-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VTBzWsyY3vikhG0N6jipQGLBp3B3ZPW1cKmCRQsEW0s2Gj4hjWnrxuOwuODmeiXG PiRu7qaAmssPPsRSFI8GBQ== 0000950152-01-506031.txt : 20020411 0000950152-01-506031.hdr.sgml : 20020411 ACCESSION NUMBER: 0000950152-01-506031 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20011121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GREETINGS CORP CENTRAL INDEX KEY: 0000005133 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 340065325 STATE OF INCORPORATION: OH FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-68536 FILM NUMBER: 1798310 BUSINESS ADDRESS: STREET 1: ONE AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 BUSINESS PHONE: 2162527300 MAIL ADDRESS: STREET 1: ONE AMERICAN ROAD CITY: CLEVELAND STATE: OH ZIP: 44144 S-4/A 1 l91453as-4a.txt AMERICAN GREETINGS CORPORATION S-4/A Registration No. 333-68536 As filed with the Securities and Exchange Commission on November 21, 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 -------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT Under The Securities Act of 1933 ------- AMERICAN GREETINGS CORPORATION (Exact name of registrant as specified in its charter) Ohio 34-0065325 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One American Road, Ohio 44144 (216) 252-7300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Jon Groetzinger, Jr. Senior Vice President, General Counsel and Secretary American Greetings Corporation One American Road Cleveland, Ohio 44144 (216) 252-7300 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy to: Stanley E. Everett Brouse McDowell 500 First National Tower Akron, Ohio 44114 (330) 535-5711 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. If the only securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.|_| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|_| ________________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|_|_______________ THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8(a) OF THE SECURITIES ACT OF 1933. The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION DATED NOVEMBER 21, 2001 OFFER TO EXCHANGE ALL OUTSTANDING AMERICAN GREETINGS CORPORATION 11.75% SENIOR SUBORDINATED NOTES DUE 2008 ($260,000,000 AGGREGATE PRINCIPAL AMOUNT) FOR AMERICAN GREETINGS CORPORATION 11.75% SENIOR SUBORDINATED NOTES DUE 2008 REGISTERED UNDER THE SECURITIES ACT OF 1933 TERMS OF EXCHANGE o Expires 5:00 p.m., New York City time, December 26, 2001, unless extended o Not subject to any condition other than that the exchange offer not violate applicable law or any applicable interpretation of the Staff of the Securities and Exchange Commission o All outstanding notes that are validly tendered and not validly withdrawn will be exchanged o Tenders of outstanding notes may be withdrawn any time prior to 5:00 p.m. on the business day prior to expiration of the exchange offer o The exchange of notes will not be a taxable exchange for United States federal income tax purposes o American Greetings Corporation will not receive any proceeds from the exchange offer o The terms of the notes to be issued are substantially identical to the outstanding notes, except for certain transfer restrictions and registration rights relating to the outstanding notes o The notes to be issued will not be listed on any securities exchange CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated , 2001. This exchange offer is not being made to, nor will American Greetings Corporation accept surrenders for exchange from, holders of outstanding notes in any jurisdiction in which this exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. TABLE OF CONTENTS Incorporation of Certain Documents by Reference..................................................................................2 Where You Can Find More Information..............................................................................................3 Summary..........................................................................................................................4 Selected Consolidated Financial Data.............................................................................................8 Risk Factors....................................................................................................................10 Caution Regarding Forward-looking Statements....................................................................................16 Exchange Offer..................................................................................................................17 Description of Notes............................................................................................................23 Certain United States Federal Income Tax Considerations.........................................................................59 Plan of Distribution............................................................................................................63 Legal Matters...................................................................................................................64 Experts.........................................................................................................................64
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Securities and Exchange Commission (the "Commission") allows the Company to "incorporate" into this prospectus information that it files with the Commission in other documents. This means that the Company can disclose to you important business and financial information that is not included with the prospectus by referring to other documents that contain that information. The information incorporated by reference is considered to be part of this prospectus. Information contained in this prospectus and information that the Company files with the Commission in the future and incorporates by reference in this prospectus automatically updates and supersedes previously filed information. The Company incorporates by reference the documents listed below and any future filings it makes with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), prior to the sale of all the notes covered by this prospectus: (a) its Annual Report on Form 10-K for the fiscal year ended February 28, 2001; (b) its Form 10-Q for the fiscal quarters ended May 31, 2001 and August 31, 2001; (c) its Form 8-K dated September 12, 2001 and the related Form 8-K/A filed with the Commission on November 21, 2001; (d) the description of its capital contained in its registration statement on Form 8-A filed with the Commission on February 6, 1998, including any amendments or reports filed for the purpose of updating that description; and (e) all its other filings with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus and prior to the termination of the offering. UPON REQUEST. YOU MAY OBTAIN WITHOUT CHARGE COPIES OF ANY OR ALL OF THESE DOCUMENTS, INCLUDING EXHIBITS. TO ENSURE TIMELY DELIVERY, YOUR REQUEST, WHICH MAY BE ORAL OR IN WRITING, MUST BE RECEIVED BY THE COMPANY NO LATER THAN DECEMBER 18, 2001, THE DATE THAT IS FIVE (5) BUSINESS DAYS BEFORE THE DATE YOU MUST MAKE YOUR INVESTMENT DECISION. PLEASE MAKE YOUR REQUEST TO JON GROETZINGER, JR., SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, AMERICAN GREETINGS CORPORATION, ONE AMERICAN ROAD, CLEVELAND, OHIO 44144; TELEPHONE (216) 252- 7300. 2 WHERE YOU CAN FIND MORE INFORMATION The Company is subject to the informational requirements of the Exchange Act, and, accordingly, files reports, proxy statements and other information with the Commission. You may read and copy any document the Company has filed at the Commission's public reference room at Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549. You should call 1-800-SEC-0330 for more information on the public reference room. The Commission maintains an Internet site that contains reports, proxy and information statements and other information about issuers that file electronically with the Commission. The address of the Commission's Internet site is http://www.sec.gov. This prospectus is part of a registration statement that the Company filed with the Commission. The registration statement contains more information than this prospectus regarding the Company, the notes and the Company's capital stock, including certain exhibits and schedules. You can obtain a copy of the registration statement from the Commission at the address listed above or from the Commission's Internet site. 3 SUMMARY This summary highlights the key information contained in this prospectus. Because it is a summary, it does not contain all the information that may be important to you. You should read carefully this entire prospectus. In particular, you should read the section titled "Risk Factors" and the financial statements and the notes relating to those statements included in or incorporated into this prospectus. The Company's fiscal year ends on February 28 or 29. References to a particular fiscal year refer to the fiscal year ending in February of that year. For example, fiscal 2001 refers to the year ended February 28, 2001. The term "you" refers to a holder of the outstanding notes issued on June 29, 2001 or to a prospective purchaser of the registered notes offered hereby, or both, as the context requires. The Company's website is located at www.americangreetings.com. Information contained on the Company's website does not constitute, and shall not be deemed to constitute, part of this prospectus. THE COMPANY Founded in 1906, the Company is the second largest greeting card company in the world with approximately 39% market share of the $7 billion U.S. greeting card industry. It creates, manufactures and distributes greeting cards, gift wrap, party goods, calendars, candles, balloons, stationery, non-prescription reading glasses and educational products. The Company sells its products internationally in more than 70 countries through its wholly owned subsidiaries and licensees. It offers online greeting cards through its subsidiary AmericanGreetings.com. The contribution of each major product category as a percentage of fiscal 2001 net sales was: everyday greeting cards (42%), seasonal greeting cards (20%), gift wrap and wrap accessories (16%) and other products (22%). For fiscal 2001, the Company had net sales of $2.5 billion and Adjusted EBITDA of $260.1 million. "Adjusted EBITDA" represents earnings before non-recurring items, interest expense, income taxes, other expense (income)-net and depreciation and amortization. Adjusted EBITDA is presented because it is a widely accepted financial indicator of a company's ability to incur and service debt. Adjusted EBITDA does not represent net income or cash flows from operations as those terms are defined in generally accepted accounting principles, or GAAP, and it does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Included in other expense (income)-net and in depreciation and amortization is goodwill amortization of $8,723,000 for fiscal 2001. RECENT DEVELOPMENTS On September 12, 2001, Brewers Acquisition, Inc. ("Purchaser"), a wholly-owned subsidiary of AmericanGreetings.com, Inc. ("AmericanGreetings.com"), acquired the BlueMountain.com division ("BlueMountain.com") of At Home Corporation ("Excite@Home"). AmericanGreetings.com is a subsidiary of the Company. The transaction was structured as a merger of a subsidiary of Excite@Home, EGCB, Inc. ("EGCB"), into the Purchaser, pursuant to which the Purchaser acquired substantially all of the assets and assumed certain liabilities associated with BlueMountain.com in consideration for a purchase price of $35 million in cash, subject to post-closing adjustments. The Company funded the transaction from available cash at the date of acquisition. BlueMountain.com is an electronic greeting card publisher that offers free animated and musical greeting cards that consumers can email to users of the Internet. The BlueMountain.com website, www.bluemountain.com, offers thousands of cards in nine languages as well as a variety of e-commerce gift offerings, such as flowers, chocolates and gift baskets. AmericanGreetings.com presently intends to operate BlueMountain.com as a subsidiary under the name EGCB. However, AmericanGreetings.com will conduct a further review of BlueMountain.com and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel. After such review, AmericanGreetings.com will determine what changes, if any, would be desirable in light of the circumstances that then exist. 4 EXECUTIVE OFFICES The address of the Company's principal executive offices is One American Road, Cleveland, Ohio, 44144-2398, and its telephone number is (216) 252-7300. THE EXCHANGE OFFER On June 29, 2001, the Company completed the private offering of $260 million of its 11.75% Notes due 2008. The Company entered into an exchange and registration rights agreement with the initial purchasers in the private offering in which it agreed, among other things, to deliver this prospectus to you and to complete the exchange offer within 150 days of the issuance of the outstanding notes. In the exchange offer, you are entitled to exchange your outstanding notes for registered notes with substantially identical terms. If the exchange offer is not completed by December 26, 2001, the interest rates on the outstanding notes will be increased by 0.25% through March 27, 2002 and by an additional 0.25% thereafter, until the exchange offer is completed. You should read the discussion under the headings "Exchange Offer" at page 17 and "Description of Notes" at page 23 for further information regarding the registered notes. The Company believes the registered notes issued in the exchange offer may be resold by you without compliance with the registration and prospectus delivery provisions of the Securities Act, subject to certain conditions. You should read the discussion under the headings "Exchange Offer" at page 17 and "Plan of Distribution" at page 63 for further information regarding the exchange offer and resale of the registered notes. SUMMARY DESCRIPTION OF THE TERMS OF THE NOTES
Issuer American Greetings Corporation Securities Offered $260 million aggregate principal amount of 11.75% Notes due 2008 Maturity Date July 15, 2008 Interest Payment Dates January 15 and July 15 of each year, commencing January 15, 2002 Denominations The notes issued in the exchange offer will be issued in minimum initial purchase amounts of $1,000 and integral multiples of $1,000 thereafter. Global Note; Book-entry System The notes are issued in book-entry form, registered in the name of DTC or its nominee. Purchasers do not receive individually certificated notes. Instead, the notes are evidenced by a global note, in fully registered form and without coupons in minimum denominations of $1,000, and deposited with the trustee, as custodian for DTC The interest of any holder in the global note will be shown on, and transfers of that interest will be affected only through, records maintained by DTC and its direct and indirect participants. See "Description of Notes-- Book- Entry, Delivery and Form" at page 42 and "--Certain Book-Entry Procedures for the Global Notes" at page 42. Optional Redemption The Company may redeem the notes, in whole or in part, at any time beginning July 15, 2005, at the redemption prices listed under "Description of Notes-- Optional Redemption." Before July 15, 2004, the Company may redeem up to 35% of the notes issued under the indenture with the proceeds of one or more offerings of certain equity securities by the Company at the price listed under "Description of Notes - Optional Redemption" at page 26.
