Owner must so instruct the Participant through which it
owns its interest 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 should consult
the Participants through which they own their interest for the respective
deadlines for such Participants. All instructions given to Participants from
Beneficial Owners of Global Securities relating to the option to elect repayment
shall be irrevocable. In addition, at the time such instructions are given, each
such Beneficial Owner shall cause the Participant through which it owns its
interest to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depositary's
records, to the Trustee. See "-- Book-Entry Notes."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
any other securities laws or regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Trustee for
cancellation.
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest payments in respect of Fixed Rate Notes and Floating Rate
Notes will equal the amount of interest accrued from and including the
immediately preceding Interest Payment Date in respect of which interest has
been paid or duly made available for payment (or from and including the date of
issue, if no interest has been paid or duly made available for payment) to but
excluding the applicable Interest Payment Date or the Maturity Date, as the case
may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date in United States
dollars ($). Unless otherwise specified in the applicable Pricing Supplement,
the first payment of interest on any such Note originally issued between a
Record Date (as hereinafter defined) and the related Interest Payment Date will
be made on the Interest Payment Date immediately following the next succeeding
Record Date to the Holder on such next succeeding Record Date. Unless otherwise
specified in the
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applicable Pricing Supplement, a "Record Date" shall be the fifteenth calendar
day (whether or not a Business Day) immediately preceding the related Interest
Payment Date.
Fixed Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be payable on January 1 and July 1 of each year (each,
an "Interest Payment Date") and on the Maturity Date in United States dollars
($). Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be computed on the basis of a 360-day year of twelve
30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note
falls on a day that is not a Business Day, the required payment of principal,
premium, if any, and/or interest will be made on the next succeeding Business
Day as if made on the date such payment was due, and no interest will accrue on
such payment for the period from and after such Interest Payment Date or the
Maturity Date, as the case may be, to the date of such payment on the next
succeeding Business Day.
Floating Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. The applicable Pricing Supplement
will specify certain terms with respect to which each Floating Rate Note is
being delivered, including: whether such Floating Rate Note is a "Regular
Floating Rate Note," a "Floating Rate/Fixed Rate Note" or an "Inverse Floating
Rate Note," the Fixed Rate Commencement Date, if applicable, Fixed Interest
Rate, if applicable, Interest Rate Basis or Bases, Initial Interest Rate, if
any, Initial Interest Reset Date, Interest Reset Period and Dates, Interest
Payment Period and Dates, Index Maturity, Maximum Interest Rate and/or Minimum
Interest Rate, if any, and Spread and/or Spread Multiplier, if any, as such
terms are defined below. If one or more of the applicable Interest Rate Bases is
LIBOR or the CMT Rate, the applicable Pricing Supplement will also specify the
Index Currency, if any, and Designated LIBOR Page or the Designated CMT Maturity
Index and Designated CMT Telerate Page, respectively, as such terms are defined
below. Interest will be paid in United States dollars ($).
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note" or as having an
Addendum attached or having "Other/Additional Provisions" apply relating to
a different interest rate formula, such Floating Rate Note will be
designated as a "Regular Floating Rate Note" and, except as described below
or in the applicable Pricing Supplement, will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Regular Floating Rate Note
shall be payable shall be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period, if any, from the
date of issue to the Initial Interest Reset Date will be the Initial
Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in the applicable
Pricing Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (y) the interest rate in effect for the period, if
any, from the date of issue to the Initial Interest Reset Date will be the
Initial Interest Rate and (z) the interest rate in effect for the period
commencing on the Fixed Rate Commencement Date to the Maturity Date shall
be the Fixed Interest Rate, if such rate is specified in the applicable
Pricing Supplement or, if no such Fixed Interest Rate is specified, the
interest rate in effect thereon on the day immediately preceding the Fixed
Rate Commencement Date.
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(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if
any, and/or (b) multiplied by the applicable Spread Multiplier, if any;
provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Inverse Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest Rate
Basis or Bases will be multiplied to determine the applicable interest rate on
such Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or in
the applicable Pricing Supplement, the interest rate in effect on each day shall
be (i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as hereinafter defined) immediately preceding
such Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such other
Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement; provided, however, that the interest rate in
effect on a Floating Rate Note for the period, if any, from the date of issue to
the Initial Interest Reset Date will be the Initial Interest Rate; provided,
further, that with respect to a Floating Rate/Fixed Rate Note the interest rate
in effect for the period commencing on the Fixed Rate Commencement Date to the
Maturity Date shall be the Fixed Interest Rate, if such rate is specified in the
applicable Pricing Supplement or, if no such Fixed Interest Rate is specified,
the interest rate in effect thereon on the day immediately preceding the Fixed
Rate Commencement Date.
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest Rate Basis, which will
reset the Tuesday of each week, except as described below); (iii) monthly, the
third Wednesday of each month (with the exception of monthly reset Floating Rate
Notes as to which the Eleventh District Cost of Funds Rate is an applicable
Interest Rate Basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and December of
each year; (v) semiannually, the third Wednesday of the two months specified in
the applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided however, that,
with respect to Floating Rate/Fixed Rate Notes, the rate of interest thereon
will not reset after the applicable Fixed Rate Commencement Date. 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 will be postponed to the next
succeeding Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis and such Business Day falls in
the next succeeding calendar month, such Interest Reset Date will be the
immediately preceding Business Day. In addition, in the case of a Floating Rate
Note as to which the Treasury Rate is an applicable Interest Rate Basis and the
Interest Determination Date would otherwise fall on an Interest Reset Date, then
such Interest Reset Date will be postponed to the next succeeding Business Day.
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The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date and calculated on or prior to the Calculation Date
(as hereinafter defined), except with respect to LIBOR and the Eleventh District
Cost of Funds Rate, which will be calculated as of such Interest Determination
Date. The "Interest Determination Date" with respect to the CD Rate, the CMT
Rate, the Commercial Paper Rate, the Federal Funds Rate and the Prime Rate will
be the second Business Day immediately preceding the applicable Interest Reset
Date; the "Interest Determination Date" with respect to the Eleventh District
Cost of Funds Rate will be the last working day of the month immediately
preceding the applicable Interest Reset Date on which the Federal Home Loan Bank
of San Francisco (the "FHLB of San Francisco") publishes the Index (as
hereinafter defined); and the "Interest Determination Date" with respect to
LIBOR will be the second London Business Day immediately preceding the
applicable Interest Reset Date, unless the Index Currency is British pounds
sterling, in which case the "Interest Determination Date" will be the applicable
Interest Reset Date. With respect to the Treasury Rate, the "Interest
Determination Date" will be the day in the week in which the applicable Interest
Reset Date falls on which day Treasury Bills (as hereinafter defined) are
normally auctioned (Treasury Bills are normally sold at an auction held on
Monday of each week, unless that day is a legal holiday, in which case the
auction is normally held on the following Tuesday, except that such auction may
be held on the preceding Friday); provided, however, that if an auction is held
on the Friday of the week preceding the applicable Interest Reset Date, the
Interest Determination Date will be such preceding Friday. The "Interest
Determination Date" pertaining to a Floating Rate Note the interest rate of
which is determined by reference to two or more Interest Rate Bases will be the
most recent Business Day which is at least two Business Days prior to the
applicable Interest Reset Date for such Floating Rate Note on which each
Interest Rate Basis is determinable. Each Interest Rate Basis will be determined
as of such date, and the applicable interest rate will take effect on the
applicable Interest Reset Date.
A Floating Rate Note may also have either or both of the following: (i) a
Maximum Interest Rate, or ceiling, that may accrue during any Interest Period
and (ii) a Minimum Interest Rate, or floor, that may accrue during any Interest
Period. In addition to any Maximum Interest Rate that may apply to any Floating
Rate Note, 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.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) 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; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date") and, in each case, on the Maturity Date. If any Interest Payment
Date other than the Maturity Date for any Floating Rate Note would otherwise be
a day that is not a Business Day, such Interest Payment Date will be postponed
to the next succeeding Business Day, except that in the case of a Floating Rate
Note as to which LIBOR is an applicable Interest Rate Basis and such Business
Day falls in the next succeeding calendar month, such Interest Payment Date will
be the immediately preceding Business Day. If the Maturity Date of a Floating
Rate Note falls on a day that is not a Business Day, the required payment of
principal, premium, if any, and interest will be made on the next succeeding
Business Day as if made on the date such payment was due, and no interest will
accrue on such payment for the period from and after the Maturity Date to the
date of such payment on the next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
foreign currency or composite currency, to the nearest unit (with one-half cent
or unit being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating
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Rate Notes for which an applicable Interest Rate Basis is the CD Rate, the
Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the Federal
Funds Rate, LIBOR or the Prime Rate, or by the actual number of days in the year
in the case of Floating Rate Notes for which an applicable Interest Rate Basis
is the CMT Rate or the Treasury Rate. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for Floating Rate Notes for
which the interest rate is calculated with reference to two or more Interest
Rate Bases will be calculated in each period in the same manner as if only one
of the applicable Interest Rate Bases applied as specified in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
Trustee will be the "Calculation Agent." Upon request of the Holder of any
Floating Rate Note, the Calculation Agent will disclose 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 succeeding Interest Reset Date with
respect to such Floating Rate Note. Unless otherwise specified in the applicable
Pricing Supplement, the "Calculation Date," if applicable, pertaining to any
Interest Determination Date will be the earlier of (i) the tenth calendar day
after such Interest Determination Date, or, if such day is not a Business Day,
the next succeeding Business Day or (ii) the Business Day immediately preceding
the applicable Interest Payment Date or the Maturity Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date for
negotiable United States dollar 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 published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar 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 ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include the
Agent or its affiliates) selected by the Calculation Agent for negotiable United
States dollar certificates of deposit of major United States money center banks
for negotiable certificates of deposit with a remaining maturity closest to the
Index Maturity specified in the applicable Pricing Supplement in an amount that
is representative for a single transaction in that market at that time;
provided, however, that if the dealers so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the CD Rate determined as of such CD
Rate Interest Determination Date will be the CD Rate in effect on such CD Rate
Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed on
the Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index 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
weekly or monthly average, as specified in the applicable Pricing Supplement,
for the week or the month, as applicable, ended immediately preceding the week
or the month, as applicable, in which the related CMT Rate Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page or is 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 H.15(519). If such rate is no longer published or
is not published by 3:00 P.M., New York City time, on the related Calculation
Date, then the CMT Rate on such CMT Rate Interest Determination Date will be
such
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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 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 on 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 such 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 the 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 is unable to obtain three such Treasury Note quotations, the
CMT Rate on 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 such 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 so selected by the Calculation Agent
are quoting as mentioned herein, the CMT Rate determined as of such CMT Rate
Interest Determination Date 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 Calculation Agent will
obtain quotations for the Treasury Note with the shorter remaining term to
maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on such service
(or any successor 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.
Commercial Paper Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as hereinafter
defined) 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 published by
3:00 P.M., New York City time, on the related Calculation Date, then the
Commercial Paper Rate on such Commercial Paper Rate Interest Determination Date
will be the Money Market Yield of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Commercial Paper" (with an Index
Maturity of one month or three months being deemed to be equivalent to an Index
Maturity of 30 days or 90 days, respectively). If such rate is not yet published
in either H.15(519) or Composite Quotations by 3:00 P.M., New York
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<PAGE> 21
City time, on the related Calculation Date, then the Commercial Paper Rate on
such Commercial Paper Rate Interest Determination Date will be calculated by the
Calculation Agent and will be the Money Market Yield of the arithmetic mean of
the offered rates at approximately 11:00 A.M., New York City time, on such
Commercial Paper Rate Interest Determination Date of three leading dealers of
commercial paper in The City of New York (which may include the Agent or its
affiliates) selected by the Calculation Agent for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement placed for an
industrial issuer whose bond rating is "AA", or the equivalent, from a
nationally recognized statistical rating organization; provided, however, that
if the dealers so selected by the Calculation Agent are not quoting as mentioned
in this sentence, the Commercial Paper Rate determined as of such Commercial
Paper Rate Interest Determination Date will be the Commercial Paper Rate in
effect on such Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = X 100
---------------
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Interest Period for which interest is being calculated.
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 a Floating Rate Note
for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (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 such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, 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 Rate in effect on such Eleventh District
Cost of Funds Rate Interest Determination Date.
