Filed On 1/13/03 12:53pm ET · SEC File 333-98267 · Accession Number 927016-3-94
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
1/13/03 State Street Corp 424B5 1:127 Donnelley R R & S..07/FA
Document/Exhibit Description Pages Size
1: 424B5 Prospectus HTML 1,013K
This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]
The information contained in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement
is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Filed Pursuant to Rule
424(b)(5)
$275,000,000
|
|
|
STATE STREET CAPITAL TRUST II Floating Rate Medium
Term Capital Securities (Liquidation Amount $1,000 per Capital Security) Fully
and Unconditionally Guaranteed By State Street Corporation
|
A brief description of the capital securities can be found under
“Prospectus Supplement Summary” in this prospectus supplement.
Under separate prospectus supplements, State
Street Corporation is concurrently offering 6,220,000 shares of its common stock, plus up to 933,000 additional shares if the underwriters for that offering exercise their option to purchase additional shares, and $275 million aggregate stated
amount of SPACESSM*, which are equity security units, plus up to $41.25 million additional aggregate stated amount of SPACES
if the underwriters for that offering exercise their option to purchase additional SPACES. This offering and the SPACES offering are contingent upon each other as well as upon the common stock offering.
See “Risk Factors” beginning on page S-15 to
read about certain factors you should consider before buying the capital securities.
These securities are not deposits or other obligations of any bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission nor any other regulatory body has approved
or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.
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Per Capital Security
|
|
Total
|
| Initial public offering price (1) |
|
|
$
|
|
$ |
|
| Underwriting commissions (2) |
|
$ |
|
|
$ |
|
| Proceeds to State Street Capital Trust II |
|
$ |
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|
$ |
|
(1) |
Plus accrued distributions, if any, from January , 2003. |
(2) |
Because State Street Capital Trust II will use all of the proceeds from the sale of the capital securities to purchase junior subordinated debentures of State Street
Corporation, State Street Corporation will pay all underwriting commissions. |
To the extent that the
underwriters sell more than $275 million aggregate liquidation amount of capital securities, within 30 days from the date of this prospectus supplement, the underwriters have the option to purchase up to an additional $41.25 million aggregate
liquidation amount of capital securities from us at the initial public offering price.
The underwriters expect to
deliver the capital securities against payment in New York, New York on January , 2003.
*SPACES is a service mark of Goldman, Sachs & Co. and is the subject of a pending patent application. All rights reserved.
Goldman, Sachs & Co.
Credit Suisse First Boston
Merrill Lynch & Co.
Morgan Stanley
Salomon Smith Barney
Prospectus Supplement dated January , 2003
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement along with the accompanying prospectus carefully before you invest. Both documents contain important information you should consider when making your investment
decision. This prospectus supplement contains information about the capital securities and the accompanying prospectus contains information about our securities generally, some of which does not apply to the capital securities. This prospectus
supplement may add, update or change information in the accompanying prospectus. To the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying
prospectus or any document incorporated by reference in the accompanying prospectus, on the other hand, the information contained in this prospectus supplement shall control.
In this prospectus supplement, “we,” “our,” “ours” and “us” refer to State Street Corporation unless the context otherwise requires.
S-2
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere, or incorporated by reference, in this prospectus supplement and the accompanying prospectus. As a result, it does not
contain all of the information that you should consider before investing in the capital securities. You should read the entire prospectus supplement, including the “Risk Factors” section, the accompanying prospectus and the documents
incorporated by reference, which are described under “Incorporation of Certain Documents by Reference” in the accompanying prospectus.
State Street Corporation
We are a financial holding company organized under the laws of the
Commonwealth of Massachusetts. Through our subsidiaries, we provide a full range of products and services for sophisticated global investors.
We were organized in 1970 and conduct our business principally through our subsidiary, State Street Bank and Trust Company (State Street Bank), which traces its beginnings to the founding of the Union Bank in 1792. The
charter under which State Street Bank now operates was authorized by a special act of the Massachusetts Legislature in 1891, and its present name was adopted in 1960.
With $6.2 trillion of assets under custody and $763 billion of assets under management at year-end 2002, we are a leading specialist in meeting the needs of sophisticated global
investors. Our clients include mutual funds and other collective investment funds, corporate and public pension funds, investment managers and others.
We provide services from 28 offices in the United States, and from offices in Australia, Belgium, Canada, Cayman Islands, Chile, Czech Republic, France, Germany, Ireland, Japan, Luxembourg, Netherlands,
Netherlands Antilles, New Zealand, People’s Republic of China, Singapore, South Korea, Switzerland, Taiwan, United Arab Emirates and the United Kingdom. Our executive offices are located at 225 Franklin Street, Boston, Massachusetts 02110
(telephone (617) 786-3000).
Our Business
We report two lines of business: investment servicing and investment management.
Investment Servicing
Our investment servicing business includes custody, accounting, daily
pricing and administration, master trust and master custody, trustee and recordkeeping, foreign exchange, securities lending, deposit and short-term investment facilities, lease financing, investment manager operations outsourcing and performance,
risk and compliance analytics to support institutional investors. We provide shareholder services, which include mutual fund and collective fund shareholder accounting, through 50%-owned affiliates, Boston Financial Data Services, Inc. and the
International Financial Data Services group of companies.
We are the largest mutual fund custodian and accounting agent in
the United States. We provide custody services for approximately 47% of registered U.S. mutual funds. We believe we are distinct from other mutual fund service providers because clients make extensive use of a number of related services, including
accounting, daily pricing and fund administration. We provide mutual fund
S-3
accounting and valuation services for more than four times the assets serviced by the next largest mutual fund accounting service provider. We calculate approximately 30% of the U.S. mutual fund
prices that appear daily in The Wall Street Journal.
We provide master trust, master custody, securities lending and
performance, risk and compliance analytics to corporate and public pension funds, other institutional retirement funds, insurance companies, foundations, endowments and corporate and public treasurers. These clients make extensive use of many other
products and services, including securities lending, investment management and foreign exchange and equity trade execution. At 29% market share, we have a leading position in the market for servicing U.S. tax-exempt assets for corporate and public
pension funds. Additionally, we provide trust and valuation services for over 3,600 daily-priced, unitized defined contribution accounts, making us a leader in this market.
Investment Management
Our investment management business offers a broad
array of services for managing financial assets, including investment management, investment research and trading services for both institutions and individual investors worldwide. We offer these services through State Street Global
Advisors® (SSgA®). SSgA is the sixth largest investment manager in the world based on assets under custody and the largest manager of tax-exempt (primarily pension) assets in the United States. SSgA offers a broad array of investment
strategies, including passive, enhanced and active management using quantitative and fundamental methods for both U.S. and global equities and fixed income securities.
Recent Developments
2002 Financial Results
We recently announced that, for the full-year 2002, reported earnings per share were $3.10 and net income was $1.0 billion, on revenue of $4.4
billion. Results for the full-year include a net gain on the sale of our Corporate Trust business of $495 million, equal to $296 million after taxes, or $0.90 in diluted earnings per share. Excluding the gain, return on stockholders’ equity was
17.1% for the year.
For the full-year 2001, reported earnings per share were $1.90 and net income was $628 million, on
revenue of $3.8 billion. Results for 2001 included both goodwill amortization expenses of $38 million, equal to $26 million after tax, or $0.08 per diluted share, and the write-off of our total investment in Bridge Information Systems, Inc. of $50
million, equal to $33 million after tax, or $0.10 per diluted share, which was recorded in the first quarter.
We prepare
supplemental information adjusting reported results for significant transactions, and define the information as operating results. Operating results provide financial information on a comparable basis from period to period to assist stockholders and
others in analyzing our financial results for ongoing businesses and operations. On an operating-results basis, consistent with prior presentations, for the full year, taxable-equivalent revenue was up $19 million, and net income was up 5%, or $32
million, from the prior year.
These operating results for 2002 exclude the net gain on the sale of our Corporate Trust
business. Operating results for 2001 exclude both the goodwill amortization expenses and the write-off of our total investment in Bridge Information Systems, Inc. Operating results for both years also include fully-taxable equivalent adjustments.
S-4
Revenue for the full year, on an operating-results basis as defined above,
was $4.0 billion, up $19 million from 2001. New business success drove the growth, substantially offset by the impact of lower equity market valuations, low currency volatility and a less-favorable interest-rate environment.
Servicing fees were up 4% for the year, to $1.7 billion. Management fees were up 2%, to $526 million. Strong new business success drove growth in
both servicing fees and management fees, offsetting the impact of lower equity market valuations and lower securities lending revenue.
Foreign exchange trading revenue declined $68 million, to $300 million, reflecting low currency volatility. Brokerage fees rose $35 million, to $124 million, from a year ago, driven by significantly higher equity trading volumes.
Securities gains of $76 million, up $33 million, reflected opportunities created by the low-interest rate environment.
Reported net interest revenue for 2002 was $979 million. On a taxable-equivalent operating-results basis, net interest revenue was $1.0 billion, a decline of $52 million from 2001. Lower yields on assets offset growth in the balance
sheet and lower liability costs.
Operating expenses were $2.8 billion for the year. On a comparable basis, expenses were
down $17 million, or 1%. Comparable expenses for 2001 exclude $38 million of goodwill amortization expenses. Lower other expenses, reflecting reduced professional services and advertising expenses, contributed to the decline in total expenses.
For further information about our 2002 financial results, see the earnings release in our Current Report on Form 8-K filed
on January 10, 2003, which is incorporated by reference into the accompanying prospectus.
Completion of Sale of Corporate Trust Business
On December 31, 2002, we completed the sale of our Corporate Trust business to U.S. Bank, N.A., the lead bank of
U.S. Bancorp. The after-tax gain on the sale, net of exit and other associated costs, totaled $296 million, or $0.90 in diluted earnings per share, and was recorded in the fourth quarter of 2002. The premium received at closing on the sale was $650
million. An additional $75 million was placed in escrow pending the successful transition of the business over the next 18 months. Exit and other associated costs were $155 million. As previously announced, the after-tax proceeds from this
transaction will provide partial funding for the planned acquisition of substantial parts of Deutsche Bank’s Global Securities Services business. Accordingly, the impact of this transaction on our 2003 earnings is reflected in the estimates of
dilution set forth below under “—Acquisition of Deutsche Bank’s Global Securities Services Business—Financial Effect.”
Acquisition of Deutsche Bank’s Global Securities Services Business
Overview
On November 5, 2002, we entered into a definitive agreement to acquire substantial portions of Deutsche Bank AG’s
Global Securities Services business, which we refer to as the “Acquired Business.” The Acquired Business includes Deutsche Bank’s global custody, fund administration, securities lending, performance measurement and benefits payment
businesses, and it operates in 92 markets throughout the world. It also includes U.K.- and U.S.-based domestic custody and securities clearing as well as certain specialized depository and fund administration services in Germany, Austria and Italy
known as Depotbank services. The Acquired Business is one of Europe’s largest custodians and fund administrators, and one of the leading agency securities lenders in the world. As part of the
S-5
acquisition, we will assume operations of the Acquired Business in several locations, including New York, Nashville, London, Frankfurt, Dublin, Edinburgh and Singapore. With approximately $2.2
trillion of assets under custody and approximately 3,200 employees worldwide as of August 31, 2002, the Acquired Business serves investment managers, private and public pension funds, insurance companies, and other investors throughout the world.
The Acquired Business had revenues of approximately €490 million for the eight-month period ended August 31,
2002. Approximately 25% of the Acquired Business’ total revenues during such period came from Deutsche Asset Management (DeAM), a division of Deutsche Bank. DeAM is the Acquired Business’ largest client and one of Europe’s largest
asset managers. After the acquisition, DeAM will be one of our largest clients. At August 31, 2002, the assets managed by DeAM represented approximately $350 billion of the Acquired Business’ total assets under custody. At September 30, 2002,
DeAM’s total assets under management were approximately $742 billion.
Transaction Terms
Under the terms of the definitive agreement, we will pay Deutsche Bank a purchase price premium of up to approximately $1.5 billion,
subject to certain adjustments. These adjustments include a holdback from the purchase price of no less than approximately $263 million, reducing the initial payment made to Deutsche Bank at the closing of the acquisition to no more than
approximately $1.2 billion. At closing, this holdback amount may be increased, thereby further reducing the initial payment at closing by an additional amount based upon a formula that takes into account estimated changes in annualized revenues of
the Acquired Business prior to the closing (i.e., the amount held back will increase if the annualized revenues, determined in accordance with certain procedures described in the definitive agreement, decline below certain thresholds). After the
closing of the acquisition, the holdback amount may be further adjusted based upon a similar formula in the event that the actual revenues, determined in accordance with certain procedures described in the definitive agreement, of the Acquired
Business during the relevant pre-closing measurement period differ from the estimate of those revenues. The extent to which the adjusted holdback amount is subsequently paid to Deutsche Bank will be reduced based primarily on the extent to which (1)
the annualized revenues for the six-month period ended June 30, 2002, generated by third-party clients of the Acquired Business who were clients of the Acquired Business prior to the closing of the transaction exceed (2) the annualized most recent
quarterly revenues generated at the one-year anniversary of closing. The holdback is intended to protect us from client attrition and loss of revenue in the Acquired Business in the approximately one-year period following the closing. In addition to
the premium, we will pay to Deutsche Bank at closing an amount, which we expect to be less than $25 million, with respect to primarily the fixed assets of the Acquired Business. After the closing, this amount will be adjusted based on the final
determination of such assets of the Acquired Business at the closing date.
As part of the agreement, we expect to enter
into 10-year contracts to provide global investment services to DeAM entities and their clients, subject to regulatory approval and DeAM’s fiduciary requirements. In general, in the event that some or all of the DeAM business is not transferred
to us as of the closing, we will be permitted to withhold a portion of the purchase price attributable to that non-transferred business, to be released only after the business is transferred. These withheld amounts, if any, would be in addition to
the holdback described above. On the fifth and eighth anniversaries of the various contracts, the fees charged will be adjusted upward or downward to match the then current market level of fees for such services. Individual DeAM entities and clients
may terminate their contracts if we do not agree to reduce the fees to the then current market levels.
Under the terms of
the agreement, we have the right to pay approximately $500 million of the purchase price of the Acquired Business by issuing our common stock to Deutsche Bank at an agreed-
S-6
upon price per share. We will not exercise this right if this offering is completed, but we intend to preserve our right to issue our common stock to Deutsche Bank until the completion of this
offering.
We expect the acquisition to close in the first quarter of 2003, and at the earliest on January 31, 2003. The
closing of the acquisition is subject to customary closing conditions, including U.S. and certain European regulatory approvals. If the closing conditions are not met in a timely manner, the closing of the acquisition may not occur in the timeframe
that we expect and, while we believe it is highly unlikely, it is possible that the closing may not occur at all.
Strategic Rationale
The acquisition of the Acquired Business strengthens our position as a leader in
Europe’s investment servicing market and significantly expands the size of our cross-border assets under custody. We believe that the acquisition provides us with significant opportunities to grow our global investment servicing business,
particularly in Europe. In addition, we expect the acquisition to give us the opportunity to take advantage of considerable economies of scale. The sum of our assets under custody at September 30, 2002 and the assets under custody of the Acquired
Business at August 31, 2002 is approximately $7.9 trillion. Although we do not expect to retain all of the custodial assets of the Acquired Business following the acquisition primarily as a result of client attrition, we nevertheless believe that
following the closing we will have more assets under custody than any other custodian in the world.
Financial Effect
We expect the acquisition to be dilutive to our earnings per share by approximately $0.17 to $0.22 in 2003 (consisting
of dilution of approximately $0.16 to $0.19 per share from restructuring costs associated with the acquisition and dilution of approximately $0.01 to $0.03 per share from operations and financing costs), and accretive by approximately $0.01 to $0.03
in 2004. We expect to record $90 to $110 million of pretax restructuring costs associated with the acquisition in 2003. Based on the annualized costs of the Acquired Business for the eight-month period ended August 31, 2002, we expect to achieve
cumulative cost reductions in the Acquired Business of approximately $125 to $150 million in 2003, $175 to $225 million in 2004 and $225 to $300 million in 2005. We expect these cost reductions to be derived primarily from the migration of the
Acquired Business’ operations and technology platforms to ours and from headcount reductions. To achieve the expected financial results of the acquisition, among other things we must achieve significant cost reductions and greater economies of
scale by successfully integrating the Acquired Business into our operations and we must retain a substantial portion of the clients of the Acquired Business.
The Acquired Business includes a significant amount of client deposits. The average balance of these deposits, other than Depotbank deposits, for the six-month period ended June 30, 2002 was approximately $7
billion. Client deposits may fluctuate by substantial amounts in the normal course of business. During the transition period following the closing, we expect a substantial amount of these deposits to be transferred to our balance sheet in connection
with the conversion of client accounts to our systems. The conversion process will take many months. Pending the transfer to our system of the related client accounts, we and Deutsche Bank have agreed that, starting at the closing of the
acquisition, we will receive, through a revenue sharing agreement, a portion of the economic benefits associated with the related client deposits for so long as such deposits remain on Deutsche Bank’s balance sheet. Upon transfer to us, the
client deposits are expected to replace other funding sources on our balance sheet.