5
Sinking Fund None Ranking The notes are subordinated to the Company's Senior Indebtedness, as that term is defined in "Description of Notes--Subordination" at page 24. The notes also are effectively subordinated in right of payment to all indebtedness and other liabilities of the Company's subsidiaries. As of September 30, 2001, the Company had outstanding Senior Indebtedness of approximately $616.4 million and its subsidiaries had approximately $204.7 million of indebtedness and other liabilities outstanding (including trade payables). The indenture under which the notes were issued does not restrict the incurrence of Senior Indebtedness or any other indebtedness, by the Company or any of its subsidiaries. See "Description of Notes-- Subordination" at page 24. Registration Covenant Under the exchange and registration rights agreement executed as part of the offering of the outstanding notes, the Company agreed to complete the exchange offer within 30 days after the effective date of its registration statement; and to use its best efforts to cause to become effective a shelf registration statement for the resale of the notes if applicable law or interpretations of the staff of the Commission are changed such that the notes to be received in the exchange offer are not transferable without restriction under the Securities Act, or if the exchange offer has not been completed within 180 days following the issue date of the outstanding notes, or if the exchange offer is not available to all holders of the outstanding notes. The interest rate on the notes will increase if the Company does not comply with certain of its obligations under the exchange and registration rights agreement. See "Exchange Offer - Special Interest" at page 17. Repurchase If the Company experiences a specified change in control, a holder of notes will have the right, subject to certain conditions and restrictions, to require the Company to repurchase, with cash or stock, some or all of the notes at a price equal to 100% of the principal amount plus accrued and unpaid interest to the repurchase date. The repurchase price is payable in cash or, at the Company's option and subject to the satisfaction of certain conditions, in Class A Common Shares. If the Company pays the repurchase price in Class A Common Shares, the shares will be valued at 95% of the average closing sales prices of the Class A Common Shares for the five trading days preceding and including the third trading day prior to the repurchase date. See "Description of Notes-- Repurchase at Option of Holders Upon a Change of Control" at page 26. Events of default Events of default include: o failure to pay principal of or premium, if any, on any of the notes when due; o failure to pay interest on any of the notes within 30 days after payment becomes due, whether or not such payment is prohibited by the provisions of the indenture; o failure to perform or comply with certain covenants in the indenture with respect to the notes, and such failure is not cured within 60 days after the Company is given written notice of such failure; o failure by the Company or any of its subsidiaries to pay when due
6
(either at final maturity or upon acceleration of the due date), more than $20 million of indebtedness for money borrowed, and such indebtedness is not discharged, or such acceleration is not rescinded or annulled, within 60 days after the Company receives written notice of such failure; o certain events of bankruptcy, insolvency or reorganization of the Company; and o failure to provide the required notice of any change in control or to pay the repurchase price in connection with a change in control, whether or not the notice is prohibited by the subordination provisions of the indenture. Trading The notes currently are designated for trading in the Private Offerings, Resale and Trading through Automatic Linkages (PORTAL) Market of the National Association of Securities Dealers, Inc. The Company's Class A Common Shares trade on the New York Stock Exchange under the symbol "AM." Governing law The indenture and the notes are governed by the laws of the State of New York. Risk Factors For a description of some of the risks you should carefully consider before buying the notes, see "Risk Factors" beginning on page 10 of this prospectus. Ratio of Earnings to Fixed Charges
Six Months Ended August 31, Year Ended February 28 or 29, 2000 2001 1997 1998 1999 2000 2001 1.1x - 6.3x 8.2x 6.9x 3.7x 2.3x
The amount of the deficiency for the first six months of fiscal 2002 was $140,027,000. The ratio of earnings to fixed charges is computed by dividing fixed charges into earnings plus fixed charges. For purposes of determining this ratio, earnings represent earnings before income taxes and the cumulative effect of accounting change. Fixed charges consist of interest expense and the estimated interest component of rent expense. 7 SELECTED CONSOLIDATED FINANCIAL DATA The following tables set forth certain selected consolidated financial data of the Company and the ratio of earnings to fixed charges for, and as of the end of, each of the five fiscal years ended February 28, 2001. The selected consolidated financial data for the five fiscal years ended February 28, 2001 has been derived from the consolidated financial statements of the Company, which statements have been audited by Ernst & Young LLP, independent auditors. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," as set forth in the Company's Form 10-K for fiscal 2001 and its Form 10-Q for its fiscal quarter ended May 31, 2001. These documents have been filed with the Commission. See "Where You Can Get More Information" at page 3. The data for the periods presented are not necessarily comparable because of acquisitions throughout these periods.
FISCAL YEAR ENDED FEBRUARY 28 OR 29 DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1997 1998 1999 2000 2001 ------------- ------------- ------------- ------------- ------------ STATEMENT OF OPERATIONS: Net sales.............................. $2,161,089 $2,198,765 $2,205,706 $2,175,236 $2,518,814 Material, labor and other production costs................ 805,124 790,688 757,080 809,347 999,271 ----------- ----------- ----------- ----------- ----------- Gross profit........................ 1,355,965 1,408,077 1,448,626 1,365,889 1,519,543 Selling, distribution and marketing...................... 839,916 876,822 894,323 921,392 1,068,543 Administrative and general.......... 234,838 233,457 228,183 227,075 280,202 Non-recurring items................. ---- (22,125) 13,925 38,873 ---- Interest............................ 30,749 22,992 29,326 34,255 55,387 Other expenses (income)-- net (3,868) 4,494 1,272 3,670 16,778 ------------ ------------ ------------ ------------ ------------ Income before income taxes and cumulative effect of accounting change.............................. 254,330 292,437 281,597 140,624 98,633 Income taxes...................... 87,235 102,353 101,375 50,625 191,306 ------------ ----------- ----------- ----------- ----------- Income (loss) before cumulative effect of accounting change......... 167,095 190,084 180,222 89,999 (92,673) Cumulative effect of accounting change, net of tax.............. ---- ---- ---- ---- (21,14 Net Income (loss)...................... $ 167,095 $ 190,084 $ 180,222 $ 89,999 $ (113,814) =========== =========== =========== =========== =========== Earnings per Share..................... $2.23 $2.58 $2.56 $1.37 $(1.79) Earning per Share ---- assuming dilution............................ $2.22 $2.55 $2.53 $1.37 $(1.79) Weighted average number of shares outstanding (thousands) 74,819 73,708 70,346 65,592 63,646 Weighted average number of shares outstanding (thousands) ---- assuming dilution............................ 75,326 74,546 71,104 65,592 63,646
8
Other Data: Cash flows provided (used) by: Operating activities.................. $ 153,903 $ 195,192 $ 211,268 $ 168,519 $ 109,800 Investing activities: Property, plant and equipment additions............ (92,895) (67,898) (60,950) (50,753) (74,382) Other investing activities.......... (12,158) 79,847 (23,982 (86,894) (123,574) ------------ ----------- ----------- ------------ ------------ Total investing activities........... (105,053) 11,949 (84,932) (137,647) (197,956) Adjusted EBITDA(1)..................... 346,895 364,313 394,261 287,992 260,132 Adjusted EBITDA margin on net sales.................................. 16.1% 16.6% 17.9% 13.2% 10.3% Depreciation and amortization.......... $ 70,611 $ 72,225 $ 74,783 $ 76,600 $ 98,057 Total debt to Adjusted EBITDA.......... 1.0X 1.0X 1.2X 1.9X 2.9x Adjusted EBITDA to interest 11.3X 15.8X 13.4X 8.4X 4.7x expense................................ Ratio of earnings to fixed charges(2).......................... 6.3X 8.2X 6.9X 3.7X 2.3x BALANCE SHEET DATA: Working capital........................ $ 562,148 $ 506,029 $ 728,144 $ 518,196 $ 94,455 Net PP&E............................... 462,787 447,632 434,806 447,415 477,188 Total assets........................... 2,135,120 2,161,464 2,419,328 2,517,983 2,712,074 Short-term debt........................ 133,171 199,640 17,777 109,694 378,904 Long-term debt......................... 219,639 148,800 463,246 442,102 380,124 Shareholders' equity................... 1,361,655 1,345,217 1,346,611 1,252,411 1,047,190 Percentage of total debt to capitalization...................... 20.6% 20.6% 26.3% 30.6% 42.0%
(1) Adjusted EBITDA represents earnings before non-recurring items, interest expense, income taxes, other expense (income)-net and depreciation and amortization. Adjusted EBITDA is presented because it is a widely accepted financial indicator of a company's ability to incur and service debt. Adjusted EBITDA does not represent net income or cash flows from operations as those terms are defined in generally accepted accounting principles, or GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Included in other expense (income)-net and in depreciation and amortization is goodwill amortization of $4,927, $5,710, $6,642, $6,030 and $8,723 for fiscal years 1997 through 2001, respectively. (2) The ratio of earnings to fixed charges is computed by dividing fixed charges into earnings plus fixed charges. For purposes of determining this ratio, earnings have been calculated by adding income before income taxes and the cumulative effect of accounting change. Fixed charge consist of interest expense and the estimated interest component of rent expense. 9 RISK FACTORS An investment in the notes involves significant risk. You should carefully consider the following risk factors and the other information set forth in this prospectus before deciding to purchase any notes. RISKS RELATING TO THE OFFERING THE COMPANY'S SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT ITS FINANCIAL CONDITION AND PREVENT IT FROM FULFILLING ITS OBLIGATIONS UNDER THE NOTES. The Company is highly leveraged. On September 30, 2001, it had total indebtedness of approximately $968 million and shareholders' equity of approximately one billion. The Company and its subsidiaries will be permitted to incur additional indebtedness in the future. See "Description of Notes" at page 23. In addition, the Company may incur substantial further indebtedness under any new credit facilities into which it may enter. Its ability to make scheduled payments of principal of, or to pay interest on, or to refinance, its indebtedness (including the notes), or to fund planned capital expenditures will depend on its future operating performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company's control. Based upon the Company's current level of operations, management believes that cash flow from operations and available cash, together with available borrowings under credit facilities, will be adequate to meet currently anticipated funding requirements. Management cannot assure you that the Company will have adequate liquidity to fund its ongoing cash needs, and the Company may need to refinance all or a portion of the principal of the notes on or prior to maturity. There can be no assurance that the Company's business will generate sufficient cash flow from operations, or that future borrowings will be available under existing credit facilities in an amount sufficient to enable it to service its indebtedness, including the notes, or to fund its other liquidity needs. In addition, there can be no assurance that the Company will be able to effect any refinancing on commercially reasonable terms or at all. The degree to which the Company will be leveraged could have important consequences to holders of the notes, including, but not limited to: o making it more difficult for the Company to satisfy its obligations with respect to the notes; o increasing the Company's vulnerability to general adverse economic and industry conditions; o limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; o requiring the dedication of a substantial portion of the Company's cash flow from operations to the payment of principal of, and interest on, its indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, research and development or other general corporate purposes; and o limiting the Company's flexibility in planning for, or reacting to, changes in its business and the industry. In addition, the indenture contains financial and other restrictive covenants that limit the Company's ability to, among other things, borrow additional funds. Failure by the Company to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. See "Description of Notes" at page 23. THE NOTES ARE JUNIOR TO THE COMPANY'S SENIOR DEBT. The notes are subordinated in right of payment to all the Company's current and future senior debt. Upon any distribution to the Company's creditors in a liquidation or dissolution, the holders of senior debt are entitled to be paid in full before any payment may be made with respect to the notes. In addition, the subordination provisions of the indenture provide that payments with respect to the notes are blocked in the event of a payment default on senior debt 10 and may be blocked for up to 179 days each year in the event of certain non-payment defaults on senior debt. In the event of the Company's bankruptcy, liquidation or reorganization, holders of the notes will participate ratably with all holders of subordinated indebtedness that is deemed to be of the same class as the notes and potentially with all other general creditors, based upon the respective amounts owed to each holder or creditor, in the Company's remaining assets. In any of the foregoing events, there can be no assurance that there would be sufficient assets to pay amounts due on the notes. As a result, holders of notes may receive less, ratably, than the holders of senior debt. In addition, under the subordination provisions of the indenture, payments that would otherwise be made to holders of the notes will instead be paid to holders of senior debt under certain circumstances. As a result of these provisions, other creditors (including trade creditors) that are not holders of senior debt may recover more, ratably, than holders of the notes. In addition, the notes will be effectively subordinated to all outstanding obligations of any of the Company's subsidiaries. As of September 30, 2001, the Company had $616.4 million of senior debt outstanding and its subsidiaries