Federal Funds Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a "Federal Funds Rate
Interest Determination Date"), the rate on such date for United States dollar
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, 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 in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include the Agent or its
affiliates) selected by the Calculation Agent prior to 9:00 A.M., New York City
time, on such Federal Funds Rate Interest Determination Date; provided, however,
that if the brokers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Federal Funds Rate determined as of such Federal
Funds Rate Interest Determination Date will be the Federal Funds Rate in effect
on such Federal Funds Rate Interest Determination Date.
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<PAGE> 22
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Index Currency having the Index Maturity
specified in such Pricing Supplement, commencing on the applicable Interest
Reset Date, that appear (or, if only a single rate is required as
aforesaid, appears) on the Designated LIBOR Page as of 11:00 A.M., London
time, on such LIBOR Interest Determination Date, or (b) if "LIBOR Telerate"
is specified in the applicable Pricing Supplement or if neither "LIBOR
Reuters" nor "LIBOR Telerate" is specified in the applicable Pricing
Supplement as the method for calculating LIBOR, the rate for deposits in
the Index Currency having the Index Maturity specified in such Pricing
Supplement, commencing on such Interest Reset Date, that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on such LIBOR Interest
Determination Date. If fewer than two such offered rates so appear, or if
no such rate so appears, as applicable, LIBOR on such LIBOR Interest
Determination Date will be determined in accordance with the provisions
described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case may
be, on the Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity specified in the applicable Pricing Supplement, commencing on the
applicable Interest Reset Date, to prime banks in the London interbank
market at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date and in a principal amount that is representative for a
single transaction in such Index Currency in such market at such time. If
at least two such quotations are so provided, then LIBOR on such LIBOR
Interest Determination Date will be the arithmetic mean of such quotations.
If fewer than two such quotations are so provided, then LIBOR on such LIBOR
Interest Determination Date will be the arithmetic mean of the rates quoted
at approximately 11:00 A.M., in the applicable Principal Financial Center,
on such LIBOR Interest Determination Date by three major banks in such
Principal Financial Center selected by the Calculation Agent for loans in
the Index Currency to leading European banks, having the Index Maturity
specified in the applicable Pricing Supplement and in a principal amount
that is representative for a single transaction in such Index Currency in
such market at such time; provided, however, that if the banks so selected
by the Calculation Agent are not quoting as mentioned in this sentence,
LIBOR determined as of such LIBOR Interest Determination Date will be LIBOR
in effect on such LIBOR Interest Determination Date.
"Index Currency" means the currency or composite currency specified in the
applicable Pricing Supplement as to which LIBOR shall be calculated. If no such
currency or composite currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page on such service (or any
successor service)) for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
specified in the applicable Pricing Supplement or neither "LIBOR Reuters" nor
"LIBOR Telerate" is specified in the applicable Pricing Supplement as the method
for calculating LIBOR, the display on the Dow Jones Telerate Service (or any
successor service) on the page specified in such Pricing Supplement (or any
other page as may replace such page on such service (or any successor service))
for the purpose of displaying the London interbank rates of major banks for the
applicable Index Currency.
Prime Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published prior to 3:00 P.M., New
S-14
<PAGE> 23
York City time, on the related Calculation Date, then the Prime Rate shall be
the arithmetic mean of the rates of interest publicly announced by each bank
that appears on the Reuters Screen US PRIME 1 Page (as hereinafter defined) as
such bank's prime rate or base lending rate as in effect for such Prime Rate
Interest Determination Date. If fewer than four such rates appear on the Reuters
Screen US PRIME 1 Page for such Prime Rate Interest Determination Date, then the
Prime 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 a 360-day year as of the
close of business on such Prime Rate Interest Determination Date by four major
money center banks in The City of New York selected by the Calculation Agent. If
fewer than four such quotations are so provided, then the Prime Rate shall be
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 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 Federal or State authority,
selected by the Calculation Agent to provide such rate or rates; provided,
however, that if the banks or trust companies so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Prime Rate determined
as of such Prime Rate Interest Determination Date will be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
"Reuters Screen US PRIME 1 Page" means the display designated as page "US
PRIME 1" on the Reuter Monitor Money Rates Service (or any successor service)
(or such other page as may replace the US PRIME 1 page on such service (or any
successor service) for the purpose of displaying prime rates or base lending
rates of major United States banks).
Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is determined
by reference to the Treasury Rate (a "Treasury Rate Interest Determination
Date"), the rate from the auction held on such Treasury Rate Interest
Determination Date (the "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 published by 3:00 P.M., New York
City time, on the related Calculation Date, the auction average rate of such
Treasury Bills (expressed as a bond equivalent on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) 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 Index Maturity specified in the
applicable Pricing Supplement are not reported as provided by 3:00 P.M., New
York City time, on the related Calculation Date, or if no such Auction is held,
then the Treasury Rate will be calculated by the Calculation Agent and will 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 (which may include the Agent
or its affiliates) selected by the Calculation Agent, for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity specified in the
applicable Pricing Supplement; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Treasury Rate determined as of such Treasury Rate Interest Determination
Date will be the Treasury Rate in effect on such Treasury Rate Interest
Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Maturity Date or any other term relating thereto, may be modified and/or
supplemented as specified under "Other/Additional Provisions" on the face
thereof or in an Addendum relating thereto, if so specified on the face thereof.
Such provisions will be described in the applicable Pricing Supplement.
S-15
<PAGE> 24
AMORTIZING NOTES
The Company may from time to time offer 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 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 provisions of
Amortizing Notes will be specified in the applicable Pricing Supplement,
including a table setting forth repayment information for such Amortizing Notes.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may offer Notes ("Original Issue Discount Notes") from time to
time that have an Issue Price (as specified in the applicable Pricing
Supplement) that is less than 100% of the principal amount thereof (i.e. par).
Original Issue Discount Notes may not bear any interest currently or may bear
interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of an Original Issue Discount Note and par is
referred to herein as the "Discount." In the event of redemption, repayment or
acceleration of maturity of an Original Issue Discount Note, the amount payable
to the Holder of such Original Issue Discount Note, unless otherwise specified
in the applicable Pricing Supplement, will be equal to the sum of (i) the Issue
Price (increased by any accruals of Discount) and, in the event of any
redemption of such Original Issue Discount Note (if applicable), multiplied by
the Initial Redemption Percentage specified in the applicable Pricing Supplement
(as adjusted by the Annual Redemption Percentage Reduction, if applicable) and
(ii) any unpaid interest on such Original Issue Discount Note accrued from the
date of issue to the date of such redemption, repayment or acceleration of
maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for an
Original Issue Discount Note, such Discount will be accrued using a constant
yield method. The constant yield will be calculated using a 30-day month,
360-day year convention, a compounding period that, except for the Initial
Period (as hereinafter defined), corresponds to the shortest period between
Interest Payment Dates for the applicable Original Issue Discount Note (with
ratable accruals within a compounding period), a coupon rate equal to the
initial coupon rate applicable to such Original Issue Discount Note and an
assumption that the maturity of such Original Issue Discount Note will not be
accelerated. If the period from the date of issue to the initial Interest
Payment Date for an Original Issue Discount Note (the "Initial Period") is
shorter than the compounding period for such Original Issue Discount Note, a
proportionate amount of the yield for an entire compounding period will be
accrued. If the Initial Period is longer than the compounding period, then such
period will be divided into a regular compounding period and a short period with
the short period being treated as provided in the preceding sentence. The
accrual of the applicable Discount may differ from the accrual of original issue
discount for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"), certain Original Issue Discount Notes may not be treated as having
original issue discount within the meaning of the Code, and Notes other than
Original Issue Discount Notes may be treated as issued with original issue
discount for federal income tax purposes. See "Certain United States Federal
Income Tax Considerations" herein.
INDEXED NOTES
Notes may be issued with the amount of principal, premium and/or interest
payable in respect thereof to be determined with reference to the price or
prices of specified commodities or stocks, to the exchange rate of one or more
designated currencies (including a composite currency such as the ECU) relative
to an indexed currency or to other price(s) or exchange rate(s) ("Indexed
Notes"), in each case as specified in the applicable Pricing Supplement. In
certain cases, Holders of Indexed Notes may receive a principal payment on the
Maturity Date that is greater than or less than the principal amount of such
Indexed Notes depending upon the relative value on the Maturity Date of the
specified indexed item. Information as to the method for determining the amount
of principal, premium, if any, and/or interest, if any, payable in respect of
Indexed Notes, certain historical information with respect to the specified
indexed item and any material tax considerations associated with an investment
in Indexed Notes will be specified in the applicable Pricing Supplement. See
also "Risk Factors."
S-16
<PAGE> 25
BOOK-ENTRY NOTES
The Company has established a depositary arrangement with The Depository
Trust Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes up to $200,000,000 aggregate principal
amount bearing interest (if any) at the same rate or pursuant to the same
formula and having the same date of issue, Specified Currency, Interest Payment
Dates (if any), Stated Maturity Date, redemption provisions (if any), repayment
provisions (if any) and other terms will be represented by a single Global
Security. Each Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, the Depositary and will be registered in the name of the
Depositary or a nominee of the Depositary. No Global Security may be transferred
except as a whole by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or such nominee to a successor
of the Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Book-Entry Notes represented thereby for all purposes under
the Indenture. Except as otherwise provided in this section, the Beneficial
Owners of the Global Security or Securities representing Book-Entry Notes will
not be entitled to receive physical delivery of Certificated Notes and will not
be considered the Holders thereof for any purpose under the Indenture, and no
Global Security representing Book-Entry Notes shall be exchangeable or
transferable. Accordingly, each Beneficial Owner must rely on the procedures of
the Depositary and, if such Beneficial Owner is not a Participant, on the
procedures of the Participant through which such Beneficial Owner owns its
interest in order to exercise any rights of a Holder under such Global Security
or the Indenture. The laws of some jurisdictions 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 Global Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for the Global Securities, (ii) the Depositary ceases to be a clearing agency
registered under the Exchange Act, (iii) the Company in its sole discretion
determines that the Global Securities shall be exchangeable for Certificated
Notes or (iv) there shall have occurred and be continuing an Event of Default
under the Indenture with respect to the Notes. Upon any such exchange, the
Certificated Notes shall be registered in the names of the Beneficial Owners of
the Global Security or Securities representing Book-Entry Notes, which names
shall be provided by the Depositary's relevant Participants (as identified by
the Depositary) to the Trustee.
The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's partnership
nominee). One fully registered Global Security will be issued for each
issue of Book-Entry Notes, each in the aggregate principal amount of such
issue, and will be deposited with the Depositary. If, however, the
aggregate principal amount of any issue exceeds $200,000,000, one Global
Security will be issued with respect to each $200,000,000 of principal
amount and an additional Global Security will be issued with respect to any
remaining principal amount of such issue.
The Depositary is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants of the Depositary ("Direct Participants")
include securities brokers and dealers (including the Agent), banks, trust
companies,
S-17
<PAGE> 26
clearing corporations and certain other organizations. The Depositary is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the Depositary's system
is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants
are on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be
made by or through Direct Participants, which will receive a credit for
such Book-Entry Notes on the Depositary's records. The ownership interest
of each actual purchaser of each Book-Entry Note represented by a Global
Security ("Beneficial Owner") is in turn to be recorded on the records of
Direct Participants and Indirect Participants. Beneficial Owners will not
receive written confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in a Global Security representing Book-Entry Notes are
to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners of a Global Security
representing Book-Entry Notes will not receive Certificated Notes
representing their ownership interests therein, except in the event that
use of the book-entry system for such Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary
are registered in the name of the Depositary's nominee, Cede & Co. The
deposit of Global Securities with, or on behalf of, the Depositary and
their registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners
of the Global Securities representing the Book-Entry Notes; the
Depositary's records reflect only the identity of the Direct Participants
to whose accounts such Book-Entry Notes are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners will
be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with
respect to the Global Securities representing the Book-Entry Notes. Under
its usual procedures, the Depositary mails an Omnibus Proxy to the Company
as soon as possible after the applicable record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Book-Entry Notes are credited on the
applicable record date (identified in a listing attached to the Omnibus
Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Global Securities representing the Book-Entry Notes will be made in
immediately available funds to the Depositary. The Depositary's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depositary's records
unless the Depositary has reason to believe that it will not receive
payment on such date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is 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
Participant and not of the Depositary, the Trustee or the Company, subject
to any statutory or regulatory requirements as may be in effect from time
to time. Payment of principal, premium, if any, and/or interest, if any, to
the Depositary is the responsibility of the Company or the Trustee,
disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct Participants and
Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes within an issue are being redeemed, the
Depositary's practice is to determine by lot the amount of the interest of
each Direct Participant in such issue to be redeemed.