S-7
In addition, Depotbank deposits, the average balance of which was
approximately $7 billion for the six-month period ended June 30, 2002, will initially remain on Deutsche Bank’s balance sheet. The Depotbank deposits will also be subject to a revenue sharing agreement between Deutsche Bank and us while they
remain on Deutsche Bank’s balance sheet, which will, in general, provide for some of the economic benefits of holding the deposits to be paid to us. We have agreed with Deutsche Bank that we will take the Depotbank deposits onto our balance
sheet over time to the extent that either we receive client consents to the transfer under the underlying client contracts or the client accounts have been converted to our systems, in each case subject to compliance with local regulations,
including deposit insurance requirements.
Integration and Client Retention
Integration of the Acquired Business into our existing operations and retention of a substantial portion of the Acquired Business’ current
client base will be important to achieving the expected financial results of the acquisition. The conversion of client accounts to our systems will require, in most cases, client consents. We expect to obtain consents through contract renewal,
replacement, or assignment, although we do expect some client attrition in the normal course of business. We expect to complete the integration of substantially all of the Acquired Business, other than the Depotbank business, within 24 months of
closing. We expect to complete the integration of the Depotbank business within 36 months of closing. We have experience with complex business integrations and the challenge of retaining newly-acquired client relationships. Our recent experience
with business integrations and client retention initiatives include those associated with our acquisition of Wachovia’s institutional trust and custody business, our appointment to provide Liberty Financial fund accounting, daily pricing and
financial reporting for all of its fund management companies and our selection by Lloyds/Scottish Widows to provide custody, accounting, trustee and investment administration services for its entire range of life, pension and investment products. We
have been successful in the past in retaining clients after completing acquisitions. Nevertheless, the scale, scope and nature of the integration and client retention efforts required as a result of the acquisition of the Acquired Business present a
greater challenge than that presented by our previous efforts. We cannot assure you that the integration will take place on the expected schedule, that it will provide the cost savings and economies of scale we are currently expecting to achieve or
that we will be able to retain a significant number of clients of the Acquired Business, any of which could adversely impact our expected financial results.
S-8
Summary Consolidated Financial Information
The table below presents summary consolidated financial information of State Street Corporation and its subsidiaries. The statement of income data for the years ended December 31,
1999, 2000 and 2001 and the balance sheet data as of December 31, 2000 and 2001 is derived from our audited consolidated financial statements incorporated by reference into the accompanying prospectus. The statement of income data for the years
ended December 1997 and 1998 and the balance sheet data as of December 31, 1997, 1998 and 1999 is derived from our audited consolidated financial statements not incorporated by reference into the accompanying prospectus. We are also providing
unaudited statement of income data and balance sheet data for the year ended and as of December 31, 2002.
The following
consolidated financial information is only a summary. You should read it in conjunction with our consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in our Annual Report on Form 10-K for the year ended December 31, 2001, along with the earnings release in our Current Report on Form 8-K filed on January 10, 2003, which are incorporated by reference into the accompanying
prospectus. See “Where You Can Find More Information” in the accompanying prospectus.
| |
|
Years Ended December 31,
|
| Statement of Income Data:(1)(3) |
|
|
1997
|
|
|
1998
|
|
|
1999
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
| (Dollars in millions, except per share data) |
|
|
|
|
(unaudited) |
| |
| Fee revenue:(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Servicing fees |
|
$ |
861 |
|
$ |
1,043 |
|
$ |
1,189 |
|
|
$ |
1,447 |
|
$ |
1,648 |
|
$ |
1,716 |
| Management fees |
|
|
391 |
|
|
480 |
|
|
600 |
|
|
|
584 |
|
|
516 |
|
|
526 |
| Foreign exchange trading |
|
|
245 |
|
|
289 |
|
|
306 |
|
|
|
387 |
|
|
368 |
|
|
300 |
| Brokerage fees |
|
|
25 |
|
|
36 |
|
|
67 |
|
|
|
95 |
|
|
89 |
|
|
124 |
| Processing fees and other |
|
|
149 |
|
|
160 |
|
|
159 |
|
|
|
177 |
|
|
148 |
|
|
184 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total fee revenue |
|
|
1,671 |
|
|
2,008 |
|
|
2,321 |
|
|
|
2,690 |
|
|
2,769 |
|
|
2,850 |
| Net interest revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest revenue |
|
|
1,755 |
|
|
2,237 |
|
|
2,437 |
|
|
|
3,256 |
|
|
2,855 |
|
|
1,974 |
| Interest expense |
|
|
1,114 |
|
|
1,492 |
|
|
1,656 |
|
|
|
2,362 |
|
|
1,830 |
|
|
995 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest revenue |
|
|
641 |
|
|
745 |
|
|
781 |
|
|
|
894 |
|
|
1,025 |
|
|
979 |
| Provision for loan losses |
|
|
16 |
|
|
17 |
|
|
14 |
|
|
|
9 |
|
|
10 |
|
|
4 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest revenue after provision for loan losses |
|
|
625 |
|
|
728 |
|
|
767 |
|
|
|
885 |
|
|
1,015 |
|
|
975 |
| Gains (losses) on the sales of available-for-sale investment securities, net |
|
|
2 |
|
|
10 |
|
|
(45 |
) |
|
|
2 |
|
|
43 |
|
|
76 |
| Gain on the sale of corporate trust business, net of exit and other associated costs |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
495 |
| Gain on the sale of commercial banking business, net
of exit and other associated costs |
|
|
— |
|
|
— |
|
|
282 |
|
|
|
— |
|
|
— |
|
|
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenue |
|
|
2,298 |
|
|
2,746 |
|
|
3,325 |
|
|
|
3,577 |
|
|
3,827 |
|
|
4,396 |
| Operating expenses:(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and employee benefits |
|
$ |
973 |
|
$ |
1,175 |
|
$ |
1,313 |
|
|
$ |
1,524 |
|
$ |
1,663 |
|
$ |
1,670 |
| Information systems and communications |
|
|
185 |
|
|
241 |
|
|
287 |
|
|
|
305 |
|
|
365 |
|
|
373 |
| Transaction processing services |
|
|
184 |
|
|
196 |
|
|
237 |
|
|
|
268 |
|
|
247 |
|
|
246 |
| Occupancy |
|
|
132 |
|
|
164 |
|
|
188 |
|
|
|
201 |
|
|
229 |
|
|
246 |
| Other |
|
|
260 |
|
|
313 |
|
|
332 |
|
|
|
373 |
|
|
393 |
|
|
306 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
1,734 |
|
|
2,089 |
|
|
2,357 |
|
|
|
2,671 |
|
|
2,897 |
|
|
2,841 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
|
|
564 |
|
|
657 |
|
|
968 |
|
|
|
906 |
|
|
930 |
|
|
1,555 |
| Income taxes |
|
|
184 |
|
|
221 |
|
|
349 |
|
|
|
311 |
|
|
302 |
|
|
540 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income |
|
$ |
380 |
|
$ |
436 |
|
$ |
619 |
|
|
$ |
595 |
|
$ |
628 |
|
$ |
1,015 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-9
| Statement of Income Data, continued(1)(3) |
|
|
| |
|
|
|
|
1998
|
|
|
1999
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
| Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
| Basic |
|
$ |
1.18 |
|
$ |
1.35 |
|
$ |
1.93 |
|
$ |
1.85 |
|
$ |
1.94 |
|
$ |
3.14 |
| Diluted |
|
|
1.16 |
|
|
1.33 |
|
|
1.89 |
|
|
1.81 |
|
|
1.90 |
|
|
3.10 |
| Average Shares Outstanding (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
|
321,323 |
|
|
321,873 |
|
|
321,320 |
|
|
321,678 |
|
|
325,030 |
|
|
323,520 |
| Diluted |
|
|
327,577 |
|
|
327,854 |
|
|
327,503 |
|
|
328,088 |
|
|
330,492 |
|
|
327,477 |
| Cash dividends declared per share |
|
$ |
0.22 |
|
$ |
0.26 |
|
$ |
0.30 |
|
$ |
0.345 |
|
$ |
0.405 |
|
$ |
0.48 |
| Balance Sheet Data: (Dollars in millions) |
|
|
| |
|
|
|
|
1998
|
|
|
1999
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
| Cash and investment securities |
|
$ |
22,866 |
|
$ |
23,187 |
|
$ |
34,535 |
|
$ |
36,653 |
|
$ |
42,749 |
|
$ |
57,575 |
| Securities purchased under resale agreements |
|
|
5,544 |
|
|
13,979 |
|
|
17,518 |
|
|
21,134 |
|
|
16,680 |
|
|
17,215 |
| Loans (less allowance) |
|
|
5,479 |
|
|
6,225 |
|
|
4,245 |
|
|
5,216 |
|
|
5,283 |
|
|
4,113 |
| Intangibles, including goodwill |
|
|
224 |
|
|
216 |
|
|
233 |
|
|
284 |
|
|
612 |
|
|
589 |
| Total Assets |
|
|
37,975 |
|
|
47,082 |
|
|
60,896 |
|
|
69,298 |
|
|
69,850 |
|
|
85,794 |
| |
| Liabilities and Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total deposits |
|
$ |
24,878 |
|
$ |
27,539 |
|
$ |
34,145 |
|
$ |
37,937 |
|
$ |
38,559 |
|
$ |
45,468 |
| Securities sold under repurchase agreements |
|
|
7,409 |
|
|
12,563 |
|
|
18,399 |
|
|
21,351 |
|
|
19,006 |
|
|
21,963 |
| Long-term debt |
|
|
774 |
|
|
922 |
|
|
921 |
|
|
1,219 |
|
|
1,217 |
|
|
1,270 |
| Total liabilities |
|
|
35,980 |
|
|
44,771 |
|
|
58,244 |
|
|
66,036 |
|
|
66,005 |
|
|
81,007 |
| Total stockholders’ equity |
|
|
1,995 |
|
|
2,311 |
|
|
2,652 |
|
|
3,262 |
|
|
3,845 |
|
|
4,787 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Liabilities and Stockholders’ Equity |
|
|
37,975 |
|
|
47,082 |
|
|
60,896 |
|
|
69,298 |
|
|
69,850 |
|
|
85,794 |
(1) |
|
Share data restated for 2-for-1 stock split in 2001. |
(2) |
|
In November 2001, the Financial Accounting Standards Board, or FASB, issued Emerging Issues Task Force (EITF) No. 01-14, “Income Statement Characterization of
Reimbursements Received for Out-Of-Pocket Expenses Incurred.” This guidance, effective January 1, 2002, requires companies to recognize the reimbursement of client out-of-pocket expenses on a gross basis as revenue and operating expense. Prior
to 2002, we netted these client reimbursements against the corresponding operating expenses. Client reimbursements for out-of-pocket expenses are reflected in fee revenue in the information set forth for the year ended December 31, 2002. The years
ended December 31, 1998 through December 31, 2001 have been reclassified to reflect this presentation, which resulted in increases in fee revenue and operating expenses for such years ended. The reclassification had no impact on net income.
|
(footnotes continued on following page)
S-10
(3) |
|
Statement of Income data as presented above is prepared in accordance with accounting principles generally accepted in the United States (GAAP) and includes significant
non-operating special items and reports goodwill amortization expense in accordance with the accounting practices applicable for those periods presented. |
In order to provide information on a comparable basis from period to period and assist stockholders, analysts, other external parties and management in analyzing the
financial results and trends of our ongoing businesses and operations, we also present our financial results on an “Operating Results” basis. Operating Results are based on our GAAP results adjusted for the following three types of
financial activity:
(1) Operating Results exclude the results of certain significant
transactions not representative of ongoing operations.
(2) Operating Results include fully
taxable equivalent adjustments that increase net interest revenue to reflect investment yield on tax-free investments on an equivalent basis with taxable investments.
(3) Operating Results exclude goodwill amortization expense from operating expenses in 2001 and prior years, to be consistent with GAAP accounting
required beginning in 2002.
The following table reconciles our Net Income as determined in accordance with
GAAP to Net Income—Operating Results:
| |
|
|
|
| |
|
|
|
1998
|
|
1999
|
|
|
2000
|
|
2001
|
|
2002
|
|
| Net Income (as determined in accordance with GAAP)(a) |
|
$ |
380 |
|
$ |
436 |
|
$ |
619 |
|
|
$ |
595 |
|
$ |
628 |
|
$ |
1,015 |
|
| After-tax adjustments to arrive at Operating Results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deduct gain on sale of Commercial Banking business |
|
|
|
|
|
|
|
|
(164 |
) |
|
|
|
|
|
|
|
|
|
|
| Add loss on portfolio repositioning |
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
| Add loss on investment in Bridge Information Systems, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
| Deduct gain on the sale of Corporate Trust business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(296 |
) |
| Add goodwill amortization expense |
|
|
6 |
|
|
8 |
|
|
10 |
|
|
|
11 |
|
|
26 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income—Operating Results |
|
$ |
386 |
|
$ |
444 |
|
$ |
499 |
|
|
$ |
606 |
|
$ |
687 |
|
$ |
719 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a more detailed description of our Operating Results for the years ended December
31, 1997 through December 31, 2002, see “Supplemental Consolidated Statement of Income Data.”
S-11
The Offering
What are the capital securities?
Each Floating Rate Medium Term Capital Security, or capital
security, represents an undivided beneficial interest in the assets of State Street Capital Trust II. Each capital security will entitle the holder to receive quarterly cash distributions as described in this prospectus supplement. The trust is
offering 275,000 capital securities, or 316,250 capital securities if the underwriters exercise in full their option to purchase additional capital securities, at a price of $ for each capital
security.
What is the trust?
The trust is a Delaware statutory trust. Its principal place of business is c/o State Street Bank and Trust Company, N.A., 61 Broadway, 15th Floor, New York, New York 10006 and its telephone number is (212) 612-3000.
The trust will sell capital securities to the public and common securities to us. The trust will use the proceeds from
these sales to buy a series of junior subordinated debentures with substantially the same financial terms as the capital securities from us. We will guarantee payments to be made on the capital securities as described below.
Bank One Trust Company, N.A. will act as property trustee of the trust. Bank One Delaware, Inc. will be the Delaware trustee.
When will quarterly distributions be paid to you?
If you purchase the capital securities, you are entitled to receive cumulative cash distributions at a variable annual rate equal to 3-Month LIBOR (as defined herein) plus % in respect of
the liquidation amount of $1,000 per capital security. Distributions will accumulate from the date the trust issues the capital securities and will be paid quarterly in arrears on February 15, May 15, August 15 and November 15 of each year,
beginning May 15, 2003.
When can payment of distributions to you be deferred?
We can, on one or more occasions, defer interest payments on the junior subordinated debentures held by the trust for up to 20 consecutive quarterly periods. We cannot defer
interest payments beyond the maturity date of the junior subordinated debentures, which is February 15, 2008.
If we defer
interest payments on the junior subordinated debentures held by the trust, then the trust will defer distributions on the capital securities. During this deferral period, distributions will continue to accrue on the capital securities at a variable
annual rate equal to 3-Month LIBOR plus % in respect of the liquidation amount of $1,000 per capital security. Also, to the extent permitted by law, the deferred distributions will themselves accrue interest, compounded
quarterly, at a variable annual rate equal to 3-Month LIBOR plus %. Once we make all interest payments on the junior subordinated debentures, with accrued interest, we can again defer interest payments on the junior
subordinated debentures if no event of default under the junior subordinated debentures has occurred and is continuing.
During any period in which we defer interest payments on the junior subordinated debentures, we will not be permitted to (with limited exceptions):
| |
• |
|
pay a dividend or make any distributions on our capital stock or redeem, purchase, acquire or make a liquidation payment on any of our capital stock; or
|
| |
• |
|
make an interest, principal or premium payment on, or repurchase or redeem, any of our debt securities that rank equal to or junior to the junior subordinated debentures.
|
S-12
When can the trust redeem the capital securities?
The trust must redeem all of the outstanding capital securities when we repay the junior subordinated debentures held by the trust at maturity on
February 15, 2008 or on a prior redemption of the junior subordinated debentures.
On December 15, 2005, we will be required
to redeem the junior subordinated debentures, in whole, but not in part, at a redemption price equal to 100% of the principal amount of the junior subordinated debentures so redeemed plus accrued and unpaid interest thereon to the redemption date,
provided that:
| |
• |
|
we are “well-capitalized” for purposes of Regulation Y and we otherwise comply with the then applicable provisions of the capital adequacy guidelines of the
Board of Governors of the Federal Reserve System; and |
| |
• |
|
the Federal Reserve Board consents to the redemption. |
We will base the foregoing capital adequacy determinations on our unaudited consolidated financial statements as of September 30, 2005. If we meet these capital adequacy
conditions, we will seek consent from the Federal Reserve Board to redeem the junior subordinated debentures and such redemption will be subject to the consent of the Federal Reserve Board.
We may also redeem the junior subordinated debentures, in whole but not in part, at any time if certain changes in tax, investment company or capital treatment law occur and other
specified conditions are satisfied, as more fully described under “Description of Capital Securities—Redemption.” In any event, we will pay accrued interest to the date of redemption.
What is State Street’s guarantee of the capital securities?