had $204.7 million of outstanding debt and other liabilities (including trade payables). In addition, the Company is able to incur a significant amount of additional senior indebtedness under its existing credit facilities. The indenture also permits the incurrence of substantial additional indebtedness, including senior debt, by the Company and its subsidiaries in the future. See "Outstanding Indebtedness" at page 22. THE NOTES ARE EFFECTIVELY SUBORDINATED TO THE DEBT OF THE COMPANY'S SUBSIDIARIES. The Company derives much of its revenue from its subsidiaries. The indenture governing the notes permits the incurrence of substantial additional indebtedness by the Company and its subsidiaries, and it does not require the Company's subsidiaries to guarantee the notes. In the event of a bankruptcy, liquidation or reorganization of a subsidiary, holders of any of such subsidiary's indebtedness will have a claim to the assets of the subsidiary that is prior to the Company's interest in those assets. As of September 30, 2001, the aggregate amount of indebtedness and other liabilities of the Company's subsidiaries (including trade payables) was approximately $204.7 million. If any subsidiary indebtedness were to be accelerated, there can be no assurance that the assets of such subsidiary would be sufficient to repay such indebtedness or that the Company's assets and the assets of its other subsidiaries would be sufficient to repay in full its indebtedness, including the notes. See "Outstanding Indebtedness" at page 22. THE COMPANY MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE ANY CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE. Upon a change of control, the Company will be required to offer to repurchase all outstanding notes at 100% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. However, there can be no assurance that sufficient funds will be available at the time of any change of control to make any required repurchases of notes tendered or that restrictions in its credit facilities will allow the Company to make such required repurchases. Notwithstanding these provisions, the Company could enter into certain transactions, including certain recapitalizations, that would not constitute a change of control but would increase the amount of debt outstanding at such time. See "Description of Notes -- Repurchase at Option of Holders Upon a Change in Control" at page 26. NO PUBLIC MARKET EXISTS FOR THE NOTES, AND THE PRICE OF THE NOTES MAY BE VOLATILE. There is no existing market for the notes and, although the notes are eligible for trading in PORTAL, there can be no assurance as to the liquidity of any markets that may develop for the notes, the ability of holders of the notes to sell their notes or the prices at which holders would be able to sell their notes. Future trading prices of the notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. In addition, if the Company or its securities are downgraded by any rating agency, the trading price of the notes may decrease. The initial purchasers have advised the Company that they intend to make a market in the notes offered hereby. However, they are not obligated to do so, and any market making may be discontinued at any time without notice. The Company does not intend to apply for listing of the notes on any securities exchange. 11 FEDERAL AND STATE LAWS PERMIT A COURT TO VOID THE NOTES UNDER CERTAIN CIRCUMSTANCES. Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent transfer law, if, among other things, the Company, at the time it incurred the indebtedness evidenced by the notes, (1) (a) was or is insolvent or rendered insolvent by reason of such occurrence or (b) was or is engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital or (c) intended or intends to incur, or believed or believes it would incur, debts beyond its ability to pay such debts as they mature, and (2) the Company received or receives less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness, then the notes could be voided, or claims in respect of the notes could be subordinated to all the Company's other debts. In addition, the payment of interest and principal by the Company pursuant to the notes could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the Company's creditors. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding. Generally, however, the Company would be considered insolvent if: o the sum of its debts, including contingent liabilities, were greater than the saleable value of all of its assets at a fair valuation or if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or o the Company could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, management believes the Company will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not incur debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determination or that a court would agree with the Company's conclusions in this regard. RISKS RELATING TO THE COMPANY'S BUSINESS THE COMPANY CANNOT ASSURE YOU THAT IT WILL HAVE ADEQUATE LIQUIDITY TO FUND ITS ONGOING CASH NEEDS. Over the next twelve months, the Company will face significant capital requirements in order to fund its restructuring program, its negotiated contract with a major mass merchandiser, and its seasonal working capital needs. In addition, the Company may have additional funding needs during or after that period that are not currently anticipated. There can be no assurance that additional financing will be available to the Company or, if available, that it can be obtained on terms acceptable to management or within limitations that are contained in the Company's current or future financing arrangements. Failure to obtain any necessary additional financing could result in the delay or abandonment of some or all of the Company's restructuring plans, negatively impact its ability to make capital expenditures and result in its failure to meet its obligations. In addition, from 1992 to 1999, the Company took certain tax deductions related to its corporate-owned life insurance programs (COLI). Recently, a federal tax decision unfavorable to another corporation for a similar COLI issue was published. As a result, the Company recorded a non-cash charge of approximately $143 million in the fourth quarter of 2001, which amount represents the effect of assessments by the Internal Revenue Service for the disallowance of certain deductions related to this insurance program. Although management believes that in the event of a proceeding against the Company, it would actively defend itself and believes the Company could distinguish certain of its COLI plans from those addressed in the prior litigation, there can be no assurance that the Company would be successful, and the Company could be required to pay the amount of its recorded charge to the Internal Revenue Service. In this event, the Company would require additional financing to provide the cash for such a payment. There can be no assurance that additional financing will be available to the Company or, if available, that it can be obtained on terms acceptable to the Company or within limitations that are contained in its current or future financing arrangements. 12 THE COMPANY CANNOT ASSURE YOU THAT IT WILL BE ABLE TO IMPLEMENT ITS PROPOSED COST SAVINGS INITIATIVES OR THAT THOSE INITIATIVES WILL PRODUCE THE ANTICIPATED POSITIVE EFFECTS. In November 2000, management announced that the Company would undertake a review of its operations, focusing on process improvements. In March 2001, the Company devised a restructuring plan for its core greeting card business that is expected to improve efficiency and reduce costs. The restructuring plan includes a rationalization process, a product line size reduction program, the consolidation of its facilities and workforce reduction of approximately 1,500 employees, or approximately 13% of its current full-time workforce. The reorganization is expected to result in a pre- tax charge of between $200 million and $220 million in fiscal 2002. Although management believes the implementation of the restructuring is feasible on the schedule currently contemplated, the Company may encounter unanticipated difficulties. There can be no assurance that the anticipated cost savings will be realized as a result of the implementation of the restructuring plan. In addition, several large retailers, two of which together represented approximately 15% of the Company's sales in fiscal 2001, have encouraged the Company to implement scan-based trading, which is a form of consignment selling in which inventory is held on the Company's books, instead of the books of its retailers, until an actual sale to a consumer occurs. The Company is in the process of implementing scan- based trading with certain retailers, and it expects this implementation to result in a one-time pre-tax charge of between $80 and $90 million in fiscal 2002, and it anticipates the effects on the Company to be an ongoing reduction in working capital, maximization of retail productivity and throughput, reduced costs and enhanced retailer relationships. However, there can be no assurance that the expected benefits of scan-based trading will be realized. THE COMPANY HAS A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE. The Company experienced a loss in fiscal 2001 and may incur additional losses in the future. The Company has and will continue to have a substantial amount of interest expense in respect of debt incurred and depreciation and amortization expenses relating to its recent acquisitions as well as to its fiscal 2002 restructuring program. Such expenses have contributed to the net losses the Company experienced. Management expects that the Company will continue to incur such non-operating expenses at increased levels as a result of scan-based trading, the restructuring program and a change in the contractual relationship with a partner of the Company's Internet unit. THE COMPANY RELIES ON A FEW LARGE CUSTOMERS FOR A SIGNIFICANT PORTION OF ITS SALES. A few of the Company's customers are material to its business and operations. In both fiscal 2000 and fiscal 2001, the Company's largest customer, Wal-Mart Stores, Inc., represented approximately 10% of its consolidated net sales. Aggregate consolidated net sales to its five largest customers represented approximately 29% of its total consolidated net sales in fiscal 2001. There can be no assurance that these large customers will continue to purchase the Company's products in historical quantities. The loss of sales to one of its large customers could materially adversely affect the Company, its operating results, its financial condition and its prospects. 13 DIFFICULTIES IN INTEGRATING POTENTIAL ACQUISITIONS COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS. The Company regularly evaluates potential acquisition opportunities to support and strengthen its business. The Company cannot be sure that it will be able to locate suitable acquisition candidates, acquire candidates on acceptable terms or integrate acquired businesses successfully. Future acquisitions may require the Company to incur additional debt and contingent liabilities, which may materially and adversely affect its business, operating results and financial condition. Furthermore, the process of integrating acquired businesses effectively involves the following risks: o assimilating operations and products may be unexpectedly difficult; o management's attention may be diverted from other business concerns; o the Company may enter markets in which it has limited or no direct experience; and o the Company may lose key employees of an acquired business. The Company does not currently have any material agreements relating to proposed or pending acquisitions or joint ventures. THE COMPANY'S OPERATING RESULTS MAY FLUCTUATE ON A SEASONAL BASIS. The greeting card business is a seasonal business based on holidays, with results of operations for the first, second and fourth fiscal quarters generally being lower than those of the third fiscal quarter. Consequently, the Company's overall operating results in the future may fluctuate substantially based on seasonal demand for its products. Such variations in demand could have a material adverse effect on the timing of its cash flows and therefore its ability to service its obligations with respect to the notes. THE COMPANY OPERATES IN AN EXTREMELY COMPETITIVE MARKET, AND ITS BUSINESS WILL SUFFER IF IT IS UNABLE TO COMPETE EFFECTIVELY. The Company operates in a highly competitive industry. The greeting card business is extremely concentrated, and the Company is one of only two main competitors, which together encompass over 75% of the overall market. The Company's main competitor may have substantially greater financial, technical or marketing resources, a greater customer base, stronger name recognition and a lower cost of funds than the Company has, and that competitor also has longstanding relationships with certain large customers to which it may offer products not provided by the Company, which may put the Company at a competitive disadvantage. As a result, this competitor or others may be able to: o adapt to changes in customer requirements more quickly; o take advantage of acquisition and other opportunities more readily; and o devote greater resources to the marketing and sale of its products and adopt more aggressive pricing policies than the Company. There can be no assurance that the Company will be able to continue to compete successfully in this market or against such competition. If the Company is unable to introduce new and innovative products that are attractive to its customers, or is unable to allocate sufficient resources to effectively market and advertise its products so that they achieve widespread market acceptance, the Company may not be able to compete effectively, and its operating results and financial condition will be adversely affected. 