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<PAGE> 27
A Beneficial Owner shall give notice of any option to elect to have
its Book-Entry Notes repaid by the Company, through its Participant, to the
Trustee, and shall effect delivery of such Book-Entry Notes by causing the
Direct Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the
Depositary's records, to the Trustee. The requirement for physical delivery
of Book-Entry Notes in connection with a demand for repayment will be
deemed satisfied when the ownership rights in the Global Security or
Securities representing such Book-Entry Notes are transferred by Direct
Participants on the Depositary's records.
The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the Trustee. Under such circumstances,
in the event that a successor securities depository is not obtained,
Certificated Notes are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Foreign
Currency Notes will not be sold in, or to residents of, the country issuing the
applicable currency. The information set forth in this Prospectus Supplement is
directed to prospective purchasers who are United States residents. With respect
to Foreign Currency Notes, the information in this Prospectus Supplement is by
necessity incomplete. The Company disclaims any responsibility to advise
prospective purchasers who are residents of countries other than the United
States with respect to any matters that may affect the purchase, holding or
receipt of payments of principal of, and premium, if any, and interest, if any,
on, the Foreign Currency Notes. Such persons should consult their own financial
and legal advisors with regard to such matters. See "Risk Factors -- Exchange
Rates and Exchange Controls."
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST, IF ANY
Unless otherwise specified in the applicable Pricing Supplement, the
Company is obligated to make payments of principal of, and premium, if any, and
interest, if any, on, Foreign Currency Notes in the applicable Specified
Currency (or, if such Specified Currency is not at the time of such payment
legal tender for the payment of public and private debts, in such other coin or
currency of the country which issued such Specified Currency as at the time of
such payment is legal tender for the payment of such debts). Any such amounts
payable by the Company in the Specified Currency will, unless otherwise
specified in the applicable Pricing Supplement, be converted by the exchange
rate agent named in the applicable Pricing Supplement (the "Exchange Rate
Agent") into United States dollars for payment to Holders. However, the Holder
of a Foreign Currency Note may elect to receive such amounts payable in the
Specified Currency as hereinafter described.
Any United States dollar amount to be received by a Holder of a Foreign
Currency Note will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of whom may be the Exchange Rate
Agent) selected by the Exchange Rate Agent and approved by the Company for the
purchase by the quoting dealer of the Specified Currency for United States
dollars for settlement on such payment date in the aggregate amount of such
Specified Currency payable to all Holders of Foreign Currency Notes scheduled to
receive United States dollar payments and at which the applicable dealer commits
to execute a contract. All currency exchange costs will be borne by the Holders
of such Foreign Currency Notes by deductions from such payments. If three such
bid quotations are not available, payments will be made in the Specified
Currency.
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Holders of Foreign Currency Notes may elect to receive all or a specified
portion of any payments of principal, premium, if any, and/or interest, if any,
in the Specified Currency by submitting a written request for such payment to
the Trustee at its corporate trust office in The City of New York on or prior to
the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be. Such written request may be mailed or hand
delivered or sent by cable, telex or other form of facsimile transmission.
Holders of Foreign Currency Notes may elect to receive all or a specified
portion of all future payments in the Specified Currency and need not file a
separate election for each payment. Such election will remain in effect until
revoked by written notice to the Trustee, but written notice of any such
revocation must be received by the Trustee on or prior to the applicable Record
Date or at least fifteen calendar days prior to the Maturity Date, as the case
may be. Holders of Foreign Currency Notes to be held in the name of a broker or
nominee should contact such broker or nominee to determine whether and how an
election to receive payments in the Specified Currency may be made.
Payments of the principal of, and premium, if any, and/or interest, if any,
on, Foreign Currency Notes which are to be made in United States dollars will be
made in the manner specified herein with respect to Notes denominated in United
States dollars. See "Description of Notes -- General." Payments of interest, if
any, on Foreign Currency Notes which are to be made in the Specified Currency on
an Interest Payment Date other than the Maturity Date will be made by check
mailed to the address of the Holders of such Foreign Currency Notes as they
appear in the Security Register, subject to the right to receive such interest
payments by wire transfer of immediately available funds under the circumstances
described under "Description of Notes -- General." Payments of principal of, and
premium, if any, and/or interest, if any, on, Foreign Currency Notes which are
to be made in the Specified Currency on the Maturity Date will be made by wire
transfer of immediately available funds to an account with a bank designated at
least fifteen calendar days prior to the Maturity Date by each Holder thereof,
provided that such bank has appropriate facilities therefor and that the
applicable Foreign Currency Note is presented and surrendered at the principal
corporate trust office of the Trustee in time for the Trustee to make such
payments in such funds in accordance with its normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, if the
Specified Currency is other than United States dollars, a Beneficial Owner of
the related Global Security or Securities which elects to receive payments of
principal, premium, if any, and/or interest, if any, in the Specified Currency
must notify the Participant through which it owns its interest on or prior to
the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be, of such Beneficial Owner's election. Such
Participant must notify the Depositary of such election on or prior to the third
Business Day after such Record Date or at least twelve calendar days prior to
the Maturity Date, as the case may be, and the Depositary will notify the
Trustee of such election on or prior to the fifth Business Day after such Record
Date or at least ten calendar days prior to the Maturity Date, as the case may
be. If complete instructions are received by the Participant from the Beneficial
Owner and forwarded by the Participant to the Depositary, and by the Depositary
to the Trustee, on or prior to such dates, then such Beneficial Owner will
receive payments in the applicable foreign currency or composite currency.
AVAILABILITY OF SPECIFIED CURRENCY
If the Specified Currency for a Foreign Currency Note is not available for
the required payment of principal, premium, if any, and/or interest, if any, due
to the imposition of exchange controls or other circumstances beyond the control
of the Company, the Company will be entitled to satisfy its obligations to the
Holder of such Foreign Currency Note by making such payment in United States
dollars on the basis of the Market Exchange Rate on the second Business Day
prior to such payment or, if such Market Exchange Rate is not then available, on
the basis of the most recently available Market Exchange Rate or as otherwise
specified in the applicable Pricing Supplement.
If payment in respect of a Foreign Currency Note is required to be made in
any composite currency, and such composite currency is unavailable due to the
imposition of exchange controls or other circumstances beyond the control of the
Company, the Company will be entitled to satisfy its obligations to the Holder
of such Foreign Currency Note by making such payment in United States dollars.
The amount of each payment in United States dollars shall be computed by the
Exchange Rate Agent on the basis of the equivalent of the composite currency in
United States dollars. The component currencies of the composite currency for
this purpose (collectively, the "Component Currencies" and each, a "Component
Currency") shall be the currency amounts that were components of the composite
currency as of the last day on which the composite currency was used. The
equivalent of the
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composite currency in United States dollars shall be calculated by aggregating
the United States dollar equivalents of the Component Currencies. The United
States dollar equivalent of each of the Component Currencies shall be determined
by the Exchange Rate Agent on the basis of the most recently available Market
Exchange Rate for each such Component Currency, or as otherwise specified in the
applicable Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
The "Market Exchange Rate" for a currency or composite currency other than
United States dollars means the noon dollar buying rate in The City of New York
for cable transfers for such currency or composite currency as certified for
customs purposes by (or if not so certified, as otherwise determined by) the
Federal Reserve Bank of New York. Any payment made in United States dollars
under such circumstances where the required payment is in a currency or
composite currency other than United States dollars will not constitute an Event
of Default under the Indenture with respect to the Notes.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the Holders of the Foreign Currency
Notes.
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. Under current New York law, a state court in the State of
New York rendering a judgment on a Foreign Currency Note would be required to
render such judgment in the Specified Currency, and such judgment would be
converted into United States dollars at the exchange rate prevailing on the date
of entry of the judgment. Accordingly, Holders of Foreign Currency Notes would
be subject to of exchange rate fluctuations after such date. It is not certain,
however that a non-New York court would follow the same rules and procedures
with respect to such conversions of the Specified Currency.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States Federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the Notes arising under the laws of any other
taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. As used herein, the term
"non-U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
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U.S. HOLDERS
Payments of Interest
Except as set forth below, payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular method
of tax accounting).
Original Issue Discount
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Discount Notes"). The
following summary is based upon final Treasury regulations (the "OID
Regulations") released by the Internal Revenue Service ("IRS") on January 27,
1994 under the original issue discount provisions of the Internal Revenue Code
of 1986, as amended (the "Code").
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(ignoring sales to 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 sum of all payments
provided by the Note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. In addition, under the OID
Regulations, if a Note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of such Note (e.g., Notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on such Note or any "true" discount on such Note (i.e., the
excess of the Note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest on the Note
would be treated as original issue discount rather than qualified stated
interest.
Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of such U.S. Holder's
regular method of tax accounting. In general, the amount of original issue
discount included in income by the initial U.S. Holder of a Discount Note is the
sum of the daily portions of original issue discount with respect to such
Discount Note for each day during the taxable year (or portion of the taxable
year) on which such U.S. Holder held such Discount Note. The "daily portion" of
original issue discount on any Discount Note is determined by allocating to each
day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an accrual period. The amount of original issue
discount allocable to each accrual period is generally equal to the difference
between (i) the product of the Discount Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and appropriately
adjusted to take into account the length of the particular accrual period) and
(ii) the amount of any qualified stated interest payments allocable to such
accrual period. The "adjusted issue price" of a Discount Note at the beginning
of any accrual period is the sum of the issue price of the Discount Note plus
the amount of original issue discount allocable to all prior accrual periods
minus the amount of any prior payments on the Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
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A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder must
include in its gross income with respect to such Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Discount Note) will
be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Variable Note by more than a
specified de minimis amount and (b) it provides for stated interest, paid or
compounded at least annually, at current values of (i) one or more qualified
floating rates, (ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single fixed rate and a single
objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than zero but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than zero but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Note's
issue date) will be treated as a single qualified floating rate. Notwithstanding
the foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a maximum
numerical limitation (i.e., a cap) or a minimum numerical limitation (i.e., a
floor) may, under certain circumstances, fail to be treated as a qualified
floating rate under the OID Regulations unless such cap or floor is fixed
throughout the term of the Note. An "objective rate" is a rate that is not
itself a qualified floating rate but which is determined using a single fixed
formula and which is based upon (i) one or more qualified floating rates, (ii)
one or more rates where each rate would be a qualified floating rate for a debt
instrument denominated in a currency other than the currency in which the
Variable Note is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property (other than stock or debt
of the issuer or a related party) or (iv) a combination of objective rates. The
OID Regulations also provide that other variable interest rates may be treated
as objective rates if so designated by the IRS in the future. Despite the
foregoing, a variable rate of interest on a Variable Note will not constitute an
objective rate if it is reasonably expected that the average value of such rate
during the first half of the Variable 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 Variable Note's term. A "qualified inverse floating rate" is
any objective rate where such rate is equal to a fixed rate minus a qualified
floating rate, as long as variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds. The OID Regulations also provide that if a Variable Note provides for
stated interest at a fixed rate for an initial period of less than one year
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Variable Note's issue date is
intended to approximate the fixed rate (e.g., the value of the variable rate on
the issue date does not differ from the value of the fixed rate by more than 25
basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and will be taxed accordingly. Thus, a
Variable Note that provides for stated interest at either a single qualified
floating rate or a single objective rate throughout the term thereof and that
qualifies as a "variable rate debt instrument" under the OID Regulations will
generally not be treated as having been issued with original issue discount
unless the Variable Note is issued at a "true" discount (i.e., at a
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price below the Note's stated principal amount) in excess of a specified de
minimis amount. Original issue discount on such a Variable Note arising from
"true" discount is allocated to an accrual period using the constant yield
method described above by assuming that the variable rate is a fixed rate equal
to (i) 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 (ii) in the case of an objective rate (other
than a qualified inverse floating rate), a fixed rate that reflects the yield
that is reasonably expected for the Variable Note.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
U.S. Holders should be aware that on June 14, 1996, the IRS released final
amendments to the OID Regulations which slightly modify the definition of a
qualified floating rate, broaden the definition of an objective rate and further
clarify certain other provisions contained in the OID Regulations. In general,
under these amendments, the definition of qualified floating rate is slightly
modified such that a variable rate equal to either (a) the product of a
qualified floating rate and a fixed multiple that is greater than .65 but not
more than 1.35 or (b) the product of a qualified floating rate and a fixed
multiple that is greater than .65 but not more than 1.35, increased or decreased
by a fixed rate will each constitute a qualified floating rate. In addition,
under these amendments, an objective rate is redefined as 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. A rate will not
qualify as an objective rate if it is based on information that is within the
control of the issuer (or a related party) or that is unique to the
circumstances of the issuer (or a related party), such as dividends, profits, or
the value of the issuer's stock (although a rate does not fail to be an
objective rate merely because it is based on the credit quality of the issuer).