We will guarantee the payments to the holders of the capital securities, based on:
| |
• |
|
our obligations to make payments on the junior subordinated debentures; |
| |
• |
|
our obligations under the guarantee agreement; |
| |
• |
|
the provisions of the trust agreement; and |
| |
• |
|
the provisions of the indenture for the junior subordinated debentures. |
Our obligations under the junior subordinated debentures and the guarantee are subordinate and rank junior in right of payment to all of our senior debt. As of December 31, 2002, our
senior debt totaled approximately $6.8 billion and included $5.3 billion of securities sold under agreements to repurchase and $1.0 billion of commercial paper.
When could the junior subordinated debentures be distributed to you?
We have the right at any
time to dissolve the trust and, after satisfaction of liabilities to creditors of the trust, cause the junior subordinated debentures to be distributed directly to you.
Will holders of the capital securities have any voting rights?
Except as described
in “Description of the Capital Securities—Voting Rights; Amendment of Each Trust Agreement” in the accompanying prospectus, as provided under the Delaware Statutory Trust Act and the Trust Indenture Act of 1939, as amended, and as
otherwise required by law and the trust agreement, the holders of capital securities will have no voting rights.
S-13
In what form will the capital securities be issued?
The capital securities will be represented by one or more global securities that will be deposited with and registered in the name of The Depository
Trust Company, or DTC, or its nominee. This means that you will not receive a certificate for your capital securities and that your broker will maintain your position in the capital securities. We expect that the capital securities will be ready for
delivery through DTC on January , 2003.
What are the expected uses of proceeds from this offering and the concurrent
offerings?
The trust will use all of the proceeds received from the sale of the capital securities to purchase
junior subordinated debentures from us. We estimate that we will receive net proceeds (after payment of underwriting commissions and expenses and our purchase of common securities of the trust) of $
million, or $ million if the underwriters’ option to purchase additional capital securities is exercised in full, from the sale of the junior subordinated debentures to the trust. We intend to use
these net proceeds to fund a portion of the initial purchase price for the Acquired Business. We expect to fund the remainder of the initial purchase price for the Acquired Business with (1) the net proceeds from our concurrent offering of common
stock (estimated to be approximately $236.1 million, or $271.8 million if the underwriters’ over-allotment option in that offering is exercised in full), (2) the proceeds related to the sale of our Corporate Trust business to U.S. Bank, N.A.,
which closed on December 31, 2002, and (3) other available funding. Pending such use, we may invest the proceeds temporarily in short-term securities.
Concurrent Offerings
In addition to the capital securities offered by this prospectus
supplement, State Street Corporation is concurrently offering, by means of a separate prospectus supplement, 6,220,000 shares of its common stock, plus up to 933,000 additional shares if the underwriters for that offering exercise their option to
purchase additional shares, and $275.0 million aggregate stated amount of SPACES, plus up to $41.25 million additional aggregate stated amount of SPACES if the underwriters for that offering exercise their option to purchase additional SPACES. Each
SPACES has a stated amount of $200 and initially will consist of (a) a PACES and (b) a variable-share repurchase contract pursuant to which the holder agrees to deliver to us between zero and shares
of our common stock on February 15, 2006. Each PACES will have a stated amount of $200 and will consist of (1) a fixed-share purchase contract pursuant to which the holder agrees to purchase from us, for $200,
shares of our common stock on November 15, 2005, (2) an ownership interest in a zero-coupon U.S. treasury strip that will mature on November 15, 2005 with a principal amount of $1,000 and (3) an
ownership interest in a portfolio of zero-coupon U.S. treasury strips that will mature on a quarterly basis through November 15, 2005. The PACES and the variable-share repurchase contracts may also be sold separately from each other and not as part
of SPACES. This offering and the SPACES offering are contingent upon each other as well as upon the common stock offering.
S-14
RISK FACTORS
In considering whether to purchase the capital securities, you should carefully consider all the information we have included or incorporated by reference in this prospectus supplement and the accompanying prospectus. In
particular, you should carefully consider the following risk factors, as well as the factors listed in “Forward-Looking Statements.” In addition, because you may receive junior subordinated debentures upon dissolution of the trust, you are
also making an investment decision with regard to the junior subordinated debentures. You should carefully review all the information in this prospectus supplement and the accompanying prospectus about both the capital securities and the junior
subordinated debentures.
Risks Relating to the Capital Securities
The trust will pay scheduled distributions on the capital securities only if the trust receives cash payments from us.
The ability of the trust to pay scheduled distributions on the capital securities, the redemption price of the capital securities and the liquidation amount of each capital security
depends upon us making the related payments to the trust on the junior subordinated debentures when due. If the trust does not have sufficient funds, it will be unable to pay distributions, the redemption price or the liquidation amount of the
capital securities held by you.
Our obligations under the junior subordinated debentures and the guarantee are subordinated to our senior debt.
Our obligations under the junior subordinated debentures and the guarantee are unsecured and subordinate and junior in
right of payment to all of our present and future senior debt. We cannot make any direct or indirect payment of principal of, premium, if any, or interest on the junior subordinated debentures, or in respect of any redemption, repayment, retirement,
purchase or other acquisition of any of the junior subordinated debentures, at any time when there is a default in the payment of the senior debt, whether at stated maturity or otherwise. As of December 31, 2002, our senior debt totaled
approximately $6.8 billion and included $5.3 billion of securities sold under agreements to repurchase and $1.0 billion of commercial paper.
None of the capital securities, the junior subordinated debentures or the guarantee limit our ability or the ability of our subsidiaries to incur additional debt, including indebtedness that ranks senior to the junior
subordinated debentures and the guarantee.
The junior subordinated debentures are effectively subordinated to all existing and future
indebtedness of our subsidiaries.
Because we are a holding company, our right to participate in any distribution of
assets of any subsidiary upon such subsidiary’s liquidation or reorganization or otherwise (and thus your ability to benefit indirectly from such distribution) is subject to the prior claims of creditors of that subsidiary except to the extent
that we may be recognized as a creditor of that subsidiary. There are various legal limitations on the extent to which our subsidiaries may extend credit, pay dividends or otherwise supply funds to us or certain of our other subsidiaries. Our
subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due under the junior subordinated debentures or the guarantee or otherwise to make any funds available to us. Accordingly, the
junior subordinated debentures and guarantee effectively will be subordinated to all existing and future liabilities of our subsidiaries, including deposits, and holders of junior subordinated debentures and the
S-15
guarantee should look only to our assets for payments on the junior subordinated debentures and the guarantee.
We may defer interest payments on the junior subordinated debentures, which would have tax consequences for you and may affect the trading price of the capital securities.
So long as no event of default has occurred and is continuing under the junior subordinated debentures, we have the right to defer payments of
interest on the junior subordinated debentures by extending the interest payment period at any time, and from time to time, for a period not exceeding 20 consecutive quarterly periods. No extension period may extend beyond the stated maturity of the
junior subordinated debentures. As a result of any extension period, quarterly distributions on the capital securities will also be deferred by the trust and the amount of distributions to which you are entitled will accumulate additional
distributions at a variable annual rate equal to 3-Month LIBOR plus %, compounded quarterly, to the extent permitted by applicable law, from the relevant payment date for such distributions during any extension period. Prior
to the termination of any extension period, we may further extend the payment of interest so long as such extension period does not exceed 20 consecutive quarters or extend beyond the stated maturity of the junior subordinated debentures.
Upon the termination of any extension period and the payment of all interest accrued and unpaid, together with interest
thereon at a variable annual rate equal to 3-Month LIBOR plus %, compounded quarterly, to the extent permitted by applicable law, from the interest payment date for such interest, we may commence a new extension period. There
is no limitation on the number of times that we may elect to begin an extension period. We have no current intention of exercising our right to defer payments of interest by extending the interest payment period of the junior subordinated
debentures.
If we defer the payment of interest, you will be required to accrue income as original issue discount in
respect of the deferred stated interest allocable to your capital securities for United States federal income tax purposes, even though no cash is distributed. As a result, you will include such income in your gross income for United States federal
income tax purposes in advance of the receipt of cash attributable to such income and you will not receive the cash related to such income from the trust if you dispose of your capital securities prior to the record date for the payment of
distributions. We do not currently intend to exercise our right to defer payments of interest by commencing an extension period with respect to the junior subordinated debentures. However, should we elect to exercise our extension right in the
future, the market price of the capital securities is likely to be affected. If you dispose of your capital securities during an extension period, you might not receive the same return on your investment as a holder that continues to hold its
capital securities. In addition, as a result of the existence of our right to defer interest payments on the junior subordinated debentures, the market price of the capital securities, which represent beneficial ownership interests in the junior
subordinated debentures, may be more volatile than the price of other securities that are not subject to such deferrals.
We have the right to
redeem the junior subordinated debentures at any time if specified changes in tax, investment company or capital treatment law occur.
Upon the occurrence and continuation of a tax event, investment company event or capital treatment event as described in this prospectus supplement, we have the right, if some other conditions are met, to redeem the junior
subordinated debentures, in whole but not in part, within 90 days following the occurrence of such tax event, investment company event or capital treatment event. Any redemption of the junior subordinated debentures will cause a mandatory redemption
of the capital securities by the trust. We must receive the prior approval of the Federal Reserve Board, if then required under applicable capital guidelines or policies, prior to exercising our redemption rights.
S-16
We will be required to redeem the junior subordinated debentures on December 15, 2005 if we are in compliance
with certain regulatory requirements and the Federal Reserve Board consents to such redemption.
On December 15, 2005,
we will be required, except as set forth below, to redeem the junior subordinated debentures, in whole, but not in part, at a redemption price equal to 100% of the principal amount of the junior subordinated debentures so redeemed plus accrued and
unpaid interest thereon to the redemption date, provided that we are “well-capitalized” for purposes of Regulation Y and otherwise comply with the Capital Guidelines. We will base the foregoing determination on our unaudited consolidated
financial statements as of September 30, 2005. If we meet these conditions, we will seek consent from the Federal Reserve Board to redeem the junior subordinated debentures and such redemption will be subject to the consent of the Federal Reserve
Board. A redemption of the junior subordinated debentures will cause a mandatory redemption of the capital securities by the trust.
Although we currently satisfy each of the standards described above, there can be no assurance that we will satisfy the standards as of September 30, 2005, that the standards will remain the same or that the Federal Reserve Board
will consent to the redemption.
We have the right to dissolve the trust and cause the junior subordinated debentures to be distributed to you.
We will have the right at any time to dissolve the trust and, after satisfaction of liabilities to creditors of the
trust as required by law, cause the junior subordinated debentures to be distributed to you upon liquidation of the trust. Under current United States federal income tax law and interpretations and assuming, as expected, that the trust is not
classified as a corporation for such purposes, a distribution of junior subordinated debentures upon a dissolution of the trust should not be a taxable event to you. Upon the occurrence of a tax event, an investment company event or a capital
treatment event, however, a dissolution of the trust in which you receive cash could be a taxable event to the trust and you.
We cannot assure you of the market prices for the capital securities or the junior subordinated debentures that may be distributed in exchange for capital securities upon a dissolution of the trust. Accordingly, the capital
securities that you may purchase or the junior subordinated debentures that you may receive upon a dissolution of the trust, may trade at a discount to the price that you paid to purchase the capital securities. Because you may receive junior
subordinated debentures, you are also making an investment decision with regard to the junior subordinated debentures and should carefully review all the information regarding the junior subordinated debentures contained in this prospectus
supplement and in the accompanying prospectus. See “Description of Junior Subordinated Debentures.”
The market price of the capital
securities or the junior subordinated debentures may be lower than the price that you paid and may be volatile.
As
described above, we have the right to extend an interest payment period on the junior subordinated debentures from time to time for a period not exceeding 20 consecutive quarterly periods. If we elect to begin an extension period, or if we
thereafter extend an extension period or prepay interest accrued during an extension period as described above, the market price of the capital securities is likely to be affected. In addition, as a result of our right to defer interest on the
junior subordinated debentures, the market price of the capital securities, which represent beneficial ownership interests in the junior subordinated debentures, may be more volatile than other securities that are not subject to optional deferrals.
If you dispose of your capital securities during an extension
S-17
period, you may not receive the same return on your investment as a holder that continues to hold its capital securities.
The indenture does not contain provisions that protect holders of the junior subordinated debentures in the event of a highly leveraged transaction.
The indenture for the junior subordinated debentures does not contain provisions that afford holders of the junior subordinated debentures protection in the event of a highly
leveraged transaction, including a change of control, or other similar transaction involving us that may adversely affect such holders.
As a
holder of capital securities you will have limited voting rights.
Holders of capital securities will have limited
voting rights and will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of trustees (as described in this prospectus supplement). Such voting rights are vested exclusively in the holder of the common
securities. We will hold 100% of the common securities of the trust. The property trustee, the administrative trustees (each as described in this prospectus supplement) and we may amend the trust agreement without your consent to ensure that the
trust will not be taxable as a corporation or classified as other than a grantor trust for United States federal income tax purposes unless such action materially and adversely affects your interests.
Prior to this offering, there has been no public market for the capital securities.
Prior to this offering, there has been no public market for the capital securities. We do not intend to list the capital securities or the junior subordinated debentures on any stock
exchange. We cannot assure you that an active trading market will develop for the capital securities or that, if such market develops, the market price will equal or exceed the public offering price set forth on the cover page of this prospectus
supplement. The public offering price for the capital securities has been determined through negotiations between State Street and the underwriters. Prices for the capital securities will be determined in the marketplace and may be influenced by
many factors, including the liquidity of the market for the capital securities, investor perceptions of State Street and general industry and economic conditions.
Risks Related to our Business
We may be unable to achieve the cost reductions and economies of
scale that we expect from integrating the Acquired Business into our existing operations, we may be unable to retain the clients of the Acquired Business and the success of the acquisition will depend in part on our relationship with Deutsche Asset
Management.
We intend to use the net proceeds of our concurrent offering of common stock and State Street Capital Trust
II’s concurrent offering of capital securities to fund a portion of the purchase price for our acquisition of Deutsche Bank AG’s Global Securities Services business, which we refer to as the Acquired Business. The closing of the
acquisition is subject to various regulatory approvals which we expect to obtain, but it is possible that they will be delayed or will not be obtained. Accordingly, the closing of the acquisition may not occur in the timeframe that we expect, and it
is possible that the closing may not occur at all.
Following the closing of the acquisition, our ability to achieve
significant cost reductions and greater economies of scale from the integration of the Acquired Business into our existing operations and our ability to retain key employees of the Acquired Business will be important to achieving the expected
financial results of the acquisition. The scale, scope and nature of the integration effort
S-18
required as a result of the acquisition present a greater challenge than that presented by our previous integration efforts. We cannot assure you that the integration will take place on the
expected schedule or that it will provide the cost savings and economies of scale we are currently expecting to achieve. Furthermore, the integration of the Acquired Business will require a significant commitment of time and resources by our
management and other personnel. This may adversely affect our ability to service and retain our existing clients.
In
addition, we may be unable to retain a sufficient number of clients of the Acquired Business after the acquisition in order to meet our expected financial results. Although we are actively engaging in efforts to retain, and market our investment
services to, the clients of the Acquired Business, we expect that some clients will elect other service providers as a result of the acquisition. We also expect that our competitors will actively solicit the clients of the Acquired Business during
the transition of these clients into our operations. The holdback amount that we are withholding from the purchase price payable at the closing of the acquisition will not protect us from client attrition and revenue loss in the Acquired Business
after the approximately one-year period after the acquisition or from client attrition and revenue loss in an amount greater than the holdback amount.
Further, in connection with the acquisition, we expect to enter into 10-year contracts to provide global investment services to Deutsche Asset Management (DeAM) entities and their clients. The early termination
of these contracts would adversely affect our ability to achieve the expected financial results of the acquisition. DeAM is the Acquired Business’ largest client, representing approximately 25% of the Acquired Business’ total revenues
during the eight-month period ended August 31, 2002. After the acquisition, DeAM will be one of our largest clients. On the fifth and eighth anniversaries of the contracts, the fees charged will be adjusted upward or downward to match the then
current market level of fees for such services. Individual DeAM entities or their clients may terminate their contracts with us if we do not agree to reduce the fees to the then current market levels.
Our failure to properly perform our fiduciary, custodial and other obligations could adversely affect our business, financial position or results of operations.
We provide custody, accounting, daily pricing and administration, master trust and master custody, investment
management, trustee and recordkeeping, foreign exchange, securities lending, cash management, trading, and information services to clients worldwide. Assets under custody and assets under management are held by us in a fiduciary or custodial
capacity and are not included as assets of ours. If we fail to perform these services in a manner consistent with our fiduciary, custodial and other obligations, clients may lose confidence in our ability to properly perform these services and our
business may be adversely affected. In addition, any such failure may result in contingent liabilities that could have an adverse effect on our financial position or losses that could have an adverse effect on our results of operations.
Decreases in cross-border investing because of economic and political uncertainties may lower our revenue.
Increased cross-border investing by our clients worldwide generally increases our revenue. Our future revenue may increase or decrease depending
upon the extent of increases or decreases in cross-border investments made by our clients. Economic and political uncertainties resulting from terrorist attacks, subsequent military actions or other events could result in decreased cross-border
investment activities.