14 THE COMPANY MAY BE ADVERSELY AFFECTED BY RETAIL TRENDS AND VOLATILITY. The Company's business and that of most of its customers is cyclical and has historically experienced periodic downturns in direct relation to general economic downturns. A downturn in the economy may affect consumer purchases of discretionary items, which could adversely affect the Company's sales. The Company's success depends on the sustained demand for its products. Many factors affect the level of consumer spending on the Company's products, including, among others, general business conditions, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions. Consumer purchases of discretionary items, such as the Company's products, tend to decline during recessionary periods when disposable income is lower. These downturns have been characterized by diminished product demand and subsequent accelerated erosion of average selling prices. A general slowdown in the economies in which the Company sells its products or even an uncertain economic outlook could adversely affect consumer spending on the Company's products and, in turn, its sales and results of operations. With the growing trend toward towards retail trade consolidation, the Company is increasingly dependent upon a reduced number of key retailers whose bargaining strength is growing. The Company may be negatively affected by changes in the policies of its retail trade customers, such as inventory de-stocking, limitations on access to shelf space, scan-based trading and other conditions. Increased consolidations in the retail industry could result in price and other competition that could damage the Company's business. TWO SIGNIFICANT STOCKHOLDER GROUPS CONTROL A SUBSTANTIAL PORTION OF THE COMPANY'S OUTSTANDING CAPITAL STOCK. As of September 30, 2001, two significant stockholder groups beneficially owned approximately 52% in the aggregate of the Company's outstanding Class B Common Shares. Class A Common Shares are entitled to one vote per share, and Class B Common Shares are entitled to ten votes per share. Accordingly, holders of Class B Common Shares, as a group, will be able to significantly influence the outcome of stockholder votes, including votes concerning the election of directors, the adoption or amendment of provisions in the Company's Articles of Incorporation or Code of Regulations, and the approval of mergers and other significant corporate transactions, and their interests may not be aligned with your interests. Two of the nine members of the Company's board of directors are members of one of these stockholder groups. The existence of these levels of ownership concentrated in a few persons makes it less likely that any other shareholder will be able to affect the Company's management or strategic direction. These factors may also have the effect of delaying or preventing a change in the Company's management or voting control or its acquisition by a third party. THE LOSS OF KEY MEMBERS OF THE COMPANY'S SENIOR MANAGEMENT TEAM COULD ADVERSELY AFFECT ITS BUSINESS. The Company's success depends largely on the efforts and abilities of its current senior management team. The experience and industry contacts of its management team significantly benefit the Company. If the Company were to lose the benefit of that experience and those contacts, the Company's business could be adversely affected. POLITICAL AND ECONOMIC CONDITIONS IN FOREIGN COUNTRIES IN WHICH THE COMPANY OPERATES COULD ADVERSELY AFFECT THE COMPANY. A portion of the Company's current operations are conducted and located abroad. International revenue represented 17.1% of total revenue in fiscal 2001 and 19.5% of total revenue in fiscal 2000. Management expects that international revenue will continue to represent a significant portion of the Company's total revenue in the foreseeable future. The success of the Company's sales to, and operations in, foreign markets depends on numerous factors, many of which are beyond its control, including economic conditions in the foreign countries in which the Company sells its products and services. Its international sales and operations may also expose the Company to risks inherent in doing business outside the United States, including currency fluctuations, restrictions on the repatriation of profits and assets, compliance with foreign laws and standards and political risks. In general, the Company does not execute hedge transactions to reduce its exposure to foreign currency exchange rate risks. There can be no assurance that any foreign government will not adopt regulations or take other actions that would have a direct or indirect adverse impact on the 15 Company's business or market opportunities within any country. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to the Company's operations and growth strategy. THE COMPANY'S BUSINESS COULD BE ADVERSELY AFFECTED IF MANAGEMENT IS UNSUCCESSFUL IN NEGOTIATING NEW COLLECTIVE BARGAINING AGREEMENTS. The Company is subject to a limited number of collective bargaining agreements. At September 30, 2001, the Company had a total of approximately 12,231 full-time employees and approximately 27,128 part-time employees. Approximately 2,700 of its hourly plant employees are unionized, of which 100% are covered by eight collective bargaining agreements. These agreements expire at various times over the next four years. These agreements generally cover wages, health care benefits and retirement plans, seniority, job classes and work rules. The Company can give you no assurance that these collective bargaining agreements will be renewed upon expiration or that new collective bargaining agreements on terms acceptable to the Company will be established. Failure to renew such agreements could adversely impact the Company's financial condition and results of operations. VARIOUS GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL RISKS APPLICABLE TO ITS BUSINESS MAY REQUIRE THE COMPANY TO TAKE ACTIONS WHICH WILL ADVERSELY AFFECT ITS RESULTS OF OPERATIONS. The Company's business is subject to numerous federal, state, provincial, local and foreign laws and regulations, including regulations with respect to air emissions, wastewater discharges and the generation, handling, storage, transportation, treatment and disposal of waste materials. Although management believes the Company is in substantial compliance with all applicable laws and regulations, legal requirements are frequently changed and subject to interpretation, and management is unable to predict the ultimate cost of compliance with these requirements or their effect on the Company's operations. The Company may be required to make significant expenditures to comply with governmental laws and regulations. Management cannot be certain that existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations, will not have a material adverse effect on the Company's results of operations and financial condition. CAUTION REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These forward-looking statements are subject to risks and uncertainties and include statements regarding position, business strategy and other plans and objectives for future operations and statements which are not historical facts. Although the Company believes such statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include, among others, retail bankruptcies and consolidations, successful integration of acquisitions, a weak retail environment, consumer acceptance of products as priced and marketed, the impact of technology on core product sales and competitive terms of sale offered to customers. Risks pertaining specifically to the Company's electronic marketing business include the ability of AmericanGreetings.com to attract strategic partners as investors, the viability of online advertising as a revenue generator and the public's acceptance of online greetings and other social expression products. These factors expressly qualify all subsequent oral and written forward-looking statements attributable to the Company or persons acting on its behalf. Except for its ongoing obligations to disclose material information as required by the federal securities laws, the Company does not have any intention or obligation to update forward-looking statements after the distribution of this prospectus. Actual results may differ materially from those suggested by the forward-looking statements for various reasons, including those discussed above under "Risk Factors" in this prospectus. 16 EXCHANGE OFFER The exchange offer relates to the exchange of up to $260 million in aggregate principal amount of outstanding notes for an equal aggregate principal amount of registered notes. The registered notes are obligations of the Company and are entitled to the benefits of the indenture governing the outstanding notes. The form and terms of the registered notes are identical in all material respects to the form and terms of the outstanding notes, except that the registered notes have been registered under the Securities Act and therefore are not entitled to the benefits of the registration rights agreement that was executed as part of the offering of the outstanding notes. The registration rights agreement provides for registration rights with respect to the outstanding notes and for certain contingent increases in the interest rates of the outstanding notes, if the Company fails to meet certain registration obligations. THE OFFER The Company is offering to exchange $1,000 principal amount of its 11.75% Notes due 2008 which have been registered under the Securities Act for each $1,000 principal amount of its outstanding 11.75% Notes due 2011 that were issued in the private offering on June 29, 2008. In order to be exchanged, an outstanding note must be properly tendered and accepted. All outstanding notes that are validly tendered and not validly withdrawn will be exchanged. As of this date there are $260 million principal amount of notes outstanding. The Company will issue registered notes on or promptly after expiration of the exchange offer. REGISTRATION RIGHTS AGREEMENT You are entitled to exchange your notes for registered notes with substantially identical terms. The exchange offer is intended to satisfy these rights. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your notes, except that, if a holder of outstanding notes notifies the Company prior to the 20th day after the completion of the exchange offer that (i) it is prohibited by law or Commission policy from participating in the exchange offer or (ii) that it may not resell the registered notes to the public without delivering a prospectus, and this prospectus is not appropriate or available for such resales or (iii) that it is a broker- dealer and owns notes acquired directly from the Company or an affiliate of the Company, then the Company may be required to file with the Commission a shelf registration statement to cover resale of the notes of those holders who provide certain information for inclusion in the registration statement. SPECIAL INTEREST If the Company fails to file a required shelf registration statement as required by the registration rights agreement, it is required to pay special interest ("Special Interest") of $.05 per $1,000 principal amount of notes with respect to the first 90-day period after the date such filing was required to be made. The Special Interest rate will increase by an additional $.05 per week per $1,000 principal amount of notes with respect to each subsequent 90-day period until the filing has been made; provided, however, that the maximum rate of Special Interest will be $.50 per week per $1,000 principal amount of notes. RESALE OF THE NOTES Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, including "Exxon Capital Holdings Corporation" (available May 13, 1988), "Morgan Stanley & Co. Incorporated" (available June 5, 1991), "Mary Kay Cosmetics, Inc." (available June 5, 1991) and "Warnaco, Inc." (available October 11, 1991), the Company believes the registered notes issued in the exchange offer may be offered for a resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act provided that: 17 o the registered notes issued in the exchange offer are acquired in the ordinary course of business; o you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the registered notes issued to you in the exchange offer; o you are not a broker-dealer who purchased outstanding notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act; and o you are not an "affiliate" of the Company. If you do not meet all of the above conditions and you transfer any note issued to you in the exchange offer without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your notes from such requirements, you may incur liability under the Securities Act. The Company does not assume or indemnify you against such liability. Each broker-dealer issued registered notes in the exchange offer for its own account in exchange for outstanding notes that were acquired by such broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the registered notes issued in the exchange offer. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, such a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may use this prospectus for an offer to resell or the resale or other retransfer of the notes issued to it in the exchange offer. The Company has agreed to keep the registration statement effective from the time the registered notes are first issued until the earlier of 180 days after the exchange offer is completed or the time when no broker-dealer referred to in the preceding paragraph owns any of the privately-placed notes. The Company believes no registered holder of the outstanding notes is an affiliate (as such term is defined in Rule 405 of the Securities Act) of the Company. The exchange offer is not being made to, nor will the Company accept surrenders for exchange from, holders of outstanding notes in any jurisdiction in which this exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. EXPIRATION DATE The exchange offer will expire at 5:00 p.m., New York City time, December 26, 2001, unless the Company decides to extend the expiration date. ACCRUED INTEREST ON THE EXCHANGE NOTES AND THE OUTSTANDING NOTES The registered notes will bear interest from June 29, 2001. Holders of outstanding notes accepted for exchange will be deemed to have waived the right to receive any payment of interest on such outstanding notes accrued from June 29, 2001 to the date of the issuance of the registered notes. Consequently, any holder that exchanges outstanding notes for registered notes will receive the same interest payment on January 15, 2002 (the first interest payment date with respect to the outstanding notes and the registered notes to be issued in the exchange offer) that such holder would have received had the exchange offer not been accepted. TERMINATION OF THE EXCHANGE OFFER The Company may terminate the exchange offer if it determines that its ability to proceed with the exchange offer could be materially impaired due to any legal or governmental action, new law, statute, rule or regulation or any interpretation of the staff of the Commission of any existing law, statute, rule or regulation. The Company does not expect any of the foregoing conditions to occur, although there can be no assurance that such conditions will not occur. Each holder of outstanding notes will have certain rights against the Company under the registration rights agreement executed when the Company issued the outstanding notes should the Company fail to consummate the exchange offer. 