These amendments to the OID Regulations generally apply to debt instruments
issued on or after August 13, 1996.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. It is not entirely clear under current law
how a Variable Note would be taxed if such Note were treated as a contingent
payment debt obligation. The proper United States Federal income tax treatment
of Variable Notes that are treated as contingent payment debt obligations will
be more fully described in the applicable Pricing Supplement. Furthermore, any
other special United States Federal income tax considerations, not otherwise
discussed herein, which are applicable to any particular issue of Notes will be
discussed in the applicable Pricing Supplement.
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Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Short-Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount. In general,
an individual or other cash method U.S. Holder is not required to accrue such
original issue discount unless the U.S. Holder elects to do so. If such an
election is not made, any gain recognized by the U.S. Holder on the sale,
exchange or maturity of the Short-Term Note will be ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or upon
election under the constant yield method (based on daily compounding), through
the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
Market Discount
If a U.S. Holder purchases a Note, other than a Discount Note, for an
amount that is less than its issue price (or, in the case of a subsequent
purchaser, its stated redemption price at maturity) or, in the case of a
Discount Note, for an amount that is less than its adjusted issue price as of
the purchase date, such U.S. Holder will be treated as having purchased such
Note at a "market discount," unless such market discount is less than a
specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized on
the sale, exchange, retirement or other disposition of, a Note as ordinary
income to the extent of the lesser of (i) the amount of such payment or realized
gain or (ii) the market discount which has not previously been included in
income and is treated as having accrued on such Note at the time of such payment
or disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on a constant interest basis.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount. A
U.S. Holder may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for United
States Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
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Premium
If a U.S. Holder purchases a Note for an amount that is greater than the
sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S. Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium until later in the
term of the Note. Any election to amortize bond premium applies to all taxable
debt instruments acquired by the U.S. Holder on or after the first day of the
first taxable year to which such election applies and may be revoked only with
the consent of the IRS.
Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a
Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued market
discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond premium taken with respect to
such Note. Such gain or loss generally will be long-term capital gain or loss if
the Note were held for more than one year.
NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST IS PAYABLE, IN A FOREIGN
CURRENCY
As used herein, "Foreign Currency" means a currency or currency unit other
than U.S. dollars.
Payments of Interest in a Foreign Currency
Cash Method. A U.S. Holder who uses the cash method of accounting for
United States Federal income tax purposes and who receives a payment of interest
on a Note (other than original issue discount or market discount) will be
required to include in income the U.S. dollar value of the Foreign Currency
payment (determined on the date such payment is received) regardless of whether
the payment is in fact converted to U.S. dollars at that time, and such U.S.
dollar value will be the U.S. Holder's tax basis in such Foreign Currency.
Accrual Method. A U.S. Holder who uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the U.S.
dollar value of the amount of interest income (including original issue discount
or market discount and reduced by amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Note during an accrual period. The U.S. dollar value of such
accrued income will be determined by translating such income at the average rate
of exchange for the accrual period or, with respect to an accrual period that
spans two taxable years, at the average rate for the partial period within the
taxable year. A U.S. Holder may elect, however, to translate such accrued
interest income using the rate of exchange on the last day of the accrual period
or, with respect to an accrual period that spans two taxable years, using the
rate of exchange on the last day of the taxable year. If the last day of an
accrual period is within five business days of the date of receipt of the
accrued interest, a U.S. Holder may translate such interest using the rate of
exchange on the date of receipt. The above election will apply to other debt
obligations held by the U.S. Holder and may not be changed without the consent
of the IRS. A U.S. Holder should consult a tax advisor before making the above
election. A U.S. Holder will recognize exchange gain or loss (which will be
treated as ordinary income or loss) with respect to accrued interest income on
the date such income is received. The amount of ordinary income or loss
recognized will equal the difference, if any, between the U.S. dollar value of
the Foreign Currency payment received (determined on the date such payment is
received) in respect of such accrual period and the U.S. dollar value of
interest income that has accrued during such accrual period (as determined
above).
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Purchase, Sale and Retirement of Notes
A U.S. Holder who purchases a Note with previously owned Foreign Currency
will recognize ordinary income or loss in an amount equal to the difference, if
any, between such U.S. Holder's tax basis in the Foreign Currency and the U.S.
dollar fair market value of the Foreign Currency used to purchase the Note,
determined on the date of purchase.
Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain
or loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in the U.S. Holder's income) and
will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held by such U.S. Holder for more than one year. To
the extent the amount realized represents accrued but unpaid interest, however,
such amounts must be taken into account as interest income, with exchange gain
or loss computed as described in "Payments of Interest in a Foreign Currency"
above. If a U.S. Holder receives Foreign Currency on such a sale, exchange or
retirement the amount realized will be based on the U.S. dollar value of the
Foreign Currency on the date the payment is received or the Note is disposed of
(or deemed disposed of as a result of a material change in the terms of such
Note). In the case of a Note that is denominated in Foreign Currency and is
traded on an established securities market, a cash basis U.S. Holder (or, upon
election, an accrual basis U.S. Holder) will determine the U.S. dollar value of
the amount realized by translating the Foreign Currency payment at the spot rate
of exchange on the settlement date of the sale. A U.S. Holder's adjusted tax
basis in a Note will equal the cost of the Note to such holder, increased by the
amounts of any market discount or original issue discount previously included in
income by the holder with respect to such Note and reduced by any amortized
acquisition or other premium and any principal payments received by the holder.
A U.S. Holder's tax basis in a Note, and the amount of any subsequent
adjustments to such holder's tax basis, will be the U.S. dollar value of the
Foreign Currency amount paid for such Note, or of the Foreign Currency amount of
the adjustment, determined on the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date such payment is received or the Note is disposed
of, and the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date the U.S. Holder acquired the Note. Such Foreign
Currency gain or loss will be recognized only to the extent of the total gain or
loss realized by the U.S. Holder on the sale, exchange or retirement of the
Note.
Original Issue Discount
In the case of a Discount Note or Short-Term Note, (i) original issue
discount is determined in units of the Foreign Currency, (ii) accrued original
issue discount is translated into U.S. dollars as described in "Payments of
Interest in a Foreign Currency -- Accrual Method" above and (iii) the amount of
Foreign Currency gain or loss on the accrued original issue discount is
determined by comparing the amount of income received attributable to the
discount (either upon payment, maturity or an earlier disposition), as
translated into U.S. dollars at the rate of exchange on the date of such
receipt, with the amount of original issue discount accrued, as translated
above.
Premium and Market Discount
In the case of a Note with market discount, (i) market discount is
determined in units of the Foreign Currency, (ii) accrued market discount taken
into account upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note (other than accrued market
discount required to be taken into account currently) is translated into U.S.
dollars at the exchange rate on such disposition date (and no part of such
accrued market discount is treated as exchange gain or loss) and (iii) accrued
market discount currently includible in income by a U.S. Holder for any accrual
period is translated into U.S. dollars on the basis of the average exchange rate
in effect during such accrual period, and the exchange gain or loss is
determined upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note in the manner described in
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"Payments of Interest in a Foreign Currency -- Accrual Method" above with
respect to computation of exchange gain or loss on accrued interest.
With respect to a Note issued with amortizable bond premium, such premium
is determined in the relevant Foreign Currency and reduces interest income in
units of the Foreign Currency. Although not entirely clear, a U.S. Holder should
recognize exchange gain or loss equal to the difference between the U.S. dollar
value of the bond premium amortized with respect to a period, determined on the
date the interest attributable to such period is received, and the U.S. dollar
value of the bond premium determined on the date of the acquisition of the Note.
Exchange of Foreign Currencies
A U.S. Holder will have a tax basis in any Foreign Currency received as
interest or on the sale, exchange or retirement of a Note equal to the U.S.
dollar value of such Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange or retirement. Any gain or loss
realized by a U.S. Holder on a sale or other disposition of Foreign Currency
(including its exchange for U.S. dollars or its use to purchase Notes) will be
ordinary income or loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Company, a controlled foreign corporation
related to the Company or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the Company
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
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<PAGE> 37
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the Company
to or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Lehman Brothers Inc., Smith Barney Inc., UBS Securities LLC, First
of Michigan Corporation, Keefe, Bruyette & Woods, Inc., McDonald & Company
Securities, Inc. and Roney & Co. LLC (the "Agents"). The Agents may purchase
Notes, as principal, from the Company from time to time 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, or, if so specified in
the applicable Pricing Supplement, for resale at a fixed offering price. If
agreed to by the Company 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 Company will pay a commission to the
applicable Agent, ranging from .125% to .75% of the principal amount of each
Note, depending upon its stated maturity, sold through such Agent. Commissions
with respect to Notes with stated maturities in excess of 30 years that are sold
through an Agent will be negotiated between the Company and such Agent at the
time of such sale.
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. The Agents may sell Notes which they purchase from the
Company as principal to other dealers for resale to investors and other
purchasers, and may reallow all or any portion of the discount received in
connection with such purchase from the Company to such dealers. After the
initial offering of Notes, the offering price (in the case of Notes to be resold
on a fixed offering price basis), the concession and the discount may be
changed.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether placed
directly with the Company or through an Agent). Each Agent will have the right,
in its discretion reasonably exercised, to reject in whole or in part any offer
to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in The City of New York on the date of
settlement. See "Description of Notes -- General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
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Each of the Agents may be deemed to be an "underwriter" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). The Company
has agreed to indemnify the Agents against certain liabilities (including
liabilities under the Securities Act), or to contribute to payments the Agents
may be required to make in respect thereof. The Company has agreed to reimburse
the Agents for certain other expenses.
In the ordinary course of its business, the Agents and their affiliates
have engaged and may in the future engage in investment and commercial banking
transactions with the Company and certain of its affiliates.
Concurrently with the offering of Notes described herein, the Company may
issue and sell other Debt Securities described in the accompanying Prospectus.
S-30
<PAGE> 39
PROSPECTUS
STANDARD FEDERAL BANCORPORATION, INC.
DEBT SECURITIES
[STANDARD FEDERAL LOGO]
Standard Federal Bancorporation, Inc., a Michigan corporation (the
"Company"), may offer, from time to time, in one or more series, its unsecured
debt securities (the "Debt Securities"), having such prices and terms as are
determined in light of market conditions at the time of sale. The Prospectus
Supplement and the Pricing Supplement accompanying this Prospectus set forth,
with respect to the particular series of Debt Securities for which this
Prospectus, the Prospectus Supplement and the Pricing Supplement are being
delivered, the specific aggregate principal amount, denominations (which may be
in United States dollars, in any other currency or in composite currencies),
maturity, rate (which may be fixed or variable) and time of payment of any
interest, purchase price, any terms for redemption or other special terms and
the names of the underwriters, if any. The Debt Securities may be unsecured Debt
Securities (the "Senior Debt Securities") or unsecured and subordinated Debt
Securities (the "Subordinated Debt Securities"). The Senior Debt Securities,
when issued, will rank on a parity with all other unsecured Senior Indebtedness
(as defined herein) of the Company, and the Subordinated Debt Securities, when
issued, will be subordinate in right of payment to all Senior Indebtedness. See
"Description of Debt Securities -- Subordination."
Each issue of Debt Securities may vary, where applicable, as to aggregate
principal amount, maturity date, public offering or purchase price, interest
rate or rates and timing of payments thereof, provision for redemption, sinking
fund requirements, if any, currencies of denomination or currencies otherwise
applicable thereto and any other variable terms and method of distribution. No
Debt Securities may be sold without delivery of a Prospectus Supplement
describing such issue of Debt Securities and the method and terms of offering
thereof.