Changes in the savings rate or investment preferences of individuals may lower our revenue.
Our business generally benefits when individuals invest their savings in mutual funds and other collective funds or in defined contribution
plans. If there is a decline in the savings rates of individuals,
S-19
or if there is a change in investment preferences that leads to less investment in mutual funds, other collective funds and defined contribution plans, our revenues may be adversely affected.
Declines in the value of worldwide financial markets may reduce the amount of our fee revenue.
As worldwide financial markets increase or decrease in value, our opportunities to invest and service financial assets may change. Since a portion
of our fees are based on the value of assets under custody and management, fluctuations in the valuation of worldwide securities markets will affect our revenue. We estimate, based on a study conducted in 2000, that a 10% increase or decrease in
worldwide equity values would cause a corresponding change in our total revenue of approximately 2%. If bond values worldwide were to increase or decrease by 10%, we would anticipate a corresponding change of approximately 1% in our total revenue.
Changes in the markets we serve and applicable laws and regulations may adversely affect our growth and business.
Changes in the markets we serve, including the growth rate of collective funds worldwide, outsourcing decisions, mergers, acquisitions and
consolidations among clients and competitors and the pace of debt issuance, can affect our revenue. In general, we benefit from increases in the volume of financial market transactions that we are able to service.
We provide services worldwide. Global and regional economic factors and changes or potential changes in laws and regulations affecting our business,
including volatile currencies, pace of inflation, changes in monetary policy, changes in domestic and international banking supervisory regulations, including capital requirements, and social and political instability, could adversely affect our
results of operations. For example, the significant slowing of economic growth globally is affecting worldwide equity values and business growth. The terrorist attacks that took place in the United States on September 11, 2001, and subsequent
military and terrorist activities, have caused economic and political uncertainties. These activities, the national and global efforts to combat terrorism and other potential military activities and outbreaks of hostilities have affected and may
further adversely affect economic growth, and may have other adverse effects on us in ways that are not predictable. In a similar manner, financial reporting irregularities involving large and well-known companies may have other adverse effects on
us in ways that are not predictable. Also, we cannot predict the final form of, or the effects of, the regulatory accord on international banking institutions to be reached by the Basel Committee on Banking Supervision.
Legislation may cause changes in the competitive environment in which we operate, which could include, among other things, broadening the scope of
activities of significant competitors, facilitating consolidation of competitors into stronger entities or attracting large and well-capitalized new competitors into our traditional businesses. Such factors and changes and our ability to address and
adapt to regulatory and competitive challenges may adversely affect our future results of operations.
Changes in interest rates may adversely
affect our net interest revenue and securities lending revenue.
The levels of market interest rates, the shape of the
yield curve and the direction of interest rate changes affect our net interest revenue and securities lending revenue, which is recorded in both our servicing and management fees. In the short term, our net interest revenue and securities lending
revenue generally increase during periods of falling interest rates and generally decrease during periods of rising rates because interest-bearing liabilities reprice sooner than interest-earning assets. Sustained lower interest rates and a flat
yield curve may have a constraining effect on our net interest revenue and securities lending revenue growth.
S-20
Events or circumstances that limit our access to the funds markets may adversely affect our liquidity.
Any occurrence that limits our access to the funds markets, such as a decline in the confidence of debt purchasers, depositors or counterparties
participating in the funds markets in general, or with us in particular, or a downgrade of any of our debt ratings, may adversely affect our ability to raise capital and, in turn, our liquidity.
If we fail to maintain adequate capital for regulatory purposes, our business may be adversely affected.
Under regulatory capital adequacy guidelines, we and State Street Bank must meet guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items, subject to qualitative
judgments by regulators about components, risk weightings and other factors. Failure to meet minimum capital requirements could have a direct material effect on our financial condition. In particular, failure to maintain the status of “well
capitalized” under our regulatory framework could affect our status as a financial holding company and eligibility for a streamlined review process for acquisition proposals. In addition, our failure to maintain the status of “well
capitalized” could affect the confidence of our clients in us and could adversely affect our business.
A decrease in the volatility of
foreign exchange rates could reduce our foreign exchange trading revenue.
The degree of volatility in foreign exchange
rates can affect the amount of our foreign exchange trading revenue. In general, we benefit from currency volatility. Accordingly, our foreign exchange revenue is likely to decrease during times of decreased currency volatility.
Delays in pension reform may adversely affect our revenue growth.
We expect that our business will benefit from worldwide pension reform that creates additional pools of assets that use custody and related services, and investment management services. If the pace of pension
reform and resulting programs, including public and private pension schemes, slows down or if pension reform does not occur, then our revenue growth may be adversely affected.
Changes in our ability to sell additional services to our clients and the mix of our business may adversely affect our revenues.
A decline in the pace at which we attract new clients and the pace at which existing and new clients use additional services and assign additional assets to us for management or
custody will adversely affect our future results of operations. A decline in the rate at which our clients outsource functions, such as their internal accounting activities, would also adversely affect our results of operations. In addition, changes
in our mix of business and the sources of our revenue, including the mix of our U.S. and non-U.S. business, may adversely affect our future results of operations. We generally earn higher margins on our non-U.S. business.
Events that damage our physical facilities or disrupt our operational functions or similarly affect those with whom we do business could adversely affect our results of
operations.
Events, including terrorist or military actions and resulting political and social turmoil, could arise
that would cause unforeseen damage to our physical facilities or could cause delays or disruptions to operational functions, including information processing and financial market settlement functions. Additionally, our clients, vendors and
counterparties could suffer from such events. Should these events affect us, or the clients, vendors or counterparties with whom we conduct business, our results of operations could be adversely affected.
S-21
Rapid technological changes in the market for our products and services may cause us to incur increased expenses or hurt us competitively.
Technological change often creates opportunities for product differentiation and reduced costs, as well as the
possibility of increased expenses. Developments in the securities processing industry, including shortened settlement cycles and straight-through-processing, will result in changes to existing procedures. Alternative delivery systems have emerged,
including the widespread use of the Internet. Our financial performance depends in part on our ability to develop and market new and innovative services, and to adopt or develop new technologies that differentiate our products or provide cost
efficiencies.
Rapid technological change in our industry, changes in our ability to access technical and other information
from clients, and the significant and ongoing investments required to bring new services to market in a timely fashion at competitive prices could adversely affect our business. The introduction by our competitors of services that could replace or
provide lower-cost alternatives to our services would also adversely affect our business.
We may engage in unsuccessful acquisitions and
divestitures.
Acquisitions of complementary businesses and technologies, development of strategic alliances and
divestitures of portions of our business are an active part of our overall business strategy. Services, technologies, key personnel or businesses of acquired companies may not be effectively assimilated into our business or service offerings and our
alliances may not be successful. We may not be able to successfully complete any divestitures on satisfactory terms, if at all. Divestitures may result in a reduction in our total revenues and net income.
If a third party misappropriates our technology or asserts that we have infringed its proprietary rights, we may suffer a competitive disadvantage or be required to
spend significant resources.
We use trademark, trade secret, copyright and other proprietary rights procedures to
protect our technology, and we have applied for a limited number of patents in connection with certain software programs. Despite these efforts, we cannot be certain that the steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our technology, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States. In addition, we cannot assure you that the
courts will adequately enforce contractual arrangements which we have entered into to protect our proprietary technologies. If any of our proprietary information were misappropriated by or otherwise disclosed to our competitors, our competitive
position could be adversely affected.
In the event that a third party asserts a claim of infringement of its proprietary
rights, obtained through patents or otherwise, against us, we may be required to spend significant resources to defend against such claims, develop a non-infringing program or process, or obtain a license to the infringed process.
S-22
FORWARD-LOOKING STATEMENTS
This prospectus supplement, including documents incorporated by reference in the accompanying prospectus, contains forward-looking statements with respect to our financial condition, results of operations, plans, objectives,
future performance and business, including, without limitation, statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “estimates” or similar expressions.
These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those
contemplated by the forward-looking statements due to many factors, including:
| |
• |
|
the failure to achieve the cost reductions and economies of scale that we expect to achieve in the integration of the Acquired Business and the loss of clients of the
Acquired Business, including DeAM, may affect our ability to achieve the expected financial results from the acquisition of the Acquired Business; |
| |
• |
|
the extent of increases or decreases in cross-border investments made by clients or future clients may affect our revenues; |
| |
• |
|
changes in the savings rate of individuals that are invested in mutual funds and other collective funds or in defined contribution plans may affect our revenues;
|
| |
• |
|
fluctuations in worldwide securities market valuations may affect our revenues; |
| |
• |
|
changes in markets served, including the growth rate of collective funds worldwide, the pace of debt issuance, outsourcing decisions, and mergers, acquisitions and
consolidations among clients and competitors may affect our revenues; |
| |
• |
|
global and regional economic factors and changes or potential changes in laws and regulations affecting our business, including volatile currencies, pace of inflation and
changes in monetary policy, and social and political instability, could affect our results of operations; |
| |
• |
|
legislation may cause changes in the competitive environment in which we operate, which could include, among other things, broadening the scope of activities engaged in
by significant competitors, facilitating consolidation of competitors into stronger entities or attracting large and well-capitalized new competitors into our traditional businesses, which may affect our future results;
|
| |
• |
|
changes in accounting principles generally accepted in the United States and applicable to us, while not having an economic impact on our business, could have a material
impact on our reported results of operations and the attainment of the current measures of our financial goals; |
| |
• |
|
any occurrence which may limit our access to the funds markets, such as a decline in the confidence of debt purchasers, depositors or counterparties in the funds markets
in general or with us in particular, or a downgrade of our debt rating, may affect our future results; |
| |
• |
|
failure to meet minimum capital requirements and the status of “well capitalized” under the regulatory framework applicable to us could adversely affect our
business; |
| |
• |
|
market interest rate levels, the shape of the yield curve and the direction of interest rate changes affect our net interest revenue and securities lending revenue;
|
| |
• |
|
the degree of volatility in foreign exchange rates can affect the amount of our foreign exchange trading revenue; |
| |
• |
|
the pace of pension reform and resulting programs, including public and private pension schemes, may affect the pace of our revenue growth;
|
S-23
| |
• |
|
future prices that we are able to obtain for our products may increase or decrease from current levels depending upon demand for our products, our competitors’
activities and the introduction of new products into the marketplace; |
| |
• |
|
the pace at which we attract new clients and at which existing and new clients use additional services and assign additional assets to us for management or custody will
affect our future results; |
| |
• |
|
changes in business mix, including the mix of U.S. and non-U.S. business, may affect our future results; |
| |
• |
|
unforeseen events, including terrorist or military actions and resulting political and social turmoil, could cause damage to our physical facilities or cause delays or
disruptions to our operational functions, including information processing and financial market settlement functions; |
| |
• |
|
technological change and our ability to develop and market new and innovative services may be more difficult or expensive than anticipated;
|
| |
• |
|
our ability to effectively assimilate services, technologies, key personnel or businesses of acquired companies may affect our future results; and
|
| |
• |
|
changes may occur in securities markets which may affect our revenues. |
S-24
USE OF PROCEEDS
The trust will use all of the proceeds received from the sale of the capital securities to purchase junior subordinated debentures from us. We estimate that we will receive net
proceeds (after payment of underwriting commissions and expenses and the purchase price for common securities of the trust) of approximately $ million, or
$ million if the underwriters’ option to purchase additional capital securities is exercised in full, from the sale of the junior subordinated debentures to the trust. We intend to use these net
proceeds to fund the payment of a portion of the initial purchase price for the Acquired Business. We expect to fund the remainder of the initial purchase price for the Acquired Business with (1) the net proceeds from our concurrent offering of
common stock (estimated to be approximately $236.1 million, or $271.8 million if the underwriters’ over-allotment option in that offering is exercised in full), (2) the proceeds related to the sale of our Corporate Trust business to U.S.
Bancorp, which closed on December 31, 2002, and (3) other available funding. Pending such use, we may invest the proceeds temporarily in short-term securities.
We are required by the Federal Reserve Board to maintain certain levels of capital for bank regulatory purposes. Based upon a letter from the staff of the Board of Governors of the Federal Reserve System, we
believe that the terms of the capital securities, together with the terms of the SPACES that we are concurrently offering under a separate prospectus supplement will enable us to treat the net proceeds from this offering as Tier 1 capital.
ACCOUNTING TREATMENT
For financial reporting purposes, the trust will be treated as our subsidiary and, accordingly, the accounts of the trust will be included in our consolidated balance sheets. The capital securities will be treated as
long-term debt in our consolidated balance sheets and appropriate disclosures about the capital securities, the guarantee and the junior subordinated debentures will be included in the notes to our consolidated financial statements. For financial
reporting purposes, we will record distributions payable on the capital securities as an expense in our consolidated statements of income.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
Our consolidated ratios of earnings to fixed
charges were as follows for the six most recent fiscal years:
| |
|
|
| |
|
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
| Ratio of earnings to fixed charges |
|
1.50x |
|
1.44x |
|
1.58x |
|
1.39x |
|
1.51x |
|
2.55x |
Under SEC regulations and for the purpose of calculating these ratios, (1)
earnings consist of income from continuing operations before income taxes, plus fixed charges, and (2) fixed charges consist of interest expense, amortization of debt expense and the estimated interest component of rental expense.
S-25
CAPITALIZATION
| |
• |
|
the actual consolidated capitalization of State Street and our subsidiaries; |
| |
• |
|
the actual consolidated capitalization of State Street and our subsidiaries as adjusted to give effect to this offering of capital securities (assuming no exercise of the
underwriters’ over-allotment option), as if such transaction had occurred on December 31, 2002; and |
| |
• |
|
the actual consolidated capitalization of State Street and our subsidiaries as adjusted to give effect to (1) this offering of capital securities (assuming no exercise of
the underwriters’ over-allotment option), (2) the anticipated issuance of $275 million aggregate stated amount of SPACES in the concurrent SPACES offering (assuming no exercise of the underwriters’ over-allotment option) and (3) the
anticipated issuance of 6,220,000 shares of common stock in the concurrent common stock offering (assuming no exercise of the underwriters’ over-allotment option), as if such transactions had occurred on December 31, 2002.
|
The following table assumes an initial price to public in our concurrent offering of common stock of $40.19 per share,
the last reported sale price of our common stock on the New York Stock Exchange on January 9, 2003, and net proceeds from such offering (after deducting underwriting discounts and commissions and estimated fees and expenses) of $236.1 million.
| |
|
|
|
| |
|
Actual
|
|
|
As Adjusted for this Offering
|
|
|
As Adjusted for this Offering and the Concurrent Offerings
|
|
| |
|
(in millions) |
|
| Long-Term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
| Capital Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Floating Rate Medium Term Capital Securities due 2008 |
|
$ |
— |
|
|
$ |
275 |
|
|
$ |
275 |
|
| 8.035% Capital Securities B due 2027 |
|
|
330 |
|
|
|
330 |
|
|
|
330 |
|
| 7.94% Capital Securities A due 2026 |
|
|
216 |
|
|
|
216 |
|
|
|
216 |
|
| Floating Rate Capital Trust I due 2028 |
|
|
149 |
|
|
|
149 |
|
|
|
149 |
|
| 7.65% Subordinated notes due 2010 |
|
|
309 |
|
|
|
309 |
|
|
|
309 |
|
| 7.35% Notes due 2026 |
|
|
150 |
|
|
|
150 |
|
|
|
150 |
|
| 5.95% Notes due 2003 |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
| 9.50% Mortgage note due 2009 |
|
|
15 |
|
|
|
15 |
|
|
|
15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Long-Term Debt |
|
|
1,269 |
|
|
|
1,544 |
|
|
|
1,544 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
|
330 |
|
|
|
330 |
|
|
|
336 |
|
| Surplus |
|
|
104 |
|
|
|
104 |
|
|
|
286 |
(1) |
| Retained earnings |
|
|
4,472 |
|
|
|
4,472 |
|
|
|
4,472 |
|
| Other unrealized comprehensive income |
|
|
106 |
|
|
|
106 |
|
|
|
106 |
|
| Treasury stock, at cost |
|
|
(225 |
) |
|
|
(225 |
) |
|
|
(225 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Stockholders’ Equity |
|
|
4,787 |
|
|
|
4,787 |
|
|
|
4,975 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Capitalization |
|
$ |
6,056 |
|
|
$ |
6,331 |
|
|
$ |
6,519 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The increase in surplus represents (a) the allocation of the remaining net proceeds of our concurrent common stock offering, after the allocation to common stock at par
value, offset by (b) the present value of the estimated contract fees payable in respect of the SPACES, at an assumed discount rate of 3.5%, and the issuance costs less uninvested proceeds from our concurrent offering of SPACES.
|
S-26
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME DATA
(Unaudited)
We prepare our consolidated statement of income as presented in “Prospectus
Supplement Summary—Summary Consolidated Financial Information” in accordance with accounting principles generally accepted in the United States (GAAP). That financial information includes significant, non-recurring, non-operating special
items and reports goodwill amortization expense in accordance with accounting practice applicable for those periods presented.