18 PROCEDURES FOR TENDERING OUTSTANDING NOTES Any financial institution that is a participant in DTC's Book-Entry Transfer Facility system may make book-entry delivery of the outstanding notes held as book-entry interests by causing DTC to transfer such notes into the Exchange Agent's account in accordance with DTC's procedure for such transfer. Although delivery of such notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, either: (1) the Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, or (2) a computer-generated message transmitted by means of the Automated Tender Offer Program system of DTC and received by the Exchange Agent and forming a part of a confirmation of book entry transfer in which the holder of Old Notes acknowledges and agrees to be bound by the terms of the Letter of Transmittal, must, in any case, be transmitted to and received or confirmed by the Exchange Agent at its addresses set forth herein under "-Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. To tender in the Exchange Offer, a holder of certificated totes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the notes to be tendered and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. The tender by a holder of outstanding notes will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Delivery of all documents must be made to the Exchange Agent at its address set forth in this prospectus. Any holder may also request that such holder's broker, dealer, commercial bank, trust company or nominee effect such tender for such holder. The method of delivery of outstanding notes and the Letters of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the holder. Instead of delivery by mail, it is recommended that a holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or outstanding notes should be sent to the Company. Only a holder of outstanding notes may tender such notes in the exchange offer. The term "holder" with respect to the exchange offer means any person in whose name outstanding notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder, or any person whose outstanding notes are held of record by DTC who desires to deliver such notes by book entry transfer at DTC. Any beneficial holder whose notes are registered in the name of such holder's broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial holder wishes to tender on his own behalf, such beneficial holder must, prior to completing and executing the Letter of Transmittal and delivering his notes, either make appropriate arrangements to register ownership of the notes in such holder's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office of correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the notes tendered pursuant thereto are tendered: 19 (1) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (2) for the account of an Eligible Institution. If the Letter of Transmittal is signed by a person other than the registered holder of any notes listed therein, such notes must be endorsed or accompanied by appropriate bond powers which authorize such person to tender the notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the notes. If the Letter of Transmittal or any notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of authority of such signatory to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered notes will be determined by the Company in its sole discretion, which determinations will be final and binding. The Company reserves the absolute right to reject any and all notes not validly tendered or any notes the acceptance of which would, in the opinion of the Company's legal counsel, be unlawful. The Company also reserves the absolute right to waive any irregularities or conditions of tender as to particular notes. The Company's interpretation of the terms and conditions of the exchange offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived any defects or irregularities in connection with tenders of notes must be cured within such time as we shall determine. Neither the Company, the Exchange Agent or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of notes nor shall any of them incur any liability for failure to give such notification. Tenders of notes will not be deemed to have been made until such irregularities have been cured or waived. Any notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost by the Exchange Agent to the tendering holder of such notes unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. By tendering, each holder of notes will represent to the Company that among other things, the registered notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the person receiving such registered notes, whether or not such person is the holder, that neither the holder nor any other person has an arrangement or understanding with any person to participate in the distribution of the registered notes and that neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act. SPECIAL PROCEDURES FOR BENEFICIAL OWNERS If you are the beneficial owner of notes and your name does not appear on a security position listing of DTC as the holder of such notes, or if you are a beneficial owner of notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender such notes in the exchange offer, you should promptly contact the person in whose name your notes are registered and instruct such person to tender on your behalf. If you wish to tender on your own behalf you must, prior to executing the Letter of Transmittal and delivering your outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in your name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. 20 GUARANTEED DELIVERY PROCEDURES A holder of outstanding notes wishing to tender such notes (i) whose notes are not immediately available or cannot otherwise be delivered or (ii) who cannot deliver the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date or (iii) who cannot complete the procedure for book-entry transfer on a timely basis, may effect a tender if: (1) the tender is made through an Eligible Institution; (2) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of the outstanding notes, the certificate number or numbers of such notes and the principal amount of the notes tendered, stating that the tender is being made thereby, and guaranteeing that, within five business days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing the notes to be tendered in proper form for transfer and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (3) such properly completed and executed Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing all tendered notes in proper form for transfer (or confirmation of a book-entry transfer into the Exchange Agent's account at DTC of outstanding notes delivered electronically) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five business days after the Expiration Date. WITHDRAWAL RIGHTS You may withdraw the tender of your notes at any time prior to 5:00 p.m., New York City time, on December 24, 2001, the business day prior to the Expiration Date. ACCEPTANCE OF OUTSTANDING NOTES AND DELIVERY OF EXCHANGE NOTES Subject to certain conditions (as summarized above in "Termination of the Exchange Offer" and described more fully under the heading "The Exchange Offer-Termination"), the Company will accept for exchange any and all outstanding notes tendered in the exchange offer prior to 5:00 p.m., New York City time, on the Expiration Date. The notes issued pursuant to the exchange offer will be delivered promptly following the Expiration Date. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The exchange of notes in the exchange offer generally will not be a taxable event for United States federal income tax purposes. Management believes you will not recognize any taxable gain or loss or any interest income as a result of such exchange. However, you should consult your own tax advisor. USE OF PROCEEDS The Company will not receive any proceeds from the issuance of notes pursuant to the exchange offer. The Company will pay all expenses incident to the exchange offer. 21 EXCHANGE AGENT The Huntington National Bank is serving as agent in connection with the exchange offer ("Exchange Agent"). The Exchange Agent's address is 917 Euclid Avenue, Cleveland, Ohio 44115-1497. For more information with respect to the exchange offer, the telephone number for the Exchange Agent is 216.515.6662 and the facsimile number for the Exchange Agent is 216.515.6584. OUTSTANDING INDEBTEDNESS In addition to the debt represented by the Company's outstanding $260 million aggregate principal amount of 11.75% Senior Subordinated Notes that are the subject of the exchange offer, the Company has the following outstanding indebtedness: THE CREDIT AGREEMENT On August 7, 2001, the Company entered into a Credit Agreement with Keybank National Association, as Documentation Agent, National City Bank and Goldman Sachs Credit Partners L.P., as Joint-Lead Arrangers and Co- Syndication Agents, National City Bank, as Administrative Agent, and certain other lenders. That Credit Agreement provides for (i) a $105,000,000.00, 364-day revolving facility, a $120,000,000.00 general revolving facility maturing Jan. 15, 2006, and a $125,000,000.00 term loan maturing June 15, 2006. The Company has the option to request a one-year extension of the 364-day revolving facility. Borrowings under the various facilities can be made on a fixed or variable rate basis, with the rate dependent upon the Company's credit rating. Loans under the Credit Agreement are secured by a security interest in all tangible personal property owned by the Company and a mortgage lien in and to all real property owned by the Company. The loans are further secured by a pledge of substantially all of the Company's stock in its domestic subsidiaries. Substantially all of the Company's domestic subsidiaries have guaranteed payment of the loans to the Company, and have granted the lenders security interests and mortgage liens in personal property and real estate owned by such subsidiaries. At September 30, 2001, (i) $55,000,000 was outstanding under the 364-day revolving facility; (ii) $65,000,000 was outstanding under the general revolving commitment; and (iii) $125,000,000 was outstanding under the term loan. A general facility fee, 364-day facility fee and global agent fees are due on the facilities and can vary with the Company's credit rating. The Credit Agreement contains various restrictive covenants which require, among other things, that the Company meet specified periodic financial ratios, minimum net worth and earnings requirements. The Credit Agreement restricts the Company's ability to incur additional indebtedness and to engage in acquisitions of other businesses and entities. The Second Amended and Restated Credit Agreement, dated April 30, 2001, among the Company, Bank of America, N.A., as Global Agent, Banc of America Securities Limited, as UK Facility Agent, National City Bank, as Global Co-Syndication Agent, Bank One, Michigan, as Global Co-Syndication Agent, and certain other lenders, was terminated and repaid with the proceeds of borrowings under the Credit Agreement. 6.10% SENIOR NOTES DUE 2028 The Company has outstanding its 6.10% Senior Notes due August 1, 2028. The existing Notes are senior unsecured obligations, rank on parity with all the Company's existing and future senior unsecured debt and rank senior to all of its future subordinated debt. If the Company incurs any secured senior debt in the future, it will be required to secure the existing notes on an equal and ratable basis. The Company may not redeem the existing notes prior to their maturity. A registered holder of an existing note may elect to have that note, or a portion that is a multiple of $1,000, repaid on August 1, 2008 at 100% of the principal amount thereof, together with accrued interest. 22 7.00% CONVERTIBLE SUBORDINATED NOTES DUE 2006 On June 21, 2001, the Company issued and sold $150,000,000 of its 7.00% Convertible Subordinated Notes due 2006 in private placement transactions to qualified institutional buyers (as defined in Rule 144A under the Securities Act, accredited investors (as defined in Rule 501 under the Securities Act) and non-U.S. persons (as defined in Regulation S under the Securities Act). On July 20, 2001 the Company issued and sold an additional $25,000,000 of such notes in similar private placement transactions, pursuant to an over-allotment option granted to the initial purchasers. These convertible subordinated notes are subordinated to the outstanding notes to be exchanged for registered notes in the exchange offer. The convertible subordinated notes are convertible into the Company's Class A Common Shares at a rate of 71.9466 shares per $1,000 of such convertible subordinated notes. The Company may not redeem the convertible subordinated notes prior to their maturity. On August 28, 2001, the Company filed a registration statement with the Commission to register for resale the convertible subordinated notes and the Class A Common Shares issuable upon conversion of such notes. DESCRIPTION OF NOTES You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the term the "Company"refers only to American Greetings Corporation and not to any of its subsidiaries. The outstanding notes were issued under the terms of an indenture dated as of June 29, 2001, between the Company, as issuer, and The Huntington National Bank, as trustee; a copy of the indenture will be made to any holder upon request to the Company. The outstanding notes were issued in a private transaction that was not subject to the registration requirements of the Securities Act. The registered notes have been registered under the Securities Act. Upon issuance of the registered notes, the indenture will be subject to and governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following summary of the material provisions of the indenture does not purport to be complete and is subject, and qualified in its entirety by, reference to the provisions of the Indenture, including the definitions of certain terms contained therein and those terms made part of the Indenture by reference to the Trust Indenture Act. Certain of these terms are defined below under the caption " - Certain Definitions" at page 45. Unless otherwise noted, the description set forth below applies to both the outstanding notes and the registered notes. The terms of the registered notes and the outstanding notes are identical, except that the registered notes, which have been registered under the Securities Act, do not have registration rights. The terms of the registered notes and the outstanding notes are those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. GENERAL The notes: o are general unsecured obligations of the Company; o are subordinated in right of payment to all existing and future Senior Debt of the Company; o are pari passu in right of payment with any future senior subordinated Indebtedness of the Company. The notes will be effectively subordinated in right of payment to all Indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's Subsidiaries. Any right of the Company to receive assets of any of its Subsidiaries upon such Subsidiary's liquidation or reorganization (and the consequent right of the holders of the notes to participate in those assets) will be effectively subordinated to the claims of that Subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of the Subsidiary, in which case the claims of the Company would still be subordinate in right of payment to any security in the assets of the Subsidiary and any indebtedness of the Subsidiary senior to that held by the Company. 