THE DEBT SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS
OF ANY SAVINGS BANK OR NON-BANK SUBSIDIARY OF THE COMPANY AND ARE NOT INSURED BY
THE SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Company may sell the Debt Securities to or through one or more agents,
dealers or underwriters, and may also sell Debt Securities directly to other
purchasers. Such dealers may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended. If any agents, dealers or
underwriters are involved in the sale of any Debt Securities in respect of which
this Prospectus is being delivered, the names of such agents, dealers or
underwriters and any applicable commissions or discounts will be set forth in
the Prospectus Supplement or the Pricing Supplement. The net proceeds to the
Company from such sale will also be set forth in the Prospectus Supplement or
the Pricing Supplement. See "Plan of Distribution".
------------------------
The date of this Prospectus is July 10, 1996.
<PAGE> 40
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information concerning the Company may be
inspected and copies may be made at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the Commission's Regional Offices in New York
(Seven World Trade Center, 13th Floor, New York, New York 10048), and Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511). Copies of
these materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, reports, proxy statements and other information concerning the
Company may be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005. The Commission maintains an Internet Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
including the Company, and the address of such Internet Web site is
(http://www.sec.gov).
This Prospectus constitutes a part of a Registration Statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus omits
certain of the information contained in the Registration Statement in accordance
with the rules and regulations of the Commission. Reference is hereby made to
the Registration Statement and related exhibits for further information with
respect to the Company and the Debt Securities. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are incorporated herein by reference: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995; (ii) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; and (iii)
the Company's Current Reports on Form 8-K, dated May 14 and June 14, 1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering of the Debt Securities, shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or 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 statement or document so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON REQUEST, A COPY OF ANY AND ALL OF THE DOCUMENTS
DESCRIBED ABOVE OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS. WRITTEN REQUESTS SHOULD BE MAILED
TO STANDARD FEDERAL BANCORPORATION, INC., 2600 WEST BIG BEAVER ROAD, TROY,
MICHIGAN 48084, ATTENTION: INVESTOR RELATIONS. TELEPHONE REQUESTS SHOULD BE
DIRECTED TO (810) 643-9600.
THE COMPANY
The Company is the holding company for Standard Federal Bank (the "Bank"),
a federally chartered savings bank. With deposits of $9.4 billion at March 31,
1996, the Company has the largest deposit base of all thrift institutions
headquartered in the Midwest. Based on total assets at March 31, 1996, the
Company is the seventh largest publicly traded thrift institution in the United
States and the largest thrift institution headquartered in Michigan. The Bank
was founded in 1893, converted to a publicly-owned stock chartered thrift
institution in 1987,
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<PAGE> 41
and reorganized to become a subsidiary of the Company in May 1995. The Bank
currently conducts its retail banking business from 166 full-service Banking
Centers and 11 retail Home Lending Centers located in Michigan, Indiana and
Ohio. The Bank has four offices in the City of Detroit and 105 offices in the
suburban Detroit area, 10 offices in north-central Michigan, five offices in
northern Michigan, 32 offices in the southwest Michigan/northwest Indiana
region, 11 offices in northeast Indiana and 11 offices in northwest Ohio. The
Bank also has 24 wholesale Loan Production Offices that conduct business with
correspondents nationwide, and also owns and operates 347 automated teller
machines located throughout its retail market area. According to recognized
industry sources, the Bank was the tenth largest mortgage originator in the
United States in 1995, based on the dollar volume of loans originated. The
Company's executive offices are located at 2600 West Big Beaver Road, Troy,
Michigan 48084, and its telephone number is (810) 643-9600.
On June 7, 1996, the Company completed its acquisition of Bell Bancorp,
Inc. ("Bell"). The purchase price, including payments made with respect to
outstanding stock options, approximated $354.5 million. Bell, through its
principal subsidiary, Bell Federal Savings and Loan Association, operates 14
full-service branch offices in the greater Chicago, Illinois market and had
total assets of $1.9 billion and total deposits of $1.6 billion at the date of
closing. The transaction is being accounted for as a purchase and is anticipated
to result in goodwill (excess of purchase price over the underlying market value
of assets and liabilities) of between approximately $75.0 to 80.0 million. The
addition of Bell's assets along with the related intangibles will reduce the
Bank's various capital ratios. On a pro forma basis, including the proceeds of a
short-term borrowing but without giving effect to any additional capital which
may be contributed by the Company to the Bank with proceeds from the sale of
Debt Securities, management believes the Bank will continue to be categorized as
"well-capitalized" for purposes of the Prompt Corrective Action ("PCA")
regulations of the Office of Thrift Supervision ("OTS") as of June 30, 1996. For
additional information regarding the Bell merger, see the Company's Current
Report on Form 8-K dated June 14, 1996, which is incorporated herein by
reference.
The Bank's primary business consists of attracting deposits from the
general public and originating single-family home mortgage loans. The Bank also
acquires funds on a wholesale basis from a variety of sources, manages a
high-quality securities portfolio, services a significant volume of loans for
others and makes consumer loans and commercial real estate and non-real estate
loans. The Bank also operates a nationwide wholesale mortgage banking
correspondent network.
The Bank's primary sources of revenue are interest earned on mortgage loans
and investment securities (including mortgage-backed securities, or "MBSs"),
gains on sales of loans and MBSs, fees earned in connection with loans and
deposits, and income earned on the portfolio of loans and MBSs which the Bank
services for others. Its principal expense is interest incurred on
interest-bearing liabilities, including deposits and borrowings.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
The Bank is regulated by the Director (the "OTS Director") of the OTS and
the Federal Deposit Insurance Corporation (the "FDIC") which, through the
Savings Association Insurance Fund (the "SAIF"), insures the deposit accounts of
thrift institutions such as the Bank. The Bank is a member of the Federal Home
Loan Bank (the "FHLB") of Indianapolis, which is one of the twelve regional
banks for federally insured depository institutions comprising the Federal Home
Loan Bank System. The Bank is further subject to certain regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board")
governing reserves required to be maintained against certain deposits and other
matters.
The Company is a legal entity separate and distinct from the Bank and its
other subsidiaries. The ability of holders of securities of the Company,
including the holders of the Debt Securities offered hereby, to benefit from the
distribution of assets of any subsidiary of the Company (including the Bank)
upon the liquidation or reorganization of such subsidiary is subordinate to
prior claims of creditors of such subsidiary (including depositors in the case
of the Bank) except to the extent that a claim of the Company as a creditor of
the subsidiary may be recognized.
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<PAGE> 42
RESTRICTIONS ON CAPITAL DISTRIBUTIONS AND TRANSACTIONS BY THE BANK WITH
AFFILIATES
The Company's principal sources of funds are cash dividends paid to it by
the Bank and its other subsidiaries, investment income and borrowings. OTS
regulations impose limitations upon certain "capital distributions" by thrift
institutions, including dividends. The OTS Director has the authority to
preclude those institutions from declaring a dividend. Generally, the OTS
regulations permit specified amounts of capital distributions by a thrift
institution that meets or exceeds its' minimum capital requirements, so long as
the institution notifies the OTS and receives no objection to the distribution
from the OTS. The Bank may currently make capital distributions during any
calendar year equal to the greater of 100% of its year to date income plus 50%
of its "surplus capital ratio" at the beginning of the calendar year, or 75% of
its net income over the most recent four quarter period. The "surplus capital
ratio" is the lowest percentage by which the institution's three ratios of fully
phased-in capital to assets exceed the ratios of its fully phased-in capital
requirements to assets.
The OTS has proposed to amend its regulation on capital distributions such
that the Bank would no longer have to obtain approval from the OTS in order to
make a distribution in excess of the safe harbor amount, unless such
distribution would cause the Bank to fail to meet the OTS's PCA capital
standards. The OTS would, however, continue to receive prior notice of a
distribution and would retain the authority to prohibit any capital distribution
upon a determination that the making of such distribution would constitute an
unsafe or unsound practice. The Company does not anticipate that adoption of the
proposed regulation would have a material impact on the Bank's ability to make
distributions of capital.
In addition to regulation of capital distributions, there are various
statutory and regulatory limitations on the extent to which thrift institution
subsidiaries of the Company, such as the Bank, can finance or otherwise transfer
funds to the Company or its non-banking subsidiaries, whether in the form of
loans, extensions of credit, investments or asset purchases. Such transfers by
any subsidiary thrift institution to the Company or any non-banking subsidiary
are generally limited to 10% of the thrift institution's capital and surplus
and, with respect to the Company and all such non-banking subsidiaries, to an
aggregate of 20% of such thrift institution's capital and surplus. Furthermore,
loans and extensions of credit are required to be secured in specified amounts
and are required to be on terms and conditions consistent with safe and sound
banking practices. The OTS Director may further restrict these transactions in
the interest of safety and soundness.
CAPITAL REGULATIONS
The OTS has prescribed capital regulations (the "Capital Regulations") that
establish three capital requirements which must be met by the Bank -- a "core
capital requirement," a "tangible capital requirement" and a "risk-based capital
requirement." The Capital Regulations require thrift institutions to maintain
"core" capital of at least 3% of adjusted total assets, "tangible" capital of at
least 1.5% of adjusted total assets, and "risk-based" capital of at least 8% of
risk-weighted assets. Capital standards for thrifts must be no less stringent
than the capital standards applicable to national banks (a leverage ratio of 4%
of adjusted assets). Therefore, the Bank believes that it is required to
maintain core capital of at least 4% of adjusted total assets. The Bank meets
all of the current capital requirements at March 31, 1996.
The OTS has also adopted separate PCA regulations that call for the OTS to
enforce certain restrictions on savings institutions that are classified as
undercapitalized. The Bank was categorized for PCA purposes as a "well-
capitalized institution" by the OTS as of the completion of the Bank's 1995
Safety and Soundness Examination, and the Company's management believes the Bank
remains so categorized at June 30, 1996. An institution's capital category,
however is determined solely for regulatory purposes and may not constitute an
accurate representation of the institution's financial condition or prospects.
The OTS has also defined an interest rate risk ("IRR") component which,
although initially proposed as an additional component of risk-based capital
requirements, is now likely to be used by the OTS only as a supervisory tool.
The results derived from the OTS' IRR model indicate that at March 31, 1996, the
Bank was exposed to IRR at a level higher than the regulatory benchmark. The
Bank's March 31, 1996, IRR component was $32.9 million; such amount equalling
the Bank's IRR component as of September 30, 1995. Because the Bank had $291.8
million of excess risk-based capital as of March 31, 1996, this IRR component
will neither affect the Bank's continued
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<PAGE> 43
compliance with applicable regulatory capital requirements, nor will it likely
result in any increased regulatory oversight.
DEPOSIT INSURANCE
The Bank's deposits are insured by the FDIC through the SAIF to the extent
permitted by law. The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") directed the FDIC to establish by January 1, 1994, a risk-based
system for setting deposit insurance assessments for FDIC insured institutions
such as the Bank under which an institution's insurance assessments vary
depending on the level of capital the institution holds and the degree to which
it is the subject of supervisory concern to the FDIC from 0.23% to 0.31%. The
FDIC has reduced the assessment rate charged by the Bank Insurance Fund ("BIF")
by a substantial amount, but has not reduced the SAIF assessment rates at all.
Various committees of Congress and various federal regulatory banking agencies,
including the FDIC, are currently discussing changes to the federal deposit
insurance system to narrow or eliminate the difference in financial
characteristics between the BIF and the SAIF. One of the proposals would, among
other things, assess thrifts such as the Bank, a one-time fee to recapitalize
the SAIF. In the event that such a proposal were to become law on the terms
currently discussed, management of the Company estimates that the Bank would be
required to record a one-time charge to earnings of approximately $48.2 million,
or $1.50 per share, after-tax, based on March 31, 1996, deposit balances and an
assessment fee of 85 cents per $100 dollars of insured deposits. Under this
proposal, thereafter, the Bank's annual insurance expense would be reduced for
the foreseeable future by approximately 80% to 100% of current premiums.
Management estimates that a premium reduction of this magnitude would represent
annual after-tax cost savings to the Bank of approximately $10.1 million to
$12.6 million, based upon the actual 1995 deposit insurance premiums incurred by
the Bank. The currently proposed legislation has evolved significantly over
recent months and may continue to change until finally enacted, if ever. There
can be no assurance that a premium reduction will occur.