In order to provide information on a comparable basis from period to period and assist stockholders, analysts, other external parties and management in analyzing the financial results and trends of our ongoing businesses and
operations, we also present our financial results on an “Operating Results” basis. We believe that such non-GAAP financial information assists investors and others by providing them financial information in a format that provides
comparable financial trends of recurring business activities. Operating Results are based on our GAAP results adjusted for three types of financial activity:
| |
(1) |
Operating Results exclude the results of certain significant transactions not representative of ongoing operations. |
| |
(2) |
Operating Results include fully taxable equivalent adjustments that increase net interest revenue to reflect investment yield on tax-free investments on an equivalent
basis with taxable investments. |
| |
(3) |
Operating Results exclude goodwill amortization expense from operating expenses in 2001 and prior years, to be consistent with GAAP accounting required beginning in 2002.
|
The table set forth below contains our selected consolidated Operating Results for the periods
presented.
| |
|
|
| |
|
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
| |
|
(Dollars in millions, except per share data) |
| Fee revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Servicing fees |
|
$ |
861 |
|
$ |
1,043 |
|
$ |
1,189 |
|
$ |
1,447 |
|
$ |
1,648 |
|
$ |
1,716 |
| Management fees |
|
|
391 |
|
|
480 |
|
|
600 |
|
|
584 |
|
|
516 |
|
|
526 |
| Foreign exchange trading |
|
|
245 |
|
|
289 |
|
|
306 |
|
|
387 |
|
|
368 |
|
|
300 |
| Brokerage fees |
|
|
25 |
|
|
36 |
|
|
67 |
|
|
95 |
|
|
89 |
|
|
124 |
| Loss on investment in Bridge Information
Systems, Inc. |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| Processing fees and other |
|
|
149 |
|
|
160 |
|
|
159 |
|
|
177 |
|
|
198 |
|
|
184 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total fee revenue |
|
|
1,671 |
|
|
2,008 |
|
|
2,321 |
|
|
2,690 |
|
|
2,819 |
|
|
2,850 |
| Net interest revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest revenue |
|
|
1,755 |
|
|
2,237 |
|
|
2,437 |
|
|
3,256 |
|
|
2,855 |
|
|
1,974 |
| Interest expense |
|
|
1,114 |
|
|
1,492 |
|
|
1,656 |
|
|
2,362 |
|
|
1,830 |
|
|
995 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
641 |
|
|
745 |
|
|
781 |
|
|
894 |
|
|
1,025 |
|
|
979 |
| Taxable-equivalent adjustment |
|
|
44 |
|
|
40 |
|
|
40 |
|
|
65 |
|
|
67 |
|
|
61 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest revenue |
|
|
685 |
|
|
785 |
|
|
821 |
|
|
959 |
|
|
1,092 |
|
|
1,040 |
| Provision for loan losses |
|
|
16 |
|
|
17 |
|
|
14 |
|
|
9 |
|
|
10 |
|
|
4 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest revenue after provision for loan losses (taxable-equivalent basis) |
|
|
669 |
|
|
768 |
|
|
807 |
|
|
950 |
|
|
1,082 |
|
|
1,036 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gains on the sales of available-for-sale investment securities, net |
|
|
2 |
|
|
10 |
|
|
12 |
|
|
2 |
|
|
43 |
|
|
76 |
| Gain on the sale of corporate trust business, net of exit and other associated costs |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| Gain on the sale of commercial banking business, net of exit and other associated costs |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenue |
|
|
2,342 |
|
|
2,786 |
|
|
3,140 |
|
|
3,642 |
|
|
3,944 |
|
|
3,962 |
(continued on following page)
S-27
| |
|
|
| |
|
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
| |
|
(Dollars in millions, except per share data) |
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and employee benefits |
|
|
973 |
|
|
1,175 |
|
|
1,313 |
|
|
1,524 |
|
|
1,663 |
|
|
1,670 |
| Information systems and communications |
|
|
185 |
|
|
241 |
|
|
287 |
|
|
305 |
|
|
365 |
|
|
373 |
| Transaction processing services |
|
|
184 |
|
|
196 |
|
|
237 |
|
|
268 |
|
|
247 |
|
|
246 |
| Occupancy |
|
|
132 |
|
|
164 |
|
|
188 |
|
|
201 |
|
|
229 |
|
|
246 |
| Other |
|
|
252 |
|
|
301 |
|
|
317 |
|
|
356 |
|
|
355 |
|
|
306 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
1,726 |
|
|
2,077 |
|
|
2,342 |
|
|
2,654 |
|
|
2,859 |
|
|
2,841 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
|
|
616 |
|
|
709 |
|
|
798 |
|
|
988 |
|
|
1,085 |
|
|
1,121 |
| Income taxes |
|
|
186 |
|
|
225 |
|
|
259 |
|
|
317 |
|
|
331 |
|
|
341 |
| Taxable-equivalent adjustment |
|
|
44 |
|
|
40 |
|
|
40 |
|
|
65 |
|
|
67 |
|
|
61 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Income |
|
$ |
386 |
|
$ |
444 |
|
$ |
499 |
|
$ |
606 |
|
$ |
687 |
|
$ |
719 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average Shares Outstanding:(a) (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic |
|
|
321,323 |
|
|
321,873 |
|
|
321,320 |
|
|
321,678 |
|
|
325,030 |
|
|
323,520 |
| Diluted |
|
|
327,577 |
|
|
327,854 |
|
|
327,503 |
|
|
328,088 |
|
|
330,492 |
|
|
327,477 |
| Cash dividends declared per share(a) |
|
|
$0.22 |
|
|
$0.26 |
|
|
$0.30 |
|
|
$0.345 |
|
|
$0.405 |
|
|
$0.48 |
(a) |
Share data restated for 2-for-1 stock split in 2001. |
The following non-GAAP adjustments applicable to the periods presented are necessary to reconcile the consolidated statement of income prepared in accordance with GAAP to the selected consolidated Operating
Results presented in the table above:
(1) |
Operating Results include a fully taxable-equivalent adjustment. This is a method of presentation in which interest income on tax-exempt securities is adjusted to present
the earnings performance on a basis equivalent to interest earned on fully-taxable securities with a corresponding charge to income tax expense. The adjustment is computed using a federal income tax rate of 35%, adjusted for applicable state income
taxes, net of the related federal tax benefit. |
(2) |
Operating Results exclude the gain on the sale of the commercial banking business and a one-time charge on sales of securities related to the repositioning of the
investment portfolio. This gain was $282 million after deductions for exit and other associated costs of $68 million. The one-time charge for the portfolio repositioning was $57 million. The after tax gain of these combined items was $130 million
after tax or $.40 in diluted earnings per share. These transactions were recorded in October and December 1999. |
(3) |
Operating Results exclude the write-off of our total investment in Bridge Information Systems, Inc. of $50 million. The after-tax loss was $33 million, or $.10 in diluted
earnings per share. This write-off was recorded in March 2001. |
(4) |
Operating Results exclude the gain on the sale of our corporate trust business. This gain was $495 million after deductions for exit and other associated costs of $155
million. The after-tax gain was $296 million, or $.90 in diluted earnings per share. This gain was recorded in December 2002. |
(5) |
Operating Results for each of the five years ended December 31, 2001 exclude goodwill amortization expense, as follows: 2001—expense of $38 million, equal to $26
million, or $.08 per diluted share after tax; 2000—expense of $17 million, equal to $11 million, or $.04 per diluted share after tax; 1999—expense of $15 million, equal to $10 million, or $.03 per diluted share after tax; 1998—expense
of $12 million, equal to $8 million, or $.03 per diluted share after tax; and 1997—expense of $8 million, equal to $6 million, or $.02 per diluted share after tax. |
S-28
DESCRIPTION OF CAPITAL SECURITIES
The trust will issue the capital securities under the amended and restated trust agreement of the trust. The trust agreement has been qualified as an indenture under the Trust Indenture Act of 1939, as amended.
Bank One Trust Company, N.A., the property trustee, will act as indenture trustee for the capital securities under the trust agreement for the purpose of compliance with the Trust Indenture Act. The terms of the capital securities will include those
stated in the trust agreement and those made part of the trust agreement by the Trust Indenture Act.
The following
description of the capital securities supplements, and to the extent inconsistent therewith, replaces, the description of the general terms and provisions of the capital securities set forth in the accompanying prospectus. The following description
does not purport to be complete and is subject to, and qualified in its entirety by reference to, the amended and restated trust agreement, a copy of the form of which is filed as an exhibit to the registration statement of which this prospectus
supplement and the accompanying prospectus form a part, and to the Delaware Statutory Trust Act and the Trust Indenture Act. You should read the form of the amended and restated trust agreement for provisions that may be important to you.
General
The trust agreement authorizes the administrative trustees of the trust to issue on behalf of the trust the common securities and the capital securities, which represent undivided beneficial ownership interests in the assets of the
trust. We will own all of the common securities of the trust, either directly or indirectly. The common securities of the trust will rank equally in right of payment, and payments will be made on the common securities on a pro rata basis, with the
capital securities. However, if an event of default occurs and is continuing under the trust agreement, rights of the holders of the common securities to payment for distributions and payment upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the capital securities. The trust agreement does not permit the trust to issue any securities other than the common securities and the capital securities and does not permit the trust to incur any
indebtedness.
Proceeds from the sale of both the capital securities and common securities will be used to purchase junior
subordinated debentures issued by State Street, which will be held by the property trustee of the trust for the benefit of the holders of the capital securities issued by the trust. We will guarantee the payments of distributions and payments of
amounts upon redemption or liquidation with respect to the capital securities, but only to the extent the trust has funds available to make those payments and has not made the payments. In the event that the trust does not have the funds available
to make a required payment, your only remedy will be to vote to direct the property trustee to enforce the property trustee’s rights under the junior subordinated debentures, except in the limited circumstances in which you may take direct
action. See “Description of the Capital Securities—Events of Default; Notice” and “Description of the Capital Securities Guarantees” in the accompanying prospectus and “—Voting Rights” below.
Distributions
Each
capital security will be entitled to cash distributions at a variable annual rate equal to 3-Month LIBOR (as defined below) plus %, in respect of the liquidation amount of $1,000 per capital security. Distributions on the
capital securities:
| |
• |
|
will accrue from January , 2003; and |
| |
• |
|
except as otherwise described below, will be payable quarterly in arrears on the 15th day of February, May, August and November of each year, commencing May 15, 2003.
|
S-29
Distributions in arrears for more than one quarter will accumulate additional distributions at a variable annual
rate equal to 3-Month LIBOR plus %, compounded quarterly, to the extent permitted by law.
Distributions on the capital securities must be paid on the dates payable to the extent that the trust has funds available. The trust’s funds available to pay distributions to the holders of the capital securities will be
limited to payments received from us on the junior subordinated debentures. See “Description of Junior Subordinated Debentures” below. If we do not make interest payments on the junior subordinated debentures, the property trustee will not
have funds available to pay distributions on the capital securities. The payment of distributions and other amounts payable on the capital securities, if and to the extent the trust has funds legally available for and cash sufficient to make such
payments, is guaranteed by us on a limited basis, as described under “Description of Guarantee” below.
Distributions on the capital securities will be payable to the holders as they appear on the books and records of the trust on the relevant record dates, which, as long as the capital securities remain in book-entry only form, will
be one business day prior to the relevant payment dates. The distributions will be paid through Bank One Trust Company, N.A., as the property trustee, which will hold amounts received in respect of the junior subordinated debentures for the benefit
of the holders of the capital securities. Subject to any applicable laws and regulations and the provisions of the trust agreement, each such payment will be made as described under “—Book-Entry Only Issuance—The Depository Trust
Company” below.
In the event that the capital securities do not continue to remain in book-entry form, the record
dates for payment of distributions will be February 1, May 1, August 1 and November 1 of each year, as applicable. In the event that any date on which distributions are payable is not a business day, then payment of the distributions payable on such
date will be made on the next succeeding day that is a business day, except that, if such business day is in the next succeeding calendar month, such payment shall be made on the immediately preceding business day, in each case with the same force
and effect as if made on such payment date.
So long as no event of default under the junior subordinated debentures has
occurred and is continuing, we have the right under the indenture to defer payments of interest on the junior subordinated debentures by extending the interest payment period at any time, and from time to time, for a period, which we refer to in
this prospectus supplement as an extension period, not exceeding 20 consecutive quarterly periods with respect to each extension period. No extension period may extend beyond the stated maturity of the junior subordinated debentures. As a
consequence of any extension period, quarterly distributions on the capital securities will also be deferred by the trust (and the amount of distributions to which holders of the capital securities are entitled will accumulate at a variable annual
rate equal to 3-Month LIBOR plus %, compounded quarterly from the relevant payment date for such distributions) during any extension period. During any such extension period, we will be subject to the restrictions on
payments and distributions described in “Description of the Capital Securities—Distributions” in the accompanying prospectus. Prior to the termination of any such extension period, we may further extend the payment of interest,
provided that such extension period may not exceed 20 consecutive quarters or extend beyond the stated maturity of the junior subordinated debentures. Upon the termination of any extension period and the payment of all amounts then due, we may
commence a new extension period subject to the foregoing requirements. There is no limitation on the number of times that we may elect to begin an extension period. See “Description of Junior Subordinated Debentures—Interest” and
“—Option to Extend Interest Payment Period.”
We have no current intention of exercising our right to
defer payments of interest by extending the interest payment period of the junior subordinated debentures.
S-30
Determination of 3-Month LIBOR
The distribution rate in respect of the capital securities will be a floating rate per annum determined by reference to 3-Month LIBOR, determined as described below, plus a spread of
%. 3-Month LIBOR is the London interbank offered rate for three-month, U.S. dollar deposits and, with respect to any distribution period, will be calculated by Bank One Trust Company, N.A., as calculation agent, as
follows:
(a) On the second market day (as defined below) preceding the commencement of the
applicable distribution period, which we refer to as a “determination date,” 3-Month LIBOR will be determined on the basis of the offered rate for deposits of not less than U.S. $1,000,000 for a period of three months, which we refer to as
the “index maturity,” commencing on the second market day immediately preceding the commencement of such distribution period, which appears on the display designated as Page 3750 on the Dow Jones Telerate Service (or such other pages as
may replace Page 3750 on that service for the purpose of displaying London interbank offered rates of major banks) as of 11:00 a.m., London time on such determination date. If no such offered rate appears, 3-Month LIBOR with respect to such
distribution period will be determined as described in (b) below.
(b) With respect to a
determination date on which no such offered rate appears on Telerate Page 3750 as described in (a) above, 3-Month LIBOR will be the arithmetic mean, expressed as a percentage, of the offered rates (unless by its terms such display provides for only
a single rate, in which case a single rate will be used) for deposits in U.S. dollars for the index maturity that appears on the display designated as “LIBO” on the Reuters Monitor Money Market Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks) as of 11:00 a.m., London time, on such date. If, in turn, at least two such rates are not displayed on the display designated as
“LIBO” on the Reuters Monitor Money Market Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks) at such time (unless, as aforesaid, only
a single rate is required), the calculation agent will obtain from each of four reference banks in London selected by the calculation agent such bank’s offered quotation (expressed as a percentage per annum) as of approximately 11:00 a.m.,
London time, on such date for deposits in U.S. dollars to prime banks in the London interbank market for the index maturity. If two or more such quotations are provided as requested, then 3-Month LIBOR for such date will be the arithmetic
average of such quotations. If, in turn, fewer than two such quotations are provided as requested, then 3-Month LIBOR for such date will be obtained from the preceding market day for which the Telerate Page 3750 displayed a rate for the index
maturity.
(c) If on any determination date, the calculation agent is required but unable to
determine 3-Month LIBOR in the manner provided in paragraphs (a) and (b) above, 3-Month LIBOR for such distribution period will be 3-Month LIBOR as determined on the previous determination date.
The term “market day” means any business day on which commercial banks and foreign exchange markets are open for business (including
dealings in foreign exchange and foreign currency deposits) in New York and London.
The distribution rate for any
distribution period will at no time be higher than the maximum rate then permitted by New York law as the same may be modified by United States law.
All percentages resulting from any calculations referred to in this prospectus supplement will be rounded, if necessary, to the nearest one ten-thousandth of a percentage point, with five hundred-thousandths of a percentage
point being rounded upwards (e.g., 6.87655% (or .0687655) would be rounded to 6.8766% (or .068766)), and all U.S. dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent or more being
rounded upwards).
S-31
Determination of Distribution Rate and Calculation of Distribution Amount
Bank One Trust Company, N.A., as calculation agent, will, as soon as practicable after 11:00 a.m., London time, on each determination date,
determine the distribution rate and inform the debenture trustee, the property trustee and the paying agent. Unless otherwise provided by the property trustee, the paying agent will calculate the distribution amount payable in respect of the
following distribution period. The distribution amount will be calculated by applying the distribution rate to the liquidation amount of each capital security outstanding at the commencement of the distribution period, multiplying each such
liquidation amount by the actual number of days in the distribution period concerned (which actual number of days will include the first day but exclude the last day of such distribution period) divided by 360 and rounding the resulting figure to
the nearest cent (with one-half cent or more being rounded upwards). The determination of the distribution rate by the calculation agent and the distribution amount by the paying agent will (in the absence of willful default, bad faith or manifest
error) be final, conclusive and binding on all concerned. None of the debenture trustee, the property trustee, the paying agent, the calculation agent, the trust or us (or any of the officers, directors, agents, beneficiaries, employees or
affiliates of any of these entities) will have any liability to any person for (i) the selection of any reference bank or (ii) any inability to retain major banks in the London interbank market, in the case of the calculation agent, which is caused
by circumstances beyond its reasonable control.