23 On September 30, 2001, the Company had total Senior Debt of approximately $616.4 million and its Subsidiaries had $204.7 million of outstanding debt and other liabilities (including trade payables and lease obligations). As indicated above and as discussed in detail below under the caption "-- Subordination" at page 24, payments on the notes will be subordinated to the payment in full of Senior Debt. The indenture will permit the Company to incur additional Senior Debt. As of the date of the indenture, all the Company's subsidiaries will be "Restricted Subsidiaries." However, under the circumstances described below under the subheading "-- Certain Covenants -- Designation of Restricted and Unrestricted Subsidiaries" at page 35, the Company will be permitted to designate certain of its subsidiaries as "Unrestricted Subsidiaries." The Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. The registered notes will be issued solely in exchange for an equal principal amount of outstanding notes pursuant to the exchange offer. The form and terms of the registered notes will be identical in all material respects to the form and terms of the outstanding notes, except that: o the registered notes will not contain terms with respect to transfer restrictions; o the registered notes have been registered under the Securities Act; and o the registration rights applicable to the outstanding notes are not applicable to the registered notes. PRINCIPAL, MATURITY AND INTEREST The notes will bear interest at the rate of 11.75% per annum ("Original Rate") payable semi-annually in arrears on January 15 and July 15, commencing January 15, 2002. If Adjusted Consolidated Cash Flow, as shown on any financial statement furnished to the holders of notes pursuant to the covenant described under the heading " -- Certain Covenants -- Reports" at page 37 (or any amendment or restatement thereof) for any four full consecutive fiscal quarters ending on or prior to May 31, 2003, is less than $225 million, interest on the notes will begin to accrue (on and after such date) at a rate of 12.75% per annum (the "Increased Rate") and will continue to accrue at the Increased Rate until the maturity of the notes. The Company will make each interest payment to the holders of record on the immediately preceding January 1 and July 1. Interest on the notes will accrue from June 29, 2001, or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. METHODS OF RECEIVING PAYMENTS ON THE NOTES If a holder has given wire transfer instructions, the Company will pay all principal, interest and premium, if any, on that holder's notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York, unless the Company elects to make interest payments by check mailed to the holders at the addresses set forth in the register of holders. PAYING AGENT AND REGISTRAR FOR THE NOTES The trustee will initially act as paying agent and registrar. The Company may change the paying agent or registrar without prior notice to the holders of the notes, and the Company or any of its Subsidiaries may act as paying agent or registrar. 24 TRANSFER AND EXCHANGE A holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a holder to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Holders will be required to pay all taxes due on transfer. The Company is not required to transfer or exchange any note selected for redemption, nor is the Company required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed. SUBORDINATION The payment of principal, interest and premium and Special Interest, if any, on the notes will be subordinated to the prior payment in full of all Senior Debt of the Company, including Senior Debt incurred after the date of the indenture. The holders of Senior Debt will be entitled to receive payment in full of all Obligations due in respect of Senior Debt (including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt) before the holders of notes will be entitled to receive any payment with respect to the notes (except that holders of notes may receive and retain Permitted Junior Securities and payments made from the trust described under "-- Legal Defeasance and Covenant Defeasance" at page 39), in the event of any distribution to creditors of the Company: o in a liquidation or dissolution of the Company; o in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property; o in an assignment for the benefit of creditors; or o in any marshaling of the Company's assets and liabilities. The Company also may not make any payment in respect of the notes (except in Permitted Junior Securities or from the trust described under "-- Legal Defeasance and Covenant Defeasance" at page 39) if: o a payment default on Designated Senior Debt occurs and is continuing beyond any applicable grace period; or o any other default occurs and is continuing on any series of Designated Senior Debt that permits holders of that series of Designated Senior Debt to accelerate its maturity and the trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Payments on the notes may and will be resumed: o in the case of a payment default, upon the date on which such default is cured or waived; and o in the case of a nonpayment default, upon the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new Payment Blockage Notice may be delivered unless and until: o 360 days have elapsed since the delivery of the immediately prior Payment Blockage Notice; and o all scheduled payments of principal, interest and premium and Special Interest, if any, on the notes that have come due have been paid in full in cash. 25 No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the trustee will be, or be made, the basis for a subsequent Payment Blockage Notice. If the trustee or any holder of the notes receives a payment in respect of the notes (except in Permitted Junior Securities or from the trust described under "-- Legal Defeasance and Covenant Defeasance") when: o the payment is prohibited by these subordination provisions; and o the trustee or the holder has actual knowledge that the payment is prohibited, the trustee or the holder, as the case may be, will hold the payment in trust for the benefit of the holders of Senior Debt. Upon the proper written request of the holders of Senior Debt, the trustee or the holder, as the case may be, will deliver the amounts in trust to the holders of Senior Debt or their proper representative. The Company must promptly notify holders of Senior Debt if payment of the notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of the Company, holders of notes may recover less ratably than creditors of the Company who are holders of Senior Debt. See "Risk Factors -- The notes are junior to the Company's senior debt" at page 10. OPTIONAL REDEMPTION At any time prior to July 15, 2004, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of notes issued under the indenture at a redemption price of 111.75% of the principal amount, plus accrued and unpaid interest and Special Interest, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that: o at least 65% of the aggregate principal amount of notes issued under the indenture remains outstanding immediately after the occurrence of such redemption (excluding notes held by the Company and its Restricted Subsidiaries); and o the redemption occurs within 90 days of the date of the closing of such Equity Offering. Except pursuant to the preceding paragraph, the notes will not be redeemable at the Company's option prior to July 15, 2005. After July 15, 2005, the Company may redeem all or a part of the notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below: YEAR PERCENTAGE 2005 105.875% 2006 102.938% 2007 100.000% Unless the Company defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the notes or portion thereof called for redemption. MANDATORY REDEMPTION The Company is not required to make mandatory redemption or sinking fund payments with respect to the notes. 26 REPURCHASE AT OPTION OF HOLDERS Change of Control If a Change of Control occurs, each holder of notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that holder's notes pursuant to a Change of Control Offer on the terms set forth in the indenture. In the Change of Control Offer, the Company will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and Special Interest, if any, on the notes repurchased, to the date of purchase. Within ten days following any Change of Control, the Company will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict. On the Change of Control Payment Date, the Company will, to the extent lawful: o accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer; o deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and o deliver or cause to be delivered to the trustee the notes properly accepted together with an officers' certificate stating the aggregate principal amount of notes or portions of notes being purchased by the Company. The paying agent will promptly mail to each holder of notes properly tendered the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000. Prior to complying with any of the provisions of this "Change of Control" covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of the notes to require that the Company repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by the Company and purchases all notes properly tendered and not withdrawn under the Change of Control Offer. 27 The agreements governing the Company's Senior Debt currently prohibit the Company from purchasing any notes, and also provide that certain change of control or asset sale events with respect to the Company would constitute a default under such agreements. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party, including the New Credit Facilities, may contain similar restrictions and provisions. In the event a Change of Control or Asset Sale occurs at a time when the Company is prohibited from purchasing notes, the Company could seek the consent of its senior lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing notes. In such case, the Company's failure to purchase tendered notes would constitute an Event of Default under the indenture which could, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the holders of notes. See "Risk Factors -- The Company may not have the funds necessary to finance any change of control offer required by the indenture governing the notes" at page 11. The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the properties or assets of the Company and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require the Company to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain. ASSET SALES The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (2) the fair market value is determined by the Company's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an officers' certificate delivered to the trustee; and (3) at least 75% of the consideration received in the Asset Sale by Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities, as shown on the Company's or such Restricted Subsidiary's most recent balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; and (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply those Net Proceeds, at its option: (1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto; (2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business; or 28 (3) to acquire other long-term assets that are used or useful in a Permitted Business. Pending the final application of any Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in Cash Equivalents. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will make an Asset Sale Offer to all holders of notes and all holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such conflict. SELECTION AND NOTICE If fewer than all the notes are to be redeemed at any time, the trustee will select notes for redemption as follows: (1) if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or (2) if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the trustee deems fair and appropriate. No notes of $1,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at such holder's registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may not be conditional. If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of the note upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. 29 CERTAIN COVENANTS The indenture contains, among others, the following covenants: RESTRICTED PAYMENTS The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Equity Interests of the Company's or any of its Restricted Subsidiaries' Equity Interests in such capacity (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the notes, except a payment of interest or principal at the Stated Maturity thereof; or (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and (2) the Company, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, would have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" at page 31; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the indenture (excluding Restricted Payments permitted by clauses (2), (3) and (4) of the next succeeding paragraph), is less than the sum, without duplication, of: (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds received by the Company since the date of the indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus 30 (c) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment. So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of the indenture; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness of the Company or of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (3)(b) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of the Company with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the management of the Company (or any of its Restricted Subsidiaries) pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any twelvemonth period; (6) the purchase by the Company of fractional shares arising out of stock dividends, splits or combinations, business combinations or upon conversion of the Convertible Subordinated Notes; and (7) other Restricted Payments in an amount not to exceed $50.0 million; provided that Restricted Payments made pursuant to this clause (7) shall not exceed $25.0 million in the aggregate in any twelve-month period. The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant will be determined by the Board of Directors whose resolution with respect thereto will be delivered to the trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $10.0 million. Not later than the date of making any Restricted Payment, the Company will deliver to the trustee an officers' certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the indenture. 