INTERSTATE BANKING
Under legislation effective June 1, 1997, commercial banks will be able to
operate branch offices outside of their home state, although the extent of their
ability to branch into a new state will depend on the law of that state. Federal
thrift associations such as the Bank are already able to branch nationwide, and
the Bank currently operates branch offices in three states (Michigan, Ohio and
Indiana), and following the Bell Merger will operate branch offices in Illinois.
The effectiveness of the recent legislation will reduce the Bank's competitive
advantage over commercial banks in this regard, and could increase competition
in the markets in which the Bank operates.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Debt Securities will be used to make a capital
contribution to the Bank, to finance future acquisitions and for other general
corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the Company is computed by
dividing earnings by fixed charges. Earnings consist primarily of income before
income taxes and fixed charges. Fixed charges represent interest expense and the
proportion of rental expense deemed representative of the interest factor.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
1995 1994 1993 1992 1991 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Including interest on deposits 1.31x 1.42x 1.42x 1.30x 1.17x 1.33x 1.33x
Excluding interest on deposits 2.01 2.48 2.31 1.85 1.46 2.21 2.02
</TABLE>
5
<PAGE> 44
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities will be issued under an Indenture (the "Senior
Indenture"), between the Company and a trustee, that will be filed as an exhibit
to or incorporated by reference in the Registration Statement of which this
Prospectus is a part. The Subordinated Debt Securities will be issued under an
Indenture (the "Subordinated Indenture" and collectively with the Senior
Indenture, the "Indenture"), between the Company and a trustee (collectively
with the trustee under the Senior Indenture, the "Trustee"), that will be filed
as an exhibit to or incorporated by reference in the Registration Statement of
which this Prospectus is a part. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all provisions of the Indenture, including the
definitions therein of certain terms. Wherever particular Sections or defined
terms of the Indenture are referred to, it is intended that such Sections or
defined terms (including, unless otherwise indicated herein, definitions of
terms capitalized in this summary) shall be incorporated herein by reference.
The following sets forth certain general terms and provisions of the Debt
Securities to which any Prospectus Supplement and Pricing Supplement may relate.
The particular terms of the Debt Securities offered by any Prospectus Supplement
and Pricing Supplement and the extent, if any, to which such general provisions
may apply to the Debt Securities so offered, will be described in the Prospectus
Supplement and Pricing Supplement relating to such Debt Securities. There is no
requirement that future issues of debt securities of the Company be issued under
the Indenture, and the Company is free to employ other indentures or
documentation containing provisions different from those included in the
Indenture or applicable to one or more issues of Debt Securities, in connection
with future issues of such other debt securities.
GENERAL
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 from time to time in one or more series up to the aggregate principal
amount which may be authorized from time to time by the Company. The Senior Debt
Securities will be direct, unsecured obligations of the Company and will rank on
a parity with other unsecured Senior Indebtedness of the Company. The
Subordinated Debt Securities will be unsecured and will rank on a parity with
other subordinated debt of the Company and, together with such other
subordinated debt, will be subordinate and junior in right of payment to the
prior payment in full of the Senior Indebtedness of the Company, as described
below under "Subordination."
Because the Company is a holding company, rights to participate in any
distribution of assets of any subsidiary, including the Bank, upon its
bankruptcy, liquidation or other reorganization are subject to the prior claims
of the subsidiary's creditors, except to the extent that the Company is itself a
creditor with recognized claims against the subsidiary.
The Indenture provides that there may be more than one Trustee under the
Indenture with respect to one or more series of Debt Securities. Any Trustee
under the Indenture may resign or be removed with respect to one or more series
of Debt Securities issued under the Indenture, and a successor Trustee may be
appointed to act with respect to such series. Reference is made to the
Prospectus Supplement and the Pricing Supplement relating to the particular
series of Debt Securities offered thereby for the following terms: (1) the title
of such Debt Securities and series in which such Debt Securities will be
included; (2) any limit on the aggregate principal amount of such Debt
Securities; (3) the price or prices (expressed as a percentage of the aggregate
principal amount thereof) at which such Debt Securities will be issued; (4) the
date or dates, or the method or methods, if any, by which such date or dates
shall be determined, on which such Debt Securities will mature and, if other
than the principal amount thereof, the portion of the principal amount of such
Debt Securities payable at maturity; (5) the rate or rates (which may be fixed
or variable) at which such Debt Securities will bear interest, if any, or the
method or methods, if any, by which such rate or rates are to be determined and
the manner upon which interest will be calculated if other than that of a
360-day year of twelve 30-day months; (6) the date or dates from which such
interest, if any, on such Debt Securities will accrue or the method or methods,
if any, by which such date or dates are to be determined, the date or dates on
which such interest, if any, will be payable, the date on which payment of such
interest, if any, will commence and the Regular Record Dates for such Interest
Payment Dates, if any; (7) the date or dates, if any, on or after which, or the
period or periods, if any, within which, and the price or prices at which the
Debt Securities will, pursuant to any mandatory sinking fund provisions, or may,
pursuant to any optional sinking fund or to any purchase
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<PAGE> 45
fund provisions, be redeemed by the Company, and the other terms and provisions
of such sinking and/or purchase funds; (8) the date or dates, if any, on or
after which, or the period or periods, if any, within which, and the price or
prices at which the Debt Securities may, pursuant to any optional redemption
provisions, be redeemed at the option of the Company or of the holder thereof
and the other terms and provisions of such optional redemption; (9) the extent
to which any of the Debt Securities will be issuable in temporary or permanent
global form and, if so, the identity of the depositary for such global Debt
Security, or the manner in which any interest payable on a temporary or
permanent global Debt Security will be paid; (10) the denomination or
denominations in which such Debt Securities are authorized to be issued if other
than $1,000 (in the case of Debt Securities issued in registered form) or $5,000
(in the case of Debt Securities issued in bearer form) and integral multiples
thereof; (11) whether such Debt Securities will be issued in registered or
bearer form or both and, if in bearer form, the terms and conditions relating
thereto and any limitations on issuance of such bearer Debt Securities
(including exchange for registered Debt Securities of the same series); (12)
information with respect to book-entry procedures relating to global Debt
Securities; (13) the terms, if any, upon which such Debt Securities may be
convertible into other securities of the Company and the terms and conditions
upon which such conversion may be effected, including the initial conversion
price or rate and any other provision in addition to or in lieu of those
described herein; (14) whether any of the Debt Securities will be issued as
Original Issue Discount Securities; (15) each office or agency where, subject to
the terms of the Indenture, the principal of, and premium and interest, if any,
on, the Debt Securities will be payable and where such Debt Securities may be
presented for registration of transfer or exchange; (16) the currencies or
currency units in which such Debt Securities are issued and in which the
principal of, and premium and interest, if any, on, and additional amounts, if
any, in respect of such Debt Securities will be payable; (17) whether the amount
of payments of principal of, and interest on, and additional amounts, if any, in
respect of such Debt Securities may be determined with reference to an index,
formula or other method or methods (which index, formula or method or methods
may, but need not be, based on one or more currencies, currency units or
composite currencies, commodities, equity indices or other indices) and the
manner in which such amounts shall be determined; (18) whether the Company or a
holder may elect payment of the principal of, or premium or interest, if any,
on, or additional amounts in respect of, such Debt Securities in a currency,
currencies, currency unit or units or composite currency or currencies other
than that in which such Debt Securities are denominated or stated to be payable,
the period or periods within which, and the terms and conditions upon which,
such election may be made, and the time and manner of determining the exchange
rate between the currency, currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are denominated or stated
to be payable and the currency, currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are to be paid; (19) if
other than the Trustee, the identity of each Security Registrar, Paying Agent
and Authenticating Agent; (20) the applicability of the defeasance provisions to
such Debt Securities; (21) the person to whom any interest on any registered
Debt Securities of the series shall 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 applicable Regular Record Date for
such payment of interest, the manner in which, or the person to whom, any
interest on any bearer Debt Security of the series shall be payable, if
otherwise than upon presentation and surrender of the coupons appertaining
thereto as they severally mature, and the extent to which, or the manner in
which, any interest payable on a temporary global Debt Security on an Interest
Payment Date will be paid if other than in the manner provided in the Indenture;
(22) whether and under what circumstances the Company will pay additional
amounts as contemplated by Section 1004 of the Indenture (the term "interest,"
as used in this Prospectus, shall include such additional amounts) on such Debt
Securities to any holder who is a United States Alien (as defined in the
Indenture) (including any modification to the definition of such term as
contained in the Indenture as originally executed) in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have the
option to redeem such Debt Securities rather than pay such additional amounts
(and the terms of any such option); (23) any deletions from, modifications of or
additions to the Events of Default or covenants of the Company with respect to
any of such Debt Securities; (24) any special federal income tax considerations
applicable to such Debt Securities; and (25) any other terms of such Debt
Securities (which will not be inconsistent with the provisions of the
Indenture).
Debt Securities may be issued as Original Issue Discount Securities to be
sold at a substantial discount below their principal amount. In the event of an
acceleration of the maturity of any Original Issue Discount Security, the amount
payable to the holder of such Original Issue Discount Security upon such
acceleration will be determined in
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<PAGE> 46
accordance with the applicable Prospectus Supplement, the terms of such Debt
Security and the Indenture, but will be an amount less than the amount payable
at the maturity of the principal of such Original Issue Discount Security.
Special federal income tax and other considerations applicable thereto will be
described in the Prospectus Supplement relating thereto.
Reference is made to the Prospectus Supplement and the Pricing Supplement
relating to the particular series of Debt Securities offered thereby for
information with respect to any deletions from, modifications of or additions to
the Events of Default described below or covenants of the Company contained in
the Indenture, including any addition of a covenant or other provision providing
event risk or similar protection.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable Prospectus Supplement or
Pricing Supplement, each series of Debt Securities will be issued in registered
form only, without coupons. The Indenture, however, provides that the Company
may also issue Debt Securities in bearer form only, or in both registered and
bearer form. Debt Securities in bearer form shall not be offered, sold, resold
or delivered in connection with their original issuance in the United States or
to any United States person (as defined below) other than offices located
outside the United States of certain United States financial institutions. As
used herein, "United States person" means any citizen or resident of the United
States, any corporation, partnership or other entity created or organized in or
under the laws of the United States, or any estate or trust, the income of which
is subject to United States federal income taxation regardless of its source,
and "United States" means the United States of America (including the States and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction. Purchasers of Debt Securities in bearer form will
be subject to certification procedures and may be affected by certain
limitations under United States tax laws. Such procedures and limitations will
be described in the Prospectus Supplement or Pricing Supplement, relating to the
offering of the Debt Securities in bearer form.
Unless otherwise indicated in the applicable Prospectus Supplement or
Pricing Supplement, registered Debt Securities will be issued in denominations
of $1,000 or any integral multiple thereof and bearer Debt Securities will be
issued in denominations of $5,000. No service charge will be made for any
transfer or exchange of the Debt Securities, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Unless otherwise described in the Prospectus Supplement or the Pricing
Supplement relating thereto, the principal, premium, if any, and interest, if
any, of or on the Debt Securities will be payable, and transfer of the Debt
Securities will be registrable, at the corporate trust office of The Chase
Manhattan Bank, N.A., as Paying Agent and Security Registrar under the
Indenture, in the Borough of Manhattan, The City of New York, provided that
payments of interest with respect to any Debt Security in registered form may be
made at the option of the Company by check mailed to the address appearing in
the applicable Security Register of the person in whose name such Debt Security
is registered at the close of business on the Regular Record Date or by transfer
to an account maintained with a bank located in the United States (Sections 305,
307, and 1002).
Unless otherwise indicated in the applicable Prospectus Supplement or the
Pricing Supplement, payment of principal of, premium, if any, and interest, if
any, on Debt Securities in bearer form will be made payable, subject to any
applicable laws and regulations, at such office outside the United States as
specified in the Prospectus Supplement or the Pricing Supplement and as the
Company may designate from time to time, at the option of the holder, by check
or by transfer to an account maintained by the payee with a bank located outside
the United States. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of interest and certain additional amounts on Debt
Securities in bearer form will be made only against surrender of the coupon
relating to such Interest Payment Date. No payment with respect to any Debt
Security in bearer form will be made at any office or agency of the Company in
the United States or by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Debt Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
8
<PAGE> 47
the Prospectus Supplement relating to such series. Global Debt Securities may be
issued in either registered or bearer form and in either temporary or permanent
form. Unless and until it is exchanged in whole or in part for individual
certificates evidencing Debt Securities in definitive form represented thereby,
a Global Debt Security may not be transferred except as a whole by the
Depositary for such Global Debt 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 with respect to a series
of Global Debt Securities and certain limitations and restrictions relating to a
series of bearer Global Debt Securities, will be described in the Prospectus
Supplement or the Pricing Supplement relating to such series.