Upon the request of a holder of a capital security, the calculation agent
will provide the distribution rate then in effect and, if determined, the distribution rate for the next distribution period with respect to the capital securities. Each such distribution rate may be obtained by telephoning the calculation agent.
All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made
or obtained for the purposes of the provisions relating to the payment and calculation of distributions on the capital securities, whether by the reference banks (or any of them) or the calculation agent, the property trustee, the debenture trustee
or the paying agent, will (in the absence of willful default, bad faith or manifest error) be binding on us and the trust, the trustees and all of the holders of the capital securities, and no liability will (in the absence of willful default, bad
faith or manifest error) attach to the calculation agent, the property trustee, the debenture trustee or the paying agent in connection with the exercise or non-exercise by any of them of their powers, duties and discretion.
Redemption
If we repay or
redeem the junior subordinated debentures held by the trust, whether at stated maturity or upon earlier redemption, the proceeds from such repayment or redemption shall simultaneously be applied to redeem the capital securities and common
securities, upon not less than 15 nor more than 60 days’ notice prior to the date fixed for redemption, at a redemption price equal to the aggregate liquidation amount of such capital securities and common securities plus accumulated but unpaid
distributions to the date of redemption.
The junior subordinated debentures will mature on February 15, 2008. However, on
December 15, 2005, we will be required, except as provided below, to redeem the junior subordinated debentures, in whole, but not in part, at a redemption price equal to 100% of the principal amount of the junior subordinated debentures so redeemed
plus accrued and unpaid interest thereon to the redemption date, provided that:
| |
• |
|
we are “well-capitalized” for purposes of the then applicable provisions of Regulation Y of the Board of Governors of the Federal Reserve System and we
otherwise comply with the then applicable provisions of the then applicable capital adequacy guidelines of the Federal Reserve Board; and |
S-32
| |
• |
|
the Federal Reserve Board consents to such redemption. |
We will base the foregoing capital adequacy determinations on our unaudited consolidated financial statements as of September 30, 2005. If we meet these capital adequacy conditions, we will seek consent from the Federal Reserve Board
to redeem the junior subordinated debentures and such redemption will be subject to the consent of the Federal Reserve Board. See “Description of Junior Subordinated Debentures—Fixed Early Redemption” below.
In addition, we will have the right to redeem the junior subordinated debentures, in whole, but not in part, at a redemption price equal to 100% of
the principal amount of the junior subordinated debentures so redeemed plus accrued and unpaid interest thereon to the redemption date at any time within 90 days following the occurrence of a tax event, investment company event or capital treatment
event, or, if the approval of the Federal Reserve Board is then required for such redemption, on such later date as promptly as practicable after such approval is obtained. See “Description of the Junior Subordinated
Debentures—Redemption” in the accompanying prospectus and “Description of Junior Subordinated Debentures—Optional Redemption” below. Any such repayment or redemption of the junior subordinated debentures is subject to the
prior approval of the Federal Reserve Board, if such approval is then required under applicable law, rules, guidelines or policies.
Distribution of Junior Subordinated Debentures upon Dissolution of Trust
Subject to the prior
approval of the Federal Reserve Board, if such approval is then required under applicable law, rules, guidelines or policies, we have the right at any time to dissolve the trust and, after satisfaction of the liabilities of the trust as provided by
applicable law, cause the junior subordinated debentures to be distributed to the holders of the capital securities and common securities in exchange for such securities.
After the liquidation date fixed for any distribution of junior subordinated debentures for the capital securities:
| |
• |
|
such capital securities will no longer be deemed to be outstanding; |
| |
• |
|
The Depository Trust Company (DTC) or its nominee, as the record holder of such capital securities, will receive a registered global certificate or certificates
representing the junior subordinated debentures to be delivered upon such distribution; and |
| |
• |
|
any certificates representing capital securities not held by DTC or its nominee will be deemed to represent the junior subordinated debentures having a principal amount
equal to the stated liquidation amount of such capital securities, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid distributions on such capital securities until such certificates are presented to the
administrative trustees or their agent for transfer or reissuance. |
Voting Rights
Except as described in “Description of the Capital Securities—Voting Rights; Amendment of Each Trust Agreement” in the accompanying
prospectus, as provided under the Delaware Statutory Trust Act and the Trust Indenture Act, and as otherwise required by law and the trust agreement, the holders of the capital securities will have no voting rights.
Book-Entry Only Issuance—The Depository Trust Company
The Depository Trust Company, or DTC, will act as securities depositary for the capital securities. The capital securities will be issued only as fully registered securities registered in the name of
S-33
Cede & Co., DTC’s nominee, or such other nominee as selected by DTC. One or more fully registered global capital securities certificates, which we refer to herein as “global
certificates”, representing the total aggregate number of capital securities, will be issued and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the global capital securities
as represented by a global certificate.
DTC 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. DTC holds securities that its participants deposit with DTC. DTC 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 in DTC include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its
direct participants and by the New York Stock Exchange, the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as securities brokers and dealers, banks
and trust companies that clear transactions through or maintain a direct or indirect custodial relationship with a direct participant either directly or indirectly, which are referred to as indirect participants. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of capital securities within the DTC system must be made by or through
direct participants, which will receive a credit for the capital securities on DTC’s records. The ownership interest of each actual purchaser of each capital security, or beneficial owner is in turn to be recorded on the direct
participants’ and indirect participants’ records, including Euroclear and Clearstream. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their holdings, from the direct or indirect participants through which the beneficial owners purchased capital securities. Transfers of ownership interests in the capital
securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the capital securities, except in the
event that use of the book-entry system for the capital securities is discontinued.
Transfers between participants will be
effected in accordance with DTC’s procedures and will be settled in same-day funds. Transfers between participants in Euroclear and Clearstream will be effected in the ordinary way in accordance with their respective rules and operating
procedures.
Cross-market transfers between participants, on the one hand, and Euroclear participants or Clearstream
participants, on the other hand, will be effected in DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of
instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case
may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the capital securities in DTC, and
making or receiving payment in accordance with normal procedures for
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same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest
in a capital security from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear participant or Clearstream participant, during the securities settlement processing day (which must be a business day
for Euroclear and Clearstream, as the case may be) immediately following the DTC settlement date. Cash received in Euroclear or Clearstream as a result of sales of interests in a capital security by or through a Euroclear or Clearstream participant
to a direct participant in DTC will be received with value on the DTC settlement date, but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following the DTC settlement
date.
DTC has no knowledge of the actual beneficial owners of the capital securities. DTC’s records reflect only the
identity of the direct participants to whose accounts such capital securities 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.
So long as DTC, or its nominee, is the registered owner or holder of a global certificate, DTC or such nominee, as the case
may be, will be considered the sole owner or holder of the capital securities represented thereby for all purposes under the trust agreement and the capital securities. No beneficial owner of an interest in a global certificate will be able to
transfer that interest except in accordance with DTC’s applicable procedures, in addition to those provided for under the trust agreement.
DTC has advised us that it will take any action permitted to be taken by a holder of capital securities (including the presentation of capital securities for exchange as described below) only at the direction of one or more
direct participants to whose account the DTC interests in the global certificates are credited and only in respect of such portion of the aggregate liquidation amount of capital securities as to which such direct participant or direct participants
has or have given such direction. However, if there is an event of default under the capital securities, DTC will exchange the global certificates for certificated securities, which it will distribute to its direct participants.
Conveyance of notices and other communications by DTC 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.
Redemption notices in respect of the capital securities held in book-entry form will be sent to Cede & Co. as the registered holder of the
capital securities. If less than all of the capital securities are being redeemed, DTC’s current practice is to determine by lot the amount of the interest of each direct participant to be redeemed.
Although voting with respect to the capital securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will
itself consent or vote with respect to capital securities. Under its usual procedures, DTC would mail an omnibus proxy to the relevant trustee as soon as possible after the record date. The omnibus proxy assigns Cede & Co.’s consenting or
voting rights to those direct participants to whose accounts the capital securities are credited on the record date (identified in a listing attached to the omnibus proxy).
Distributions on the capital securities held in book-entry form will be made by the relevant trustee to DTC in immediately available funds. DTC’s practice is to credit direct
participants’ accounts on the relevant payment date in accordance with their respective holdings shown on DTC’s records unless
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DTC has reason to believe that it will not receive payments on such payment date. Payments by the participants to beneficial owners will be governed by standing instructions and customary
practices and will be the responsibility of such participants and not of us, DTC or the trust, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of distributions to DTC is the responsibility of the
trust, disbursement of such payments to participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of the direct and indirect participants.
Except as provided in this prospectus supplement, a beneficial owner of an interest in a global certificate will not be entitled to receive physical
delivery of capital securities. Accordingly, each beneficial owner must rely on the procedures of DTC to exercise any rights under the capital securities.
Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the global certificates among participants of DTC, DTC is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time. Neither State Street, the trust nor the trustees will have any responsibility for the performance by DTC or its participants or indirect participants under the rules and
procedures governing DTC. DTC may discontinue providing its services as securities depositary with respect to the capital securities at any time by giving notice to the trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, capital security certificates are required to be printed and delivered. Additionally, the trust (with our consent) may decide to discontinue use of the system of book-entry transfers through DTC (or a successor
depositary). In that event, certificates for the capital securities will be printed and delivered. In each of the above circumstances, we will appoint a paying agent with respect to the capital securities.
The information in this section concerning DTC and DTC’s book entry system has been obtained from sources believed to be reliable by us and the
trust, but neither we nor the trust takes responsibility for the accuracy thereof.
Payment
Payments in respect of the capital securities represented by the global certificates shall be made to DTC, which shall credit the relevant accounts
at DTC on the applicable distribution dates or, in the case of capital securities represented by certificated securities, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the
securities register of the trust.
Registrar, Transfer Agent and Paying Agent
Bank One Trust Company, N.A. will act as registrar, transfer agent and paying agent for the capital securities. If the capital securities do not remain in book-entry only form,
one or more additional paying agents may be appointed if so required by any rule or regulation of any securities exchange upon which the capital securities may be listed at such time. Bank One Trust Company, N.A. shall be permitted to resign as
paying agent upon 30 days’ written notice to the trustees of the trust. In the event that Bank One Trust Company, N.A. shall no longer be the paying agent, the administrative trustees shall appoint a successor to act as paying agent (which
shall be a bank or trust company acceptable to us).
Registration of transfers of capital securities will be effected
without charge by or on behalf of the trust, but upon payment (with the giving of such indemnity as we or the trust may require) in respect of any tax or other government charges that may be imposed in relation thereto.
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The trust will not be required to register or cause to be registered the transfer of
capital securities after such capital securities have been called for redemption.
DESCRIPTION OF GUARANTEE
Concurrently with the issuance of the capital securities by the trust, we will execute and deliver a capital securities guarantee for the
benefit of the holders of capital securities. Under the guarantee, we will irrevocably and unconditionally agree, to the extent set forth in the guarantee, to pay in full to the holders of the capital securities issued by the trust, the payments due
from the trust to such holders (except to the extent paid by the trust), as and when due, regardless of any defense, right of set-off or counterclaim that the trust may have or assert. The guarantee will not apply to any payment of distributions
except to the extent that the trust shall have funds available for such payments. Our obligation to make a guarantee payment may be satisfied by direct payment of the required amounts by us to the holders of capital securities or by causing the
trust to pay such amounts to such holders. The guarantee will be qualified as an indenture under the Trust Indenture Act. Bank One Trust Company, N.A. will act as the guarantee trustee under the guarantee. The terms of the guarantee will be those
set forth in such guarantee and those made part of such guarantee by the Trust Indenture Act. A summary description of the guarantee appears in the accompanying prospectus under the caption “Description of the Capital Securities
Guarantees.”
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The following description of the specific terms of the junior subordinated debentures supplements the description of the general terms and provisions of the junior subordinated
debentures set forth in the accompanying prospectus under the caption “Description of the Junior Subordinated Debentures.” The following description does not purport to be complete and is subject to, and qualified in its entirety by
reference to, the indenture, dated as of December 15, 1996, between us and Bank One Trust Company, N.A., as debenture trustee, a copy of which is filed as an exhibit to the registration statement of which this prospectus supplement and the
accompanying prospectus form a part, and to the Trust Indenture Act. You should read the indenture for provisions that may be important to you.
General
The junior subordinated debentures will be issued as unsecured indebtedness under the
indenture. We may issue additional series of junior subordinated debentures under the indenture, and any such series will rank equally in right of payment with the junior subordinated debentures. The junior subordinated debentures that are the
subject of this prospectus supplement will be limited in aggregate principal amount to $ , such amount being the sum of the aggregate stated liquidation amount of the capital
securities and the common securities.
The junior subordinated debentures are not subject to a sinking fund provision. The
entire principal amount of the junior subordinated debentures will mature and become due and payable, together with any accrued and unpaid interest thereon on February 15, 2008.
If the junior subordinated debentures are distributed to holders of capital securities in liquidation of such holders’ interests in the trust, such junior subordinated
debentures will initially be issued as a global security. As described in this prospectus supplement, a junior subordinated debenture may be issued in certificated form in exchange for a global security. See “—Book-Entry and
Settlement” below. In the event that junior subordinated debentures are issued in certificated form, such junior subordinated debentures will be in denominations of $1,000 and integral multiples thereof and may be transferred or exchanged at
the offices described below. Payments on junior subordinated debentures
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issued as a global security will be made to DTC, a successor depositary or, in the event that no depositary is used, to a paying agent for the junior subordinated debentures. In the event junior
subordinated debentures are issued in certificated form, principal and interest will be payable, the transfer of the junior subordinated debentures will be registrable and junior subordinated debentures will be exchangeable for junior subordinated
debentures of other denominations of a like aggregate principal amount at the corporate trust office of (i) the property trustee in New York, New York or (ii) any other paying agent or transfer agent appointed in addition or in lieu thereof
provided, that payment of interest may be made at our option by check mailed to the address of the holder entitled thereto or by wire transfer to an account appropriately designated by the holder entitled thereto. Notwithstanding the foregoing, so
long as the holder of any junior subordinated debenture is the property trustee, the payment of principal and interest on the junior subordinated debentures held by the property trustee will be made at such place and to such account as may be
designated by the property trustee.
Any moneys deposited with or paid to the debenture trustee or any paying agent for
payment of the principal of, premium, if any, or interest on, the junior subordinated debentures and not applied but remaining unclaimed by the holders thereof for two years after the date upon which such principal of, premium, if any, or interest
on such junior subordinated debentures, as the case may be, shall have become due and payable, shall be repaid to us by the debenture trustee or paying agent on written demand. Thereafter the holder of any such junior subordinated debentures shall
look only to us for any payment that such holder may be entitled to collect and all liability of the debenture trustee or paying agent with respect to such moneys shall thereupon cease.
Subordination
In the indenture, we have covenanted and
agreed that any junior subordinated debentures issued under the indenture will be subordinate and junior in right of payment to all senior debt (as defined below) to the extent provided in the indenture. If we make any payment or distribution of our
assets upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding, the holders of senior debt will first be entitled to receive payment in full of principal of and premium and interest, if any, on such senior debt before the holders of junior subordinated debentures will be entitled to
receive or retain any payment in respect of the principal of and premium and interest, if any, on the junior subordinated debentures. However, holders of senior debt will not be entitled to receive payment of any such amounts if the subordination
provisions of such senior debt would require holders to pay such amounts over to the obligees on trade accounts payable or other liabilities arising in the ordinary course of business.
In the event of the acceleration of the maturity of the junior subordinated debentures, the holders of all senior debt outstanding at the time of such acceleration will first be
entitled to receive payment in full of all amounts due thereon, including any amounts due upon acceleration, before the holders of the junior subordinated debentures will be entitled to receive or retain any payment in respect of the principal of or
premium or interest, if any, on the junior subordinated debentures. However, holders of senior debt will not be entitled to receive payment of any such amounts if the subordination provisions of such senior debt would require holders to pay such
amounts over to the obligees on trade accounts payable or other liabilities arising in the ordinary course of business.
No
payments on account of principal or premium, if any, or interest in respect of the junior subordinated debentures may be made if there shall have occurred and be continuing a default in any payment with respect to senior debt or an event of default
with respect to any senior debt resulting in the acceleration of the maturity thereof, or if any judicial proceedings are pending with respect to any such default.