31 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.5 to 1 if such additional indebtedness is incurred or Disqualified Stock is issued on or prior to June 29, 2002, at least 2.75 to 1 if such additional indebtedness is incurred or Disqualified Stock is issued after June 29, 2002, but on or prior to June 29, 2003, and 3.0 to 1 if such additional indebtedness is incurred or Disqualified Stock is issued after June 29, 2003, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by the Company of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed $695 million (provided that such amount shall be reduced to the extent of any reduction or elimination of any commitment under any Credit Facility resulting from or relating to the formation of any Receivables Subsidiary or the consummation of any Qualified Receivables Transaction), less the aggregate amount of all repayments, optional or mandatory, of the principal of any term Indebtedness under a Credit Facility (other than repayments that are concurrently reborrowed) that have been made by the Company or any of its Restricted Subsidiaries since the date of the indenture and less the aggregate amount of all commitment reductions with respect to any revolving credit borrowings under a Credit Facility that have been made by the Company or any of its Restricted Subsidiaries since the date of the indenture; provided that no Indebtedness incurred pursuant to this clause (1) shall be used to fund any acquisition by the Company or any of its subsidiaries; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company of Indebtedness represented by the notes to be issued on the date of the indenture and the registered notes to be issued pursuant to the registration rights agreement; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed $25.0 million at any time outstanding; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5), (11) or (12) of this paragraph; (6) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that: 32 (a) if the Company is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary of the Company; will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the indenture to be outstanding; (8) the incurrence by Unrestricted Subsidiaries of the Company of Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (8); (9) the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount thereof is included in Fixed Charges of the Company as accrued; (10) the incurrence by a Receivables Subsidiary of Indebtedness in a Qualified Receivables Transaction that is without recourse to the Company or to any other Subsidiary of the Company or its assets (other than such Receivables Subsidiary and its assets and, as to the Company or any Subsidiary of the Company, other than pursuant to representations, warranties, covenants and indemnities customary for such transactions) and is not guaranteed by any such Person; (11) the Guarantee by a Restricted Subsidiary of the Company of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; (12) the incurrence by S.A. Greetings Corporation (PTY) Ltd. of up to $6.0 million of Indebtedness and the Guarantee of such Indebtedness by the Company; and (13) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (13), not to exceed $25.0 million. For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (13) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date on which notes are first issued and authenticated under the indenture will be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. 33 ANTI-LAYERING The Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the notes. LIENS The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness or trade payables on any asset now owned or hereafter acquired, except Permitted Liens. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of the indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements, provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of the indenture; (2) agreements governing Indebtedness under Credit Facilities incurred pursuant to clause (1) of the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the encumbrance or restriction is not materially more disadvantageous to the holders of the notes than is customary in comparable financings (as determined in good faith by the board of directors of Company); (3) the indenture and the notes; (4) applicable law; (5) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred; 34 (6) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of the preceding paragraph; (8) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (9) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (10) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the covenant described above under the caption "-- Liens" that limit the right of the debtor to dispose of the assets subject to such Liens; (11) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, assets sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business; (12) Indebtedness or other contractual requirements of a Receivables Subsidiary in connection with a Qualified Receivables Transaction, provided that such restrictions apply only to such Receivables Subsidiary; and (13) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. MERGER, CONSOLIDATION OR SALE OF ASSETS The Company may not, directly or indirectly: (i) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the notes, the indenture and the registration rights agreement pursuant to terms reasonably satisfactory to the trustee; (3) immediately after such transaction no Default or Event of Default exists; and (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made: (a) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (b) will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock." 35 In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This "Merger, Consolidation or Sale of Assets" covenant will not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Wholly Owned Restricted Subsidiaries. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "-- Restricted Payments" at page 29 or Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. TRANSACTIONS WITH AFFILIATES The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an officers' certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement, stock option plan or other compensation plan entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (2) transactions between or among the Company and/or its Restricted Subsidiaries; (3) transactions with a Person that is an Affiliate of the Company solely because the Company owns an Equity Interest in, or controls, such Person; 36 (4) payment of reasonable directors fees to Persons who are not otherwise Affiliates of Company; (5) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; (6) transactions between the Company or a Restricted Subsidiary and an Affiliate existing prior to the date of the indenture on the terms thereof described in this offering circular, and any amendments thereto, provided that such amendments, taken as a whole, do not contain terms materially less advantageous to Company than those existing on the date of the indenture; (7) transactions between or among the Company and/or its Receivables Subsidiaries or transactions between a Receivables Subsidiary and any Person in which the Receivables Subsidiary has an Investment; and (8) Restricted Payments that are permitted by the provisions of the indenture described above under the caption "-- Restricted Payments." BUSINESS ACTIVITIES The Company will not, and will not permit any Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. PAYMENTS FOR CONSENT The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid and is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS Whether or not required by the Commission, so long as any notes are outstanding, the Company will furnish to the holders of notes, within the time periods specified in the Commission's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a Management's Discussion and Analysis of Financial Condition and Results of Operations and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, following the consummation of the exchange offer, whether or not required by the Commission, the Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any notes remain outstanding, it will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. 37 If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. EVENTS OF DEFAULT AND REMEDIES Each of the following is an Event of Default: (1) default for 30 days in the payment when due of interest on, or Special Interest with respect to, the notes whether or not prohibited by the subordination provisions of the indenture; (2) default in payment when due of the principal of, or premium, if any, on the notes whether or not prohibited by the subordination provisions of the indenture; (3) failure by the Company or any of its Subsidiaries to comply with the provisions described under the captions "-- Repurchase at the Option of Holders -- Change of Control at page 26,"-- Repurchase at the Option of Holders -- Asset Sales" at page 28, "-- Certain Covenants -- Restricted Payments at page 29, "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" at page 31 or "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" at page 35: (4) failure by the Company or any of its Subsidiaries for 60 days after notice to comply with any of the other agreements in the indenture; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the indenture, if that default: (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more; (6) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $20.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; and (7) certain events of bankruptcy or insolvency described in the indenture with respect to the Company, any of its Significant Subsidiaries, or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately. 38 Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing Default or Event of Default if it determines that withholding notes is in their interest, except a Default or Event of Default relating to the payment of principal or interest or Special Interest. The holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or Special Interest on, or the principal of, the notes. In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the notes pursuant to the optional redemption provisions of the indenture, an equivalent premium will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. If an Event of Default occurs prior to July 15, 2005, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the notes prior to July 15, 2005, then the premium specified in the indenture will also become immediately due and payable to the extent permitted by law upon the acceleration of the notes. The Company is required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, as such, will have any liability for any obligations of the Company under the notes or the indenture, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes ("Legal Defeasance") except for: (1) the rights of holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Special Interest, if any, on such notes when such payments are due from the trust referred to below; (2) the Company's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust; (2) the rights, powers, trusts, duties and immunities of the trustee, and the Company's obligations in connection therewith; and (3) the Legal Defeasance provisions of the indenture. 39 In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "-- Events of Default and Remedies" will no longer constitute an Event of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Company must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the notes are being defeased to maturity or to a particular redemption date; (2) in the case of Legal Defeasance, the Company has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Company has delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must deliver to the trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders of notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (7) the Company must deliver to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the indenture or the notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the indenture or the notes may be waived with the consent of the holders of a majority in principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a non- consenting holder): 40 (1) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders" at page 26); (3) reduce the rate of or change the time for payment of interest on any note; (4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Special Interest, if any, on the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration); (5) make any note payable in money other than that stated in the notes; (6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or interest or premium or Special Interest, if any, on the notes; (7) waive a redemption payment with respect to any note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders" at page 26); or (8) make any change in the preceding amendment and waiver provisions. In addition, any amendment to, or waiver of, the provisions of the indenture relating to subordination that adversely affects the rights of the holders of the notes will require the consent of the holders of at least 75% in aggregate principal amount of notes then outstanding. Notwithstanding the preceding, without the consent of any holder of notes, the Company and the trustee may amend or supplement the indenture or the notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated notes in addition to or in place of certificated notes; (3) to provide for the assumption of the Company's obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (4) to make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the indenture of any such holder; or (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust indenture Act. SATISFACTION AND DISCHARGE The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when: (1) either: (a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to the Company, have been delivered to the trustee for cancellation; or 41 (b) all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the trustee for cancellation for principal, premium and Special Interest, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of the deposit or will occur as a result of the deposit and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which it is bound; (3) the Company has paid or caused to be paid all sums payable by it under the indenture; and (4) the Company has delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an officers' certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. CONCERNING THE TRUSTEE The Huntington National Bank is the trustee under the indenture. If the trustee becomes a creditor of the Company, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days and apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this offering memorandum may obtain a copy of the indenture and registration rights agreement without charge by writing to American Greetings Corporation, One American Road, Cleveland, Ohio 44144; Attention: Mr. Dale A. Cable. BOOK-ENTRY, DELIVERY AND FORM The certificates representing the notes are issued in fully registered form without coupons in the form of a global note certificate (the "Global Note"). The Global Note will be deposited upon issuance with the trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. 