OUTSTANDING DEBT SECURITIES
In determining whether the holders of the requisite principal amount of
Outstanding Debt Securities have given any request, demand, authorization,
direction, notice, consent or waiver under the Indenture, (i) the portion of the
principal amount of an Original Issue Discount Security that shall be deemed to
be Outstanding for such purposes shall be that portion of the principal amount
thereof that could be declared to be due and payable pursuant to the terms of
such Original Issue Discount Security as of the date of such determination, (ii)
the principal amount of any Indexed Security shall be the principal face amount
of such Indexed Security determined on the date of its original issuance, (iii)
the principal amount of a Debt Security denominated in a Foreign Currency (as
defined below) shall be the U.S. dollar equivalent, determined on the date of
original issue of such Debt Security, of the principal amount of such Debt
Security and (iv) any Debt Security owned by the Company or any obligor on such
Debt Security or any Affiliate of the Company or such other obligor, shall be
deemed not to be Outstanding (Section 101).
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of 66 2/3% in aggregate
principal amount of the Outstanding Debt Securities of each series affected by
such modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each Outstanding Debt
Security affected thereby: (a) change the stated maturity date of the principal
of, or any installment of principal or interest on, any Debt Security; (b)
reduce the principal amount of, or any premium or interest on, any Debt
Security; (c) reduce the amount of principal of an Original Issue Discount
Security payable upon acceleration of the maturity thereof or the amount thereof
provable in bankruptcy; (d) change the redemption provisions or adversely affect
the right of repayment at the option of any holder; (e) change the place of
payment of, currency of payment of principal of, or any premium or interest on,
any Debt Security; (f) impair the right to institute suit for the enforcement of
any payment on or with respect to any Debt Security; (g) reduce the percentage
in principal amount of Outstanding Debt Securities of any series the consent of
whose holders is required for modification or amendment of the Indenture or for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults; (h) modify the provisions of the Indenture described in this
paragraph or those regarding waiver of compliance with certain provisions of, or
certain defaults and their consequences under, the Indenture, except to increase
the percentage of Outstanding Debt Securities necessary to modify and amend the
Indenture or to give any such waiver, and except to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the holder of each Outstanding Debt Security affected thereby; (i) make any
change that adversely affects the right to convert any Debt Security; or (j) in
the case of Subordinated Debt Securities, modify the provisions of the Indenture
with respect to subordination of such Subordinated Debt Securities in a manner
adverse to the holders (Section 902).
The holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive provisions of the Indenture (Section 1007). The
holders of a majority in aggregate principal amount of the Outstanding Debt
Securities of each series may, on behalf of all holders of Debt Securities of
that series, waive any past default under the Indenture with respect to Debt
Securities of that series, except a default in the payment of principal or any
premium or interest on a Debt Security of such series, or a default in respect
of a provision which under the Indenture cannot be modified or amended without
the consent of the holder of each affected Outstanding Debt Security of that
series (Section 513).
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<PAGE> 48
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of any holder for any of the following
purposes: (i) to evidence the succession of another corporation to the Company;
(ii) to add to the covenants of the Company for the benefit of the holders of
all or any series of Debt Securities or to surrender any right or power therein
conferred upon the Company; (iii) to add or change any provisions of the
Indenture to facilitate the issuance of bearer Debt Securities; (iv) to
establish the form or terms of Debt Securities of any series and any related
coupons; (v) to provide for the acceptance of appointment by a successor
Trustee; (vi) to cure any ambiguity, defect or inconsistency in the Indenture,
provided such action does not adversely affect the interests of holders of Debt
Securities of any series or any related coupons in any material respect; (vii)
to add to, delete from or revise the conditions, limitations and restrictions on
the authorized amount, terms or purposes of issue, authentication and delivery
of Debt Securities; (viii) to add any additional Events of Default; (ix) to
supplement any of the provisions of the Indenture to such extent as shall be
necessary to permit or facilitate the defeasance and discharge of any series of
Debt Securities, provided such action does not adversely affect the interests of
holders of Debt Securities of such series or any related coupons in any material
respect; (x) to secure the Debt Securities; (xi) to make provisions with respect
to conversion rights of holders of Debt Securities of any series; and (xii) to
amend or supplement any provision contained in the Indenture or in any
supplemental indenture, provided that such amendment or supplement does not
materially adversely affect the interests of the holders of any Debt Securities
then Outstanding (Section 901).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may consolidate or merge with or into, or transfer its assets
substantially as an entirety to, any corporation organized under the laws of any
domestic jurisdiction, provided that the successor corporation assumes the
Company's obligations on the Debt Securities and under the Indenture, that after
giving effect to the transaction no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
occurred and be continuing, and that certain other conditions are met (Section
801).
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to
Debt Securities of any series: (a) failure to pay principal of, or any premium
on, any Debt Security of that series when due; (b) failure to pay any interest
on any Debt Security of that series when due, continued for 30 days; (c) failure
to deposit any sinking fund payment, when due, in respect of any Debt Security
of that series; (d) breach of any other covenant or warranty of the Company in
the Indenture (other than a covenant or warranty included in the Indenture
solely for the benefit of a series of Debt Securities other than that series),
continued for 60 days after written notice as provided in the Indenture; (e)
certain events in bankruptcy, insolvency or reorganization involving the Company
or any Restricted Subsidiary (as hereinafter defined); (f) acceleration of
Indebtedness in a principal amount in excess of $10,000,000 of the Company or
any Restricted Subsidiary under the terms of the instrument under which such
Indebtedness was issued or secured, if such acceleration is not annulled within
30 days after written notice as provided in the Indenture; and (g) any other
Event of Default provided with respect to Debt Securities of that series
(Section 501). If an Event of Default with respect to Senior Debt Securities of
any series at the time Outstanding (other than an Event of Default described in
clause (e) above) occurs and is continuing, either the Trustee or the holders of
at least 25% in aggregate principal amount of the Outstanding Senior Debt
Securities of that series may declare the principal amount of all the Senior
Debt Securities of that series or such lesser amount as may be provided for in
the Senior Debt Securities of such series to be due and payable immediately. If
an Event of Default specified in clause (e) above with respect to any Debt
Securities of any series at the time Outstanding occurs, the principal amount of
all the Debt Securities of that series or such lesser amount as may be provided
for in the Debt Securities of such series will ipso facto become immediately due
and payable without any declaration on the part of the Trustee or any holder.
UNLESS OTHERWISE INDICATED IN THE APPLICABLE PROSPECTUS SUPPLEMENT OR PRICING
SUPPLEMENT, THERE IS NO RIGHT OF ACCELERATION IN THE CASE OF DEFAULT IN THE
PAYMENT OF PRINCIPAL OF OR INTEREST ON THE SUBORDINATED DEBT SECURITIES OR THE
PERFORMANCE OF ANY OTHER OBLIGATION OF THE COMPANY UNDER THE SUBORDINATED
INDENTURE. At any time after Debt Securities of any series have been
accelerated, but before a judgment or decree based on acceleration has been
obtained, the holders of a majority in aggregate principal amount of Outstanding
Debt Securities of that series may rescind and annul such acceleration, provided
that, among other things, all Events of
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<PAGE> 49
Default with respect to such series, other than payment defaults caused by such
acceleration, have been cured or waived as provided in the Indenture (Section
502).
"Restricted Subsidiary" means Standard Federal Bank so long as it remains a
Subsidiary, and any other successor to all or a principal part of the business
or properties thereof, and any other Subsidiary which the Board of Directors
designates as a Restricted Subsidiary (Section 101).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may discharge certain obligations to holders of any series of
Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
depositing with the Trustee, in trust, funds in U.S. dollars or in such Foreign
Currency in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Maturity thereof, as the case
may be (Section 401).
The Indenture provides that, if the provisions of Section 402 thereof are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 thereof, the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for, among other things, the obligation to pay Additional Amounts, if
any, upon the occurrence of certain events of taxation, assessment or
governmental charge with respect to payments on such Debt Securities and the
obligations to register the transfer or exchange of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of such Debt Securities and to hold
moneys for payment in trust) ("defeasance") (Section 402(2)) or (b) to be
released from its obligations with respect to such Debt Securities under the
covenants described in "Limitation on Sale or Pledge of Stock of the Bank" below
or, if provided pursuant to Section 301 of the Indenture, its obligations with
respect to any other covenant, and any omission to comply with such obligations
shall not constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance") (Section 402(3)), in either case upon the
irrevocable deposit by the Company with the Trustee, in trust, of an amount, in
U.S. dollars or in such Foreign Currency in which such Debt Securities are
payable at Stated Maturity, or Government Obligations (as defined below), or
both, applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor (Section 402(4)).
Such a trust may only be established if, among other things, (i) the
applicable defeasance or covenant defeasance does not result in a breach or
violation of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company is a party or by which it is bound,
(ii) no default or Event of Default with respect to the Debt Securities to be
defeased shall have occurred and be continuing on the date of the establishment
of such a trust and (iii) the Company has delivered to the Trustee an Opinion of
Counsel (as specified in the Indenture) to the effect that the holders of such
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a letter ruling of the Internal
Revenue Service received by the Company, a Revenue Ruling published by the
Internal Revenue Service or a change in applicable U.S. federal income tax law
occurring after the date of the Indenture (Section 402(4)(d) and (e)).
"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the ECU, issued by the government of one or more
countries other than the United States of America or by any recognized
confederation or association of such governments (Section 101).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government or the governments in the
confederation which issued the Foreign Currency in which the Debt Securities of
a particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United
11
<PAGE> 50
States of America or such government or governments which issued the Foreign
Currency in which the Debt Securities of such series are payable, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government or
governments, which, in the case of clauses (i) and (ii), are not callable or
redeemable at the option of the issuer or issuers thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of or any other amount with respect to any such Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Obligation or the specific payment of interest on or principal of or
any other amount with respect to the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement or
Pricing Supplement, if after the Company has deposited funds and/or Government
Obligations to effect defeasance or covenant defeasance with respect to Debt
Securities of any series, (a) the holder of a Debt Security of such series is
entitled to, and does, elect pursuant to Section 301 of the Indenture or the
terms of such Debt Security to receive payment in a currency other than that in
which such deposit has been made in respect of such Debt Security, or (b) a
Conversion Event (as defined below) occurs in respect of the Foreign Currency in
which such deposit has been made, the indebtedness represented by such Debt
Security shall be deemed to have been, and will be, fully discharged and
satisfied through the payment of the principal of (and premium, if any) and
interest, if any, on such Debt Security as such Debt Security becomes due out of
the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency in which such Debt Security becomes payable as a
result of such election or such Conversion Event based on (x) in the case of
payments made pursuant to clause (a) above, the applicable market exchange rate
for such currency in effect on the second business day prior to such payment
date, or (y) with respect to a Conversion Event, the applicable market exchange
rate for such Foreign Currency in effect (as nearly as feasible) at the time of
the Conversion Event (Section 402(5)).
"Conversion Event" means the cessation of use of (i) a Foreign Currency
both by the government of the country or the confederation which issued such
Foreign Currency and for the settlement of transactions by a central bank or
other public institutions of or within the international banking community, (ii)
the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Community or (iii)
any currency unit or composite currency other than the ECU for the purposes for
which it was established. Unless otherwise provided in the applicable Prospectus
Supplement, all payments of principal of (and premium, if any) and interest on
any Debt Security that is payable in a Foreign Currency that ceases to be used
by its government or confederation of issuance shall be made in U.S. dollars
(Section 101).
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than an Event of Default with
respect to Section 1005 of the Indenture (which Section would no longer be
applicable to such Debt Securities after such covenant defeasance) or with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such Foreign Currency in which such Debt Securities are payable,
and Government Obligations on deposit with the Trustee, will be sufficient to
pay amounts due on such Debt Securities at the time of their Stated Maturity but
may not be sufficient to pay amounts due on such Debt Securities at the time of
the acceleration resulting from such Event of Default. However, the Company
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement or Pricing Supplement may further
describe the provisions, if any, permitting such defeasance or covenant
defeasance, including any modifications to the provisions described above, with
respect to the Debt Securities of or within a particular series.