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Debt means, with respect to any person, whether recourse is to all or a portion of the
assets of such person and whether or not contingent:
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every obligation of such person for money borrowed; |
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every obligation of such person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of
property, assets or businesses; |
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every reimbursement obligation of such person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such person;
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every obligation of such person issued or assumed as the deferred purchase price of property or services other than trade accounts payable or accrued liabilities arising
in the ordinary course of business; |
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every capital lease obligation of such person; |
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every obligation of such person for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity forward contracts and similar
arrangements; and |
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every obligation of the type referred to above of another person and all dividends of another person the payment of which, in either case, such person has guaranteed or
is responsible or liable for, directly or indirectly, as obligor or otherwise. |
Senior debt means the
principal of and premium and interest, if any, including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to us whether or not such claim for post-petition interest is allowed in such proceeding,
on our debt, whether incurred on or prior to the date of the indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the junior subordinated debentures or to other debt that is equal or subordinated to the junior subordinated debentures, other than:
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any debt of ours which when incurred and without respect to any election under Section 1111(b) of the United States Bankruptcy Code, as amended, was without recourse to
us; |
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any debt of ours to any of our subsidiaries, other than subsidiaries that are banks or bank holding companies as defined in the Bank Holding Company Act of 1956, as
amended; |
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any debt to any of our employees; |
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any debt which by its terms is subordinated to trade accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made
to the holders of such debt by the holders of the junior subordinated debentures as a result of the subordination provisions of the indenture would be greater than such payments otherwise would have been as a result of any obligation of such holders
of such debt to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such debt is subject; and
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any other debt securities issued pursuant to the indenture. |
The indenture places no limitation on the amount of senior debt that we may incur. As of December 31, 2002, our senior debt aggregated approximately $6.8 billion and included $5.3 billion of securities sold
under agreements to repurchase and $1.0 billion of commercial paper. We expect from time to time to incur additional indebtedness and other obligations constituting senior debt.
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We have represented and warranted in the indenture that, as of the date of issuance of the
junior subordinated debentures, we are not obligated in respect of any debt for borrowed money from:
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any subsidiary that is not a bank or bank holding company as defined in the Bank Holding Company Act of 1956, as amended; or |
except, in each case, (i)
in respect of debt on which we shall defer payments of principal, interest and premium to the same extent that we defer payments of interest on the junior subordinated debentures; or (ii) in respect of debt incurred in the ordinary course of
business.
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except in the ordinary course of business, we will not incur debt for borrowed money from any subsidiary that is not a bank or bank holding company as defined in the Bank
Holding Company Act of 1956, as amended, unless, under the terms of such debt, we defer payments of principal, interest and premium, if any, in respect of such debt to the same extent that we defer payments of interest on the junior subordinated
debentures; and |
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except in the ordinary course of business, we will not incur debt for borrowed money from any of our employees, unless, under the terms of such debt, we defer payments of
principal, interest and premium, if any, in respect of such debt to the same extent that we defer payments of interest on the junior subordinated debentures. |
Interest
The junior subordinated debentures will bear interest at a
floating rate per annum equal to 3-Month LIBOR (determined in the same manner as the distribution rate for the capital securities above) plus a spread of %, payable quarterly in arrears on February 15, May 15, August 15 and
November 15 of each year, commencing May 15, 2003, to the person in whose name each junior subordinated debenture is registered at the close of business on the fifteenth day (whether or not a business day) next preceding such interest payment date,
except as provided below. In the event the junior subordinated debentures are in book-entry only form, the record date for each interest payment date shall be the business day next preceding such interest payment date.
In the event that any interest payment date is not a business day, then payment of the interest payable on such date will be made on the next
succeeding day that is a business day, except that, if such business day is in the next succeeding month, such payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on such date. The
amount of interest payable on the junior subordinated debentures for any interest period will be computed on the basis of the actual number of days in the applicable interest period divided by 360 and rounding the resulting figure to the nearest
cent (with one-half cent or more to be rounded upwards). Accrued interest that is not paid on the applicable interest payment date will bear additional interest on the amount thereof, to the extent permitted by law, at a variable annual rate equal
to 3-Month LIBOR plus %, compounded quarterly.
The Depositary
If junior subordinated debentures are distributed to holders of capital securities in liquidation of such holders’ interests in the trust, DTC
will act as securities depositary for the junior subordinated debentures. For a description of DTC and the specific terms of the depositary arrangements, see “Description of the Capital Securities—Book-Entry Only Issuance—The
Depository Trust Company.” As of the date of this prospectus supplement, the description in such section of DTC’s book-entry
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system and DTC’s practices as they relate to purchases, transfers, notices and payments with respect to the capital securities apply in all material respects to any debt obligations
represented by one or more global securities held by DTC. We may appoint a successor to DTC or any successor depositary in the event DTC or such successor depositary is unable or unwilling to continue as a depositary for the global securities.
Neither State Street, the trust nor the trustees will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a global security for such junior subordinated debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
Option to Extend Interest Payment Period
So long as no event of default under the indenture has occurred and is continuing, we have the right under the indenture to defer payments of interest on the junior subordinated debentures by extending the
interest payment period at any time, and from time to time, for a period not exceeding 20 consecutive quarterly periods with respect to each extension period, provided that no extension period may extend beyond the stated maturity of the junior
subordinated debentures. As a consequence of any extension period, quarterly distributions on the capital securities would also be deferred by the trust (and the amount of distributions to which holders of the capital securities are entitled will
accumulate at a variable annual rate equal to 3-Month LIBOR plus % in respect of the liquidation amount of $1,000 per capital security) during such extension period. During any such extension period, we will be subject to the
restrictions on payments described in “Description of the Junior Subordinated Debentures—Restrictions on Certain Payments” in the accompanying prospectus.
Prior to the termination of any such extension period, we may further extend the payment of interest provided that such extension period, as extended, may not exceed 20 consecutive
quarters or extend beyond the stated maturity of the junior subordinated debentures. Upon the termination of any extension period and the payment of all amounts due, we may commence a new extension period subject to the foregoing requirements. There
is no limitation on the number of times that we may elect to begin an extension period. All interest shall be due and payable at the end of an extension period. We have no current intention of exercising our right to defer payments of interest by
extending any interest payment period on the junior subordinated debentures.
Fixed Early Redemption
On December 15, 2005, we will be required, except as provided below, to redeem the junior subordinated debentures, in whole, but not in part, at a
redemption price equal to 100% of the principal amount of the junior subordinated debentures so redeemed plus accrued and unpaid interest thereon to the redemption date, provided that:
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we are “well-capitalized” for purposes of the then applicable provisions of Regulation Y and we otherwise comply with the then applicable provisions of the then
applicable capital adequacy guidelines of the Federal Reserve Board; and |
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the Federal Reserve Board consents to such redemption. |
We will base the foregoing capital adequacy determinations on our unaudited consolidated financial statements as of September 30, 2005. If we meet these capital adequacy conditions, we will seek consent from the
Federal Reserve Board to redeem the junior subordinated debentures and such redemption will be subject to the consent of the Federal Reserve Board. If the Federal Reserve Board consents to such redemption, we will provide notice to such effect to
the property trustee.
As of December 31, 2002, we were “well capitalized” for purposes of Regulation Y
requirements and otherwise satisfied existing capital guidelines of the Federal Reserve Board.
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Optional Redemption
Subject to our receiving prior approval of the Federal Reserve Board if then required under applicable law, rules, guidelines or policies of the Federal Reserve Board, we will have
the right to redeem the junior subordinated debentures in whole, but not in part, at any time within 90 days following the occurrence of a tax event, investment company event or capital treatment event, or, if the approval of the Federal Reserve
Board is then required for such redemption, on such later date as promptly as practicable after such approval is obtained. Any such redemption shall be upon not less than 30 or more than 60 days’ notice and at a redemption price equal to 100%
of the principal amount to be redeemed plus accrued and unpaid interest thereon to the redemption date. See “Description of the Junior Subordinated Debentures—Redemption” in the accompanying prospectus.
A “tax event” means the receipt by the trust of an opinion of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which proposed change, pronouncement or decision is announced on or after the date of issuance of the capital securities,
there is more than an insubstantial risk that (i) the trust is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the junior subordinated debentures, (ii)
interest payable by us on the junior subordinated debentures is not, or within 90 days of the date of such opinion, will not be, deductible by us, in whole or in part, for United States federal income tax purposes, or (iii) the trust is, or will be
within 90 days of the date of such opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges.
An “investment company event” means the receipt by the trust of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a written change
(including any announced prospective change) in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the trust is or will be
considered an “investment company” that is required to be registered under the Investment Company Act of 1940, as amended, which change or prospective change becomes effective or would become effective, as the case may be, on or after the
date of the issuance of the capital securities.
A “capital treatment event” means our reasonable determination
that, as a result of any amendment to, or change (including any proposed change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which proposed change, pronouncement, action or decision is announced on or after the date of issuance of the
capital securities, there is more than an insubstantial risk that, taking into consideration the terms of the capital securities and the terms of the SPACES, we will not be entitled to treat an amount equal to the aggregate liquidation amount of the
capital securities as “Tier 1 Capital” (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to us.
Book-Entry and Settlement
If distributed to holders of
capital securities in connection with the involuntary or voluntary dissolution, winding-up or liquidation of the trust, the junior subordinated debentures will be issued in the form of one or more global securities registered in the name of DTC or
its nominee. Except under the limited circumstances described below, junior subordinated debentures represented by a global
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security will not be exchangeable for, and will not otherwise be issuable as, junior subordinated debentures in definitive form. The global securities described above may not be transferred
except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in such a global security.
Except as provided below, owners of beneficial interests in such a global security will not be entitled to receive physical
delivery of junior subordinated debentures in definitive form and will not be considered the holders thereof for any purpose under the indenture, and no global security representing junior subordinated debentures shall be exchangeable, except for
another global security of like denomination and tenor to be registered in the name of DTC or its nominee or to a successor depositary or its nominee. Accordingly, each beneficial owner must rely on the procedures of DTC or, if such person is not a
participant, on the procedures of the participant through which such person owns its interest to exercise any rights of a holder under the indenture.
Discontinuance of DTC Services
A global security shall be exchangeable for junior
subordinated debentures registered in the names of persons other than DTC or its nominee only if:
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DTC notifies us that it is unwilling or unable to continue as a depositary for such global security and no successor depositary shall have been appointed;
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DTC, at any time, ceases to be a clearing agency registered under the Securities Exchange Act of 1934 at which time DTC is required to be so registered to act as such
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we, in our sole discretion, determine that such global security shall be so exchangeable; or |
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there shall have occurred an event of default with respect to such junior subordinated debentures. |
Any global security that is exchangeable pursuant to the preceding sentence shall be exchangeable for junior subordinated debentures registered in such names as DTC shall
direct. It is expected that such instructions will be based upon directions received by DTC from its participants with respect to ownership of beneficial interests in such global security.
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of distributions and other amounts due on the capital securities (to the extent the trust has funds available for the payment of such distributions and other amounts) are irrevocably guaranteed by us as
and to the extent set forth under “Description of the Capital Securities Guarantees” in the accompanying prospectus. Taken together, our obligations under each of the junior subordinated debentures, the indenture, the trust agreement and
the guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the capital securities. No single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
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operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of the trust’s obligations under the capital securities. If and to the extent
that we do not make payments on any series of junior subordinated debentures, the trust will not pay distributions or other amounts due on the capital securities. The guarantee does not cover payment of distributions when the trust does not have
sufficient funds to pay such distributions. In such event, the remedy of a holder of capital securities is to institute a legal proceeding directly against us for enforcement of payment of amounts equal to such distributions to such holder. Our
obligations under the guarantee are subordinate and junior in right of payment to all our senior debt. See “Relationship Among the Capital Securities, the Corresponding Junior Subordinated Debentures and the Capital Securities Guarantees”
in the accompanying prospectus.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of certain United States federal
income tax consequences to you of the purchase, ownership, and disposition of the capital securities. Unless otherwise stated, this summary assumes that you hold the capital securities as capital assets (generally, assets held for investment) and
that you purchase the capital securities upon original issuance. This summary does not address all of the tax consequences that may be relevant to you in light of your particular circumstances, such as the application of the alternative minimum tax,
or that may be relevant to you because you are subject to special rules, such as the rules applicable to financial institutions, insurance companies, broker-dealers, regulated investment companies, real estate investment trusts, tax-exempt
organizations, persons whose “functional currency” is not the U.S. dollar, persons holding the capital securities as part of a hedge, straddle, “constructive sale,” “conversion” or other integrated transaction, or
former U.S. citizens or long-term residents subject to taxation as expatriates under Section 877 of the Internal Revenue Code of 1986, as amended (the “Code”). In addition, this summary does not address any aspects of state, local, or
foreign tax laws.
The statements of law or legal conclusion set forth in this summary constitute the opinion of Ropes &
Gray, counsel to us and to State Street Capital Trust II. This summary is based upon the Code, Treasury regulations, Internal Revenue Service (“IRS”) rulings and pronouncements and judicial decisions now in effect, all of which are subject
to change at any time. Such changes may be applied retroactively in a manner that could cause the tax consequences to vary substantially from the consequences described below, possibly with adverse effects. The authorities on which this summary is
based are subject to various interpretations, and it is therefore possible that the United States federal income tax treatment of the purchase, ownership and disposition of capital securities may differ from the treatment described below.
Please consult with your own tax advisors regarding the application of U.S. federal income tax laws to your particular
situation and the consequences of federal estate and gift tax laws, state, local and foreign tax laws and tax treaties.
Classification
of the Junior Subordinated Debentures and the Trust
Under current law and assuming compliance with the terms of the
trust agreement, the trust will not be taxable as a corporation for United States federal income tax purposes. Except as otherwise stated, this section assumes that the trust will not be taxed as a corporation for federal income tax purposes. As a
result, you will be required to include in your gross income your pro rata share of the interest income, including original issue discount (“OID”) paid or accrued with respect to the junior subordinated debentures whether or not cash is
actually distributed to you. See “—Interest Income and Original Issue Discount.” The junior subordinated debentures will be classified as our indebtedness for United States federal income tax purposes.
Tax Consequences to U.S. Holders
This section applies to you if you are a U.S. holder. As used in this section, a U.S. holder means a beneficial owner of a capital security that is, for U.S. federal income tax purposes (a) a citizen or resident of the United
States; (b) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (c) an estate the income of
which is subject to U.S. federal income taxation regardless of its source; or (d) a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust, or (2) a valid election is in place to treat the trust as a U.S. person.
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Interest Income and Original Issue Discount
Under applicable Treasury regulations, a debt instrument will be deemed to be issued with OID if there is more than a “remote” contingency that periodic, stated interest
payments due on the instrument will not be timely paid. Because the exercise by us of our option to defer the payment of stated interest on the junior subordinated debentures would prevent us from declaring dividends on any class of equity, we
believe that the likelihood of our exercising the option is “remote” within the meaning of the regulations. As a result, we intend to take the position that the junior subordinated debentures will not be deemed to be issued with OID.
Accordingly, based on this position, stated interest payments on the junior subordinated debentures will be includible in your gross income at the time that such payments are paid or accrued in accordance with your regular method of accounting. The
provisions of the regulations governing whether or not a contingency is remote have not yet been addressed in any published rulings or other published interpretations issued by the IRS. Thus, it is possible that the IRS could take a position
contrary to the position taken by us.
Exercise of Deferral Option. If we were to exercise our
option to defer the payment of stated interest on the junior subordinated debentures, the junior subordinated debentures would be treated, solely for purposes of the OID rules, as being “re-issued” at such time with OID. Under these rules,
you would be required to include OID in gross income, on a current basis, over the period that you held the instrument, even though we would not be making any actual cash payments during the extension period. The amount of interest income includible
in your taxable income would be determined on the basis of a constant yield method over the remaining term of the instrument and the actual receipt of future payments of stated interest on the junior subordinated debentures would no longer be
separately reported as taxable income. The amount of OID that would accrue, in the aggregate, during the extended interest payment period would be approximately equal to the amount of the cash payment of accrued interest due at the end of such
period. Any OID included in your income would increase your adjusted tax basis in the junior subordinated debentures and your actual receipt of interest payments would reduce your basis.
Because income on the capital securities will constitute interest income for United States federal income tax purposes, corporate holders of the capital securities will not be
entitled to claim a dividends-received deduction in respect of such income.
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation
of the Trust
We have the right, at any time, to dissolve the trust and cause the junior subordinated debentures to be
distributed to you in exchange for the capital securities upon liquidation of the trust. Such right is subject to our having received prior approval of the Federal Reserve Board if then required under applicable capital guidelines or policies. If we
exercise our right to dissolve the trust and cause the junior subordinated debentures to be distributed on a pro rata basis to the holders of the capital securities, such distribution (assuming that the trust is not then classified as a corporation
for United States federal income tax purposes) would be treated as a nontaxable event to you. In such event, you would have an adjusted tax basis in the junior subordinated debentures received in the liquidation equal to the adjusted tax basis in
the capital securities you surrendered therefor and the holding period of the junior subordinated debentures would include the period during which you had held the capital securities. If, however, at the time of such liquidation, the Trust is
classified as a corporation for United States federal income tax purposes, the distribution would be a taxable event to you.
If the junior subordinated debentures are redeemed for cash and the proceeds of such redemption are distributed to you in redemption of your capital securities, the redemption would be treated as a sale of the capital securities, in
which case you would recognize gain or loss as described immediately below.
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Sales of Capital Securities
Upon the sale of capital securities, you will recognize gain or loss (which generally will be capital gain or loss) in an amount equal to the difference between your adjusted tax
basis in the capital securities and the amount realized (except to the extent of any amount received in respect of accrued but unpaid interest not previously included in income).