42 Except as set forth below, the Global Note may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Note may not be exchanged for notes in certificated form except in the limited circumstances described below. See "-- Certificated Notes" at page 44. Except in the limited circumstances described below, owners of beneficial interests in the Global Note will not be entitled to receive physical delivery of notes in certificated form. Transfers of beneficial interests in the Global Note will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time. CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES The descriptions of the operations and procedures of DTC set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the DTC settlement system and are subject to change by DTC from time to time. Neither the Company nor the Exchange Agent take any responsibility for these operations or procedures, and investors are urged to contact the DTC system or its participants directly to discuss these matters. DTC has advised the Company that it is (1) a limited purpose trust company organized under the laws of the State of New York; (2) a "banking organization" within the meaning of the New York Banking Law; (3) a member of the Federal Reserve System; (4) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and (5) a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants (collectively, the "Participants") and facilitates the clearance and settlement of securities transactions between Participants through electronic book-entry changes to the accounts of its Participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC's Participants include securities brokers and dealers (including the initial purchasers), banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Investors who are not Participants may beneficially own securities held by or on behalf of DTC only through Participants or Indirect Participants. The Company expects that pursuant to procedures established by DTC (1) upon deposit of each Global Note, DTC will credit the accounts of Participants designated by the initial purchasers with an interest in the Global Note; and (2) ownership of such Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of Participants) and the records of Participants and the Indirect Participants (with respect to the interests of persons other than Participants). The laws of some jurisdictions may require that in order to effectively transfer interests in securities to certain persons, such persons must take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the notes represented by a Global Note to such persons may be limited. In addition, because DTC 43 can act only on behalf of its participants, who in turn act on behalf of persons who hold interests through Participants, the ability of a person having an interest in notes represented by a Global Note to pledge or transfer such interest to persons or entities that do not participate in DTC's system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical definitive security in respect of such interest. So long as DTC or its nominee is the registered owner of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by the Global Note for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Notes, and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the Trustee thereunder. Accordingly, each holder owning a beneficial interest in a Global Note must rely on the procedures of DTC and, if such holder is not a Participant or an Indirect Participant, on the procedures of the Participant through which such holder owns its interest, to exercise any rights of a holder of notes under the Indenture with respect to such Global Note. The Company understands that under existing industry practice, in the event that the Company requests any action of holders of notes, or a holder that is an owner of a beneficial interest in a Global Note desires to take any action that DTC, as the holder of such Global Note, is entitled to take, DTC would authorize the Participants to take such action and the Participants would authorize holders owning through such Participants to take such action or would otherwise act upon the instruction of such holders. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such notes. Payments with respect to the principal of, and premium, if any, and interest on, any notes represented by a Global Note registered in the name of DTC or its nominee on the applicable record date will be payable by the Company's Paying Agent to or at the direction of DTC or its nominee in its capacity as the registered holder of the Global Note representing such notes under the Indenture. Initially, the Trustee will act as Paying Agent and Registrar. Under the terms of the Indenture, the Company and the Company's Paying Agent may treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving payment thereon and for any and all other purposes whatsoever. Accordingly, neither the Company, nor the Trustee, nor any Paying Agent has or will have any responsibility or liability for the payment of such amounts to owners of beneficial interests in a Global Note (including principal, premium, if any, liquidated damages, if any, and interest). Payments by the Participants and the Indirect Participants to the owners of beneficial interests in a Global Note will be governed by standing instructions and customary industry practice and will be the responsibility of the Participants or the Indirect Participants and DTC. Transfers between participants in DTC will be effected in accordance with DTC's procedures. Neither the company nor the trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their obligations under the rules and procedures governing DTC's operations. SAME DAY SETTLEMENT AND PAYMENT The Company will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, interest and Special Interest, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note holder. The Company will make all payments of principal, interest and premium and Special Interest, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such holder's registered address. The notes represented by the Global Notes trade in the PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. The Company expects that secondary trading in any Certificated Notes will also be settled in immediately available funds. Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note 44 from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised the Company that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date. CERTIFICATED NOTES A Global Note is exchangeable for definitive notes in registered certificated form ("Certificated Notes") if: (1) DTC (a) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company fails to appoint a successor depositary or (b) has ceased to be a clearing agency registered under the Exchange Act; (2) The Company, at its option, notifies the trustee in writing that it elects to cause the issuance of the Certificated Notes; or (3) there has occurred and is continuing a Default or Event of Default with respect to the notes. In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend referred to in "Notice to Investors," unless that legend is not required by applicable law. Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the trustee a written certificate (in the form provided in the indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such notes. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Adjusted Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus 45 (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) non-recurring and special charges deducted in computing Consolidated Net Income; plus (5) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (6) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling,'"'controlled by" and "under common control with" have correlative meanings. No Person (other than the Company or any Subsidiary of the Company) in whom a Receivables Subsidiary makes an Investment in connection with a Qualified Receivables Transaction will be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by reason of such Investment. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption "--Repurchase at the Option of Holders-- Change of Control" and/or the provisions described above under the caption "-- Certain Covenants-- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, the following items will not be deemed to be Asset Sales: (1) any single transaction or series of related transactions that involves assets having a fair market value of less than $1.0 million; 46 (2) a transfer of assets between or among the Company and its Restricted Subsidiaries; (3) an issuance of Equity Interests by a Subsidiary to the Company or to a Restricted Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; (6) the sale or other disposition of all or substantially all of the assets comprising the party goods and candles businesses of the Company (as such businesses are described in this offering circular) or the stock of any subsidiary substantially all of the assets of which are the assets comprising the party goods and candles businesses of the Company; provided that the requirements set forth under clauses (1) and (2) of the covenant described above under the caption "Repurchase at the Option of Holders -- Asset Sales" shall have been satisfied and any cash proceeds received upon any such sale or disposition shall be applied in accordance with the Asset Sale covenant; (7) sales of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" to a Receivables Subsidiary for the fair market value thereof, including cash in an amount at least equal to 75% of the book value thereof as determined in accordance with GAAP, it being understood that, for the purposes of this clause (7), notes received in exchange for the transfer of accounts receivable and related assets will be deemed cash if the Receivables Subsidiary or other payor is required to repay said notes as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Qualified Receivables Transaction; (8) transfers of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Transaction; and (9) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "--Certain Covenants-- Restricted Payments." "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the board of directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. 47 "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's or S&P and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal; (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; or (4) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. 48 "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly Owned Subsidiary of the Person; (2) the Net Income of any Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders; (3) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded; (4) the aggregate amount of restructuring charges, write-downs and reserves taken by the Company in connection with the restructuring of its operations as described in this offering circular under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Restructuring Activities and Special Charges" but without regard to the expected timing of such restructuring charges, write-downs and reserves will be added back; provided that the aggregate amount added to Consolidated Net Income pursuant to this clause (4) shall not exceed $350.6 million, which shall include up to $32.6 million related to the write- down of the Company's investment in Egreetings Network, Inc., and pre-tax charges of up to $18.0 million related to changes is contractual relationships with strategic partners of AmericanGreetings.com, up to $90.0 49 million related to the implementation of scan-based trading at select retailers, and up to $210.0 million related to corporate restructuring; (5) the cumulative effect of a change in accounting principles will be excluded; and (6) the Net Income (but not loss) of any Unrestricted Subsidiary will be excluded (except to the extent distributed to the Company or one of its Restricted Subsidiaries). "Consolidated Net Worth" means, with respect to any specified Person as of any date, the sum of: (1) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (2) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of the indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Convertible Subordinated Notes" means $150 million in aggregate principal amount of the Company's 7.00% Convertible Subordinated Notes due July 15, 2006 to be issued concurrently with these notes. "Credit Facilities" means, one or more debt facilities (including, without limitation, the New Credit Facilities) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Designated Senior Debt" means: (1) any Indebtedness outstanding under the Existing Credit Facility and any Credit Facility used to refinance or replace at least $25 million of debt outstanding under the Existing Credit Facility; and (2) after payment in full of all Obligations under the Existing Credit Facility and any Credit Facility used to refinance or replace at least $25 million of debt outstanding under the Existing Credit Facility, any other Senior Debt permitted under the indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is 50 convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any offering of common stock of the Company. "Existing Credit Facility" means the Credit Agreement as described under "Description of Other Indebtedness -- The Credit Agreement." "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under Credit Facilities) in existence on the date of the indenture, until such amounts are repaid. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non- cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any specified Person and its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: 51 (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period will be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act, but without giving effect to clause (3) of the proviso set forth in the definition of Consolidated Net Income; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the indenture. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date will be: 52 (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." The acquisition by the Company or any Subsidiary of the Company of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and, except in connection with any Qualified Receivables Transaction, any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock, dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Indebtedness under a Credit Facility, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. 53 "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness "Old Notes" means $300.0 million in outstanding principal amount of the Company's 6.10% Senior Notes due 2028. "Permitted Business" means any business that derives a majority of its revenues from the business engaged in by the Company and its Restricted Subsidiaries on the date of original issuance of the notes and/or activities that are reasonably similar, ancillary or related to, or a reasonable extension, development or expansion of, the businesses in which the Company and its Restricted Subsidiaries are engaged on the date of original issuance of the notes. "Permitted Investments" means: (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "--Repurchase at the Option of Holders-- Asset Sales;" (5) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any Investments received in compromise of obligations of such persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; (7) Hedging Obligations; (8) the acquisition by a Receivables Subsidiary in connection with a Qualified Receivables Transaction of Equity Interests of a trust or other Person established by such Receivables Subsidiary to effect such Qualified Receivables Transaction; and any other Investment by the Company or a Subsidiary of the Company in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Transaction; provided, that such other Investment is in the form of a note or other 54 instrument that the Receivables Subsidiary or other Person is required to repay as soon as practicable from available cash collections less amounts required to be established as reserves pursuant to contractual agreements with entities that are not Affiliates of the Company entered into as part of a Qualified Receivables Transaction; (9) any Investment in a Person substantially all of the assets of which are the party goods and candle businesses currently operated by the Company (as such businesses are described in this offering circular); and (10) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (10) that are at the time outstanding not to exceed $15.0 million. "Permitted Junior Securities" means: (1) Equity Interests in the Company; or (2) debt securities that are subordinated to all Senior Debt and any debt securities issued in exchange for