Under each Indenture, the Company is required to furnish to the Trustee
annually a statement as to performance by the Company of certain of its
obligations under the Indenture and as to any default in such performance. The
Company is also required to deliver to the Trustee, within five days after the
occurrence thereof, written notice of any event which after notice or lapse of
time or both would constitute an Event of Default (Section 1008).
12
<PAGE> 51
LIMITATION ON SALE OR PLEDGE OF STOCK OF THE BANK
The Senior Indenture provides that, unless otherwise specified therein with
respect to a series of Senior Debt Securities, the Company (a) will not (i)
sell, transfer or otherwise dispose of any shares of the Voting Stock of the
Bank or (ii) permit the Bank to issue, sell or otherwise dispose of shares of
its Voting Stock unless in either case the Bank remains a Controlled Subsidiary
and (b) will not permit the Bank to (i) merge or consolidate unless the
surviving entity is the Bank or a Controlled Subsidiary or (ii) convey or
transfer its properties and assets substantially as an entirety to any person,
except to the Company or a Controlled Subsidiary (Section 1005). However, the
Company may avoid this restriction if prior to any such transaction the Bank
unconditionally guarantees payment when due of the principal of, premium, if
any, and interest on the Senior Debt Securities, the Bank obtains all regulatory
approvals, if any, required to permit such guarantee, and the Company obtains an
Opinion of Counsel to such guarantee. For purposes of these covenants, the Bank
includes any successor but not a Subsidiary of the Bank, "Controlled Subsidiary"
means any Person at least 80% of the outstanding shares of Voting Stock (except
for directors' qualifying shares, if any) of which is at the time owned directly
or indirectly by the Company and "Voting Stock" of any Person means stock of any
class or classes, however designated, having ordinary voting power for the
election of a majority of the board of directors of such Person, other than
stock having such power only by reason of the occurrence of a contingency
(Sections 101 and 1005).
The Senior Indenture also provides that, unless otherwise specified with
respect to a series of Senior Debt Securities, the Company will not create,
assume, incur or suffer to exist, as security for indebtedness for borrowed
money any mortgage, pledge, encumbrance, lien or charge of any kind upon the
Voting Stock of the Bank (other than directors' qualifying shares) without
effectively providing that such series of Senior Debt Securities is secured
equally and ratably with (or prior to) such indebtedness; provided, however,
that the Company may create, assume, incur or suffer to exist any such mortgage,
pledge, encumbrance, lien or charge without regard to the foregoing provisions
so long as after giving effect thereto the Company will own directly or
indirectly at least 80% of the Voting Stock of the Bank then issued and
outstanding, free and clear of any such mortgage, pledge, encumbrance, lien or
charge. The Company may also avoid this restriction if prior to creating,
assuming, incurring or suffering to exist any such mortgage, pledge,
encumbrance, lien or charge, the Bank unconditionally guarantees payment when
due of the principal of, premium, if any, and interest on the Debt Securities,
the Bank obtains all regulatory approvals, if any, required to permit such
guarantee, and the Company obtains an Opinion of Counsel pertaining to such
guarantee.
The Subordinated Indenture does not contain any of the foregoing covenants.
The Indentures do not restrict the Company from incurring, assuming or
becoming liable for any type of debt or from creating, assuming, incurring or
permitting to exist any mortgage, pledge, encumbrance, lien or charge on its
property (except the Voting Stock of the Bank). The Indenture does not require
the Company to maintain any financial ratios or specified levels of net worth or
liquidity.
Unless otherwise indicated in the applicable Prospectus Supplement with
respect to a series of Debt Securities, the covenants contained in the Indenture
would not necessarily provide holders of Debt Securities any protection in the
event of a highly leveraged or other transaction involving the Company that may
adversely affect holders.
Any additional restrictive covenants with respect to any series of Debt
Securities, and any variations from the foregoing restrictive covenants
applicable to any series of Debt Securities, will be described in the applicable
Prospectus Supplement or Pricing Supplement.
SUBORDINATION
The payment of the principal of and interest on the Subordinated Debt
Securities will, to the extent set forth in the Indenture relating thereto, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness (as defined below). 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, receivership or similar proceedings of the Company, the
holders of all Senior Indebtedness 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 or interest thereto. In the event of the acceleration of the
maturity of any Subordinated Debt Securities pursuant to the terms of the
13
<PAGE> 52
Subordinated Indenture, the holders of all Senior Indebtedness will first be
entitled to receive payment in full of all amounts due thereon before the
holders of the Subordinated Debt Securities will be entitled to receive any
payment upon the principal of or interest thereon. No payment on account of
principal or interest in respect of the Subordinated Debt Securities may be made
if there shall have occurred and be continuing beyond any applicable grace
period a default in any payment with respect to Senior Indebtedness, or if there
shall have occurred an event of default with respect to any Senior Indebtedness
permitting the holders thereof to accelerate the maturity thereof, or if any
judicial proceeding shall be pending with respect to any such default (Article
16 of the Subordinated Indenture).
By reason of such subordination, in the event of insolvency, holders of the
Subordinated Debt Securities may recover less, ratably, than other creditors of
the Company, including holders of Senior Indebtedness.
"Senior Indebtedness" is defined in the Indenture as any indebtedness for
money borrowed (including all indebtedness of the Corporation for borrowed and
purchased money of the Corporation, all obligations of the Corporation arising
from off-balance sheet guarantees by the Corporation and direct credit
substitutes, and obligations of the Corporation associated with derivative
products such as interest and foreign exchange rate contracts and commodity
contracts) that is outstanding on the date of execution of the Subordinated
Indenture, or is thereafter created, incurred or assumed, for the payment of
which the Corporation is at the time of determination responsible or liable as
obligor, guarantor or otherwise, and all deferrals, renewals, extensions and
refundings of any such indebtedness or obligations, other than the Subordinated
Debt Securities or any other indebtedness as to which, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such indebtedness is subordinate in right of payment to any
other indebtedness of the Corporation. (Section 101 of the Subordinated
Indenture). The Indenture relating to the Subordinated Debt Securities does not
prohibit or limit the incurrence of additional Senior Indebtedness.
ADDITIONAL PROVISIONS
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders, unless such holders shall have
offered to the Trustee reasonable indemnity (Section 601). Subject to such
provisions for the indemnification of the Trustee and certain other conditions,
the holders of a majority in aggregate principal amount of the Outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the Debt
Securities of that series (Section 512).
No holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless: (i) such holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt Securities
of that series; (ii) the holders of not less than 25% in aggregate principal
amount of the Outstanding Debt Securities of that series shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee; (iii) the Trustee shall have failed to institute such
proceeding within 60 days after receipt of such written request; and (iv) the
Trustee shall not have received from the holders of a majority in principal
amount of the Outstanding Debt Securities of that series a direction
inconsistent with such request (Section 507). However, the holder of any Debt
Security will have an absolute right to receive payment of the principal of (and
premium, if any) and interest on such Debt Security on the due dates expressed
in such Debt Security and to institute suit for the enforcement of any such
payment (Section 508).
CONCERNING THE TRUSTEE
The Company has, from time to time, engaged in transactions with the
Trustee in the ordinary course of its business.
14
<PAGE> 53
PLAN OF DISTRIBUTION
The Company may sell all or part of the Debt Securities from time to time
on terms determined at the time such Debt Securities are offered for sale. The
Debt Securities may be sold (i) through underwriters or dealers; (ii) through
agents; (iii) directly to one or more purchasers; or (iv) through a combination
of any such methods of sale. The Prospectus Supplement or the Pricing Supplement
with respect to the Debt Securities of a particular series will describe the
terms of the offering of such Debt Securities, including the name of the agent
or the name or names of any underwriters, the public offering or purchase price,
any discounts and commissions to be allowed or paid to the agent or
underwriters, all other items constituting underwriting compensation, the
discounts and commissions to be allowed or paid to dealers, if any, and the
exchanges, if any, on which the Debt Securities will be listed. Only the agents
or underwriters so named in the Prospectus Supplement or the Pricing Supplement
are agents or underwriters in connection with the Debt Securities offered
thereby. Under certain circumstances, the Company may repurchase Debt Securities
and reoffer them to the public as set forth above. The Company may also arrange
for repurchases and resales of such Debt Securities by dealers.
If so indicated in the Prospectus Supplement or the Pricing Supplement, the
Company will authorize underwriters to solicit offers by certain institutions to
purchase Debt Securities from the Company pursuant to Delayed Delivery Contracts
providing for payment and delivery on the date stated in the Prospectus
Supplement or the Pricing Supplement. Each such contract will be for an amount
not less than, and, unless the Company otherwise agrees, the aggregate principal
amount of Debt Securities sold pursuant to such contracts shall not be more
than, the respective amounts stated in the Prospectus Supplement or the Pricing
Supplement. Institutions with whom contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions, but shall in all cases be subject to the approval of the Company.
Delayed Delivery Contracts will not be subject to any conditions except that the
purchase by an institution of Debt Securities covered thereby shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject.
The Company will agree to indemnify any agents or underwriters through
which Debt Securities are sold against certain civil liabilities, including
liabilities under the Securities Act, or to contribute to payments the agents or
the underwriters may be required to make in respect thereof.
Certain of the underwriters and their associates and affiliates may be
customers of, have borrowing relationships with, engage in other transactions
with, and/or perform services, including investment banking services for, the
Company or its affiliates in the ordinary course of business.
LEGAL OPINIONS
The validity of the Debt Securities offered hereby and other legal matters
will be passed upon for the Company by Dykema Gossett P.L.L.C., Detroit,
Michigan. Certain legal matters will be passed upon for the underwriters or
agents by Brown & Wood LLP, New York, New York. Members of the firm of Dykema
Gossett P.L.L.C. own in the aggregate a total of 17,800 shares of the Company's
common stock (less than 0.1% of the total outstanding shares).
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 1996 and 1995, which is incorporated herein by reference,
Deloitte & Touche LLP have applied limited procedures in accordance with
professional standards for a review of such information. However, as stated in
their reports included in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 and incorporated by reference herein, they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the
15
<PAGE> 54
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Securities
Act for their reports on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Securities Act.
The consolidated financial statements of Bell Bancorp, Inc. incorporated by
reference into the Company's Current Reports on Form 8-K dated May 14 and June
14, 1996, which are incorporated by reference herein, have been incorporated by
reference herein in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
16
<PAGE> 55
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PRICING SUPPLEMENT, THE PROSPECTUS OR THE PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THIS PRICING SUPPLEMENT, THE
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PRICING SUPPLEMENT,
THE PROSPECTUS OR THE PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PRICING SUPPLEMENT, THE PROSPECTUS AND THE PROSPECTUS SUPPLEMENT 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 IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
PRICING SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company........................... PS-2
Use of Proceeds....................... PS-3
Capitalization........................ PS-3
Ratio of Earnings to Fixed Charges.... PS-5
Recent Developments................... PS-5
Description of Notes.................. PS-7
Supplemental Plan of Distribution..... PS-8
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
Risk Factors.......................... S-3
Description of Notes.................. S-4
Special Provisions Relating to Foreign
Currency Notes...................... S-19
Certain United States Federal Income
Tax Considerations.................. S-21
Plan of Distribution.................. S-29
<CAPTION>
PROSPECTUS
<S> <C>
Available Information................. 2
Incorporation of Certain Documents By
Reference........................... 2
The Company........................... 2
Certain Regulatory Considerations..... 3
Use of Proceeds....................... 5
Ratio of Earnings to Fixed Charges.... 5
Description of Debt Securities........ 6
Plan of Distribution.................. 15
Legal Opinions........................ 15
Experts............................... 15
</TABLE>
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- ------------------------------------------------------
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$100,000,000
[STANDARD FEDERAL LOGO]
STANDARD FEDERAL
BANCORPORATION, INC.
7 3/4% FIXED RATE
SUBORDINATED NOTES
DUE JULY 17, 2006
---------------------------
PRICING SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
SMITH BARNEY INC.
UBS SECURITIES
FIRST OF MICHIGAN CORPORATION
KEEFE, BRUYETTE & WOODS, INC.
MCDONALD & COMPANY
SECURITIES, INC.
RONEY & CO.
JULY 10, 1996
- ------------------------------------------------------
- ------------------------------------------------------