The capital securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying junior subordinated debentures.
If you dispose of your capital securities between record dates for payments of distributions thereon you will be required to include as ordinary income either OID (if applicable) or accrued but unpaid interest on the junior subordinated debentures
through the date of disposition. To the extent the amount realized is less than your adjusted tax basis, you generally will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
Information Reporting and Backup Withholding
If you hold the capital securities through a broker or other securities intermediary, the intermediary must provide information to the IRS and to
you on IRS Form 1099 concerning interest (including OID, if any) and retirement proceeds on the capital securities, unless an exemption applies. Similarly, unless an exemption applies, you must provide the intermediary or us with your Taxpayer
Identification Number for use in reporting information to the IRS. If you are an individual, this is your social security number. You are also required to comply with other IRS requirements concerning information reporting, including a certification
that you are not subject to backup withholding and that you are a U.S. person. If you are subject to these requirements but do not comply, the intermediary must withhold a percentage of all amounts payable to you on the capital securities, including
principal payments. Under current law, this percentage will be 30% in 2003, 29% in 2004 and 2005 and 28% in years 2006 through 2010, and 31% thereafter. This is called backup withholding. Backup withholding may also apply if we are notified by the
IRS that such withholding is required or that the Taxpayer Identification Number you provided is incorrect.
Backup
withholding is not an additional tax. You may use the withheld amounts, if any, as a credit against your federal income tax liability. All individuals are subject to these requirements. Some non-individual holders, including all corporations,
tax-exempt organizations and individual retirement accounts, are exempt from these requirements.
Tax Consequences to Non-U.S. Holders
This section applies to you if you are a non-U.S. holder. As used in this section, a non-U.S. holder means a
beneficial owner of a capital security that is not a U.S. holder.
Interest
Subject to the discussion below concerning effectively connected income and backup withholding, payments of interest on the junior subordinated debentures by us or any paying agent
to you will not be subject to U.S. federal withholding tax, provided that either (a) pursuant to the “portfolio interest” exception (i) you do not own, actually or constructively, 10% or more of the combined voting power of all classes of
our stock entitled to vote, (ii) you are not a controlled foreign corporation (within the meaning of the Code) that is related, directly or indirectly, to us, (iii) you are not a bank receiving interest on the junior subordinated debentures on an
extension of credit made pursuant to a loan agreement entered into in the ordinary course of your trade or business, and (iv) you certify to us or
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our paying agent on IRS Form W-8BEN (or appropriate substitute form) under penalties of perjury, that you are not a U.S. person, provided that if you hold the capital securities through a
financial institution or other agent acting on your behalf, you will be required to provide appropriate documentation to the agent and your agent will then be required to provide certification to us or our paying agent, either directly or through
other intermediaries; or (b) you are otherwise entitled to the benefits of an income tax treaty under which such interest is exempt from U.S. federal withholding tax, and you or your agent provides to us a properly executed IRS Form W-8BEN (or an
appropriate substitute form evidencing eligibility for the exemption).
Payments of interest on the junior subordinated
debentures that do not meet the above-described requirements will be subject to a U.S. federal income tax of 30% (or such lower rate provided by an applicable income tax treaty if you establish that you qualify to receive the benefits of such
treaty) collected by means of withholding.
Sale, Exchange or Retirement of the Capital Securities
Subject to the discussion below concerning effectively connected income and backup withholding, you will not be subject to U.S. federal income tax
on any gain realized on the sale, exchange or retirement of the capital security unless you are an individual, you are present in the United States for at least 183 days during the year in which you dispose of the capital security, and other
conditions are satisfied.
Effectively Connected Income
The preceding discussion assumes that the interest and gain received by you is not effectively connected with the conduct by you of a trade or business in the United States. If you
are engaged in a trade or business in the United States and your investment in a capital security is effectively connected with such trade or business (a) you will be exempt from the 30% withholding tax on interest (provided a certification
requirement, generally on IRS Form W-8ECI, is met) and will instead generally be subject to regular U.S. federal income tax on any interest and gain with respect to the junior subordinated debentures in the same manner as if you were a U.S. holder;
(b) if you are a foreign corporation, you may also be subject to an additional branch profits tax of 30% or such lower rate provided by an applicable income tax treaty if you establish that you qualify to receive the benefits of such treaty; and (c)
if you are eligible for the benefits of a tax treaty, any effectively connected income or gain will generally be subject to U.S. federal income tax only if it is also attributable to a permanent establishment maintained by you in the United States.
Information Reporting and Backup Withholding
Interest payments you receive will be automatically exempt from the usual backup withholding rules if such payments are subject to the 30% withholding tax on interest or if they are exempt from that tax by
application of a tax treaty or the “portfolio interest” exception. The exemption does not apply if the withholding agent or an intermediary knows or has reason to know that you should be subject to the usual information reporting or backup
withholding rules. In addition, information reporting may still apply to payments of interest (on Form 1042-S) even if certification is provided and the interest is exempt from the 30% withholding tax. Sale proceeds you receive on a sale of your
capital securities through a broker may be subject to information reporting and/or backup withholding if you are not eligible for an exemption, or do not provide the certification described above. In particular, information reporting and backup
withholding may apply if you use the U.S. office of a broker, and information reporting (but generally not backup withholding) may apply if you use the foreign office of a broker that has certain connections to the United States. We suggest that you
consult your tax advisor concerning the application of information reporting and backup withholding rules.
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ERISA CONSIDERATIONS
The summary set forth below is based on the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Code (and the related
regulations and administrative and judicial interpretations) as of the date hereof. This summary does not purport to be complete, and no assurance can be given that future legislation, court decisions, administrative regulations, rulings or
administrative pronouncements will not significantly modify the provisions summarized herein. Any such changes may be retroactive and may thereby apply to transactions entered into prior to the date of their enactment or release.
ERISA and the Code impose certain restrictions on (a) employee benefit plans (as defined in Section 3(3) of ERISA) that are subject to
the provisions of Part 4 of Title I of ERISA, (b) plans described in Section 4975(e)(1) of the Code, including individual retirement accounts and plans maintained for self-employed individuals, (c) any entity whose underlying assets include
“plan assets” by reason of a plan’s investment in such entity (each plan and entity described in (a), (b) and this (c) being a “Plan”) and on (d) persons who have certain relationships to any such Plan, which are defined in
ERISA and the Code (each such person being a “party in interest” under ERISA and a “disqualified person” under the Code). ERISA also imposes duties on a person who is a fiduciary with respect to a Plan which is subject to ERISA
and makes any such person liable for a violation of such duty, and ERISA and the Code prohibit certain transactions between a Plan and a party in interest or a disqualified person with respect to such Plan and can impose sanctions on any party in
interest or disqualified person who engages in any such transactions.
Specifically, ERISA imposes certain duties on persons
(including individuals and entities) who are fiduciaries of a Plan. Under ERISA, any person who exercises any discretionary authority or control over the administration of such Plan, or who renders investment advice for a fee or other compensation
to such a Plan, is generally considered to be a fiduciary of the Plan. A Plan may purchase the capital securities subject to the investing fiduciary’s determination that the investment satisfies ERISA’s fiduciary standards and other
requirements under ERISA, the Code or similar laws applicable to investments by the Plan. In considering an investment of Plan assets in the capital securities, a fiduciary should determine whether the investment is in accordance with the documents
and instruments governing the Plan and the applicable provision of ERISA, the Code or any similar law relating to a fiduciary’s duties.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans subject to Title I of ERISA or Section 4975 of the Code from engaging in specified transactions involving Plan assets with any party in interest or
disqualified person, unless an exemption is available. We (the obligor with respect to the junior subordinated debentures held by the trust) and our affiliates and the property trustee may be a party in interest or a disqualified person with respect
to a Plan which purchases or holds the capital securities. A prohibited transaction under ERISA and the Code includes a direct or indirect sale or exchange, or leasing, of any property between the Plan and a party in interest or a disqualified
person with respect to such Plan, In addition, a prohibited transaction may occur in connection with a direct or indirect loan or other extension of credit between a Plan and a party in interest or a disqualified person with respect to such Plan.
A purchase or holding of the capital securities by a Plan may constitute or result in a prohibited transaction under ERISA
or Section 4975 of the Code, unless such capital securities are acquired pursuant to and in accordance with an applicable class prohibited transaction exemption, such as Prohibited Transaction Class Exemption (PTCE) 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager), PTCE 90-1 (an exemption for certain transactions involving insurance company pooled separate accounts), PTCE 91-38 (an exemption for certain transactions involving bank
collective investment funds), PTCE 95-60 (an
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exemption for certain transactions involving insurance company general accounts) or PTCE 96-23 (an exemption for certain transactions determined by an in-house asset manager).
Each purchaser and/or holder (including without limitation any transferee) of the capital securities will be deemed to have represented
by its purchase or holding thereof that (a) it is not a Plan and is not purchasing such capital securities on behalf of or with “plan assets” of any Plan, (b) such purchase or holding does not constitute a prohibited transaction under
ERISA or Section 4975 of the Code or other similar laws without regard to the availability of any prohibited transaction exemption or (c) such purchase or holding does not constitute a prohibited transaction under ERISA or Section 4975 of the Code
or other similar laws, because a prohibited transaction exemption is available with respect to such transactions and the conditions of such exemption have been satisfied with respect to such purchase or holding.
In addition, a Plan fiduciary considering the purchase or holding of capital securities should be aware that the assets of the trust may be
considered “plan assets” of the Plan under ERISA unless either participation in the trust by “benefit plan investors” is not significant or the capital securities meet the conditions for the “publicly offered security”
exception to the Department of Labor’s plan asset regulations as set forth in 29 CFR (§) 2510.3-101. No assurance can be made that benefit plan investor participation in the trust will satisfy the “insignificant participation”
exception to the Department of Labor’s plan asset regulations, and no monitoring or other measures will be taken regarding the satisfaction of the conditions to such exception. The “publicly offered security” exception (in relevant
part) requires that the capital securities (i) be freely transferable, (ii) be a part of a class of securities that is widely held and (iii) be sold to the Plan as part of an offering of securities to the public pursuant to an effective registration
statement under the Securities Act of 1933 and be registered under the Exchange Act within the time period prescribed in the Department of Labor’s plan asset regulations. Whether a security is freely transferable is a facts and circumstances
question. However, a class of securities will be deemed to be widely held only if it is a class of securities that is owned by 100 or more investors independent of the issuer and one another. While the capital securities will be sold pursuant to an
effective registration statement under the Securities Act of 1933 and while we propose to register such securities under the Exchange Act, the capital securities are not intended to be listed on the New York Stock Exchange or any other securities
exchange and prior to this offering there has been no public market for the capital securities. Accordingly, no assurance can be made that the capital securities will satisfy all the conditions to the “publicly offered security” exemption.
In the event that the “publicly offered security” exception were not available and the assets of the trust were
deemed to include “plan assets” of each Plan that invests in the capital securities, the property trustee, as well as any other person who exercises any discretion with respect to the junior subordinated debentures, could be a fiduciary
and party in interest with respect to the investing Plan. In an effort to avoid certain additional prohibited transactions under ERISA and the Code that could thereby result, each purchaser and holder (including without limitation each transferee)
by purchasing or holding the capital securities will be deemed to have directed the trust to invest in the junior subordinated debentures and to have appointed the property trustee. In this regard, it should be noted that, in the event of an event
of default, we may not remove the property trustee.
The sale of the capital securities shall not be deemed a representation
by us that this investment meets all relevant legal requirements with respect to any Plan. Each Plan should consult its own ERISA and tax advisors and/or counsel regarding the consequences of an investment in the capital securities or any interest
therein.
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UNDERWRITING
The trust, State Street Corporation and the underwriters for this offering (the “underwriters”) named below have entered into an underwriting agreement with respect to the capital securities being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number of capital securities indicated in the following table.
| Underwriters |
|
Number of Capital Securities |
| Goldman, Sachs & Co. |
|
|
| Credit Suisse First Boston Corporation. |
|
|
| Merrill Lynch, Pierce, Fenner & Smith Incorporated |
|
|
| Morgan Stanley & Co. Incorporated |
|
|
| Salomon Smith Barney Inc. |
|
|
| William Blair & Company, L.L.C. |
|
|
| The Williams Capital Group, L.P. |
|
|
| |
|
|
| Total |
|
275,000 |
| |
|
|
The underwriters are committed to take and pay for all of the capital
securities being offered, if any are taken, other than the capital securities covered by the option described below unless and until this option is exercised.
If the underwriters sell more capital securities than the total number set forth in the table above, the underwriters have an option to buy up to an additional 41,250 capital securities from the trust to cover
such sales. They may exercise that option within 30 days from the date of this prospectus supplement. If any capital securities are purchased pursuant to this option, the underwriters will severally purchase capital securities in approximately the
same proportion as set forth in the table above.
In view of the fact that the proceeds of the sale of the capital
securities will ultimately be used to purchase the junior subordinated debentures of State Street, the underwriting agreement provides that State Street will pay compensation directly to the underwriters. The following table summarizes the
underwriting discounts and commissions to be paid to the underwriters by State Street. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase
additional capital securities.
| Paid by State Street |
|
No Exercise |
|
Full Exercise |
| Per Capital Security |
|
$ |
|
|
$ |
|
| Total |
|
$ |
|
|
$ |
|
Capital securities sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the cover of this prospectus supplement. Any capital securities sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price of up to
$ per capital security. Any such securities dealers may resell any capital securities purchased from the underwriters to certain other brokers or dealers at a discount from the initial public offering
price of up to $ per capital security. If all the capital securities are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.
The capital securities are a new issue of securities with no established trading market. The trust has been advised by the
underwriters that the underwriters intend to make a market in the capital securities but are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for
the capital securities.
State Street and the trust have agreed for a period of 90 days not to offer, sell, contract to sell
or otherwise dispose of, directly or indirectly, capital securities of the trust, any other beneficial interests in the assets of the trust, any preferred or other securities of State Street or the trust that are substantially
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similar to the capital securities, securities convertible into or exchangeable or exercisable for capital securities, preferred securities or any such substantially similar securities of State
Street or the trust, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of capital securities, preferred
securities or any such substantially similar securities of State Street or the trust, without the prior written consent of Goldman, Sachs & Co. Notwithstanding the foregoing, neither State Street nor the trust shall be restricted from offering,
selling, contracting to sell or otherwise disposing of any capital securities having a maturity of 10 years or greater.
In
connection with this offering, the underwriters may purchase and sell the capital securities in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number of capital securities than they are required to purchase in this offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to
purchase additional capital securities from the trust in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional capital securities or purchasing capital securities in the
open market. In determining the source of capital securities to close out the covered short position, the underwriters will consider, among other things, the price of capital securities available for purchase in the open market as compared to the
price at which they may purchase capital securities through their option to purchase additional capital securities from the trust. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short
position by purchasing capital securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the capital securities in the open market after
pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of certain bids for or purchases of capital securities made by the underwriters in the open market prior to the completion of this
offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the
underwriters a portion of the underwriting discount received by it because the representatives have repurchased capital securities sold by or for the account of such underwriter in stabilizing or short-covering transactions.
The activities by the underwriters may stabilize, maintain or otherwise affect the market price of the capital securities. As a result, the price of
the capital securities may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the New York Stock
Exchange, in the over-the-counter market or otherwise.
State Street estimates that its share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be approximately $2.0 million.
State Street and the trust
have agreed, jointly and severally, to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
From time to time, the underwriters and certain of their affiliates have engaged, and may in the future engage, in transactions with, including investment banking and commercial banking transactions, and perform
services for, State Street and its affiliates in the ordinary course of business. The underwriters are also acting as underwriters for the concurrent offerings of State Street’s common stock and SPACES.
Deutsche Bank AG, with whom we have entered into a definitive agreement to purchase the Acquired Business, is an affiliate of Deutsche Bank
Securities Inc., one of the underwriters. Since more
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than 10% of the proceeds of this offering will be paid to Deutsche Bank AG as partial payment of the initial purchase price for the Acquired Business, this offering is being conducted in
accordance with Rule 2710(c)(8) of the National Association of Securities Dealers, Inc.
Each underwriter has agreed that
(i) it has not offered or sold, and prior to the six months after the date of issue of the capital securities will not offer or sell any securities to persons in the United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent) for purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied, and will comply with, all applicable provisions of the Financial Services and Markets Act 2000 of Great Britain (“FSMA”) with respect to anything done by it
in relation to the securities in, from or otherwise involving the United Kingdom, and (iii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in
investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of securities in circumstances in which section 21(1) of the FSMA does not apply to the issuer or the guarantors.
The capital securities are not and will not be offered, sold, transferred or delivered in or from the Netherlands, as part of their
initial distribution or as part of any re-offering, and neither this prospectus supplement nor any other document in respect of this offering may be distributed or circulated in the Netherlands, other than to individuals or legal entities who or
which trade or invest in securities in the conduct of a profession or trade (which includes banks, securities firms, insurance companies, pension funds, investment institutions, central governments, large international and supranational
organizations, other institutional investors and other parties, including treasury departments of commercial enterprises, which are regularly active in the financial markets in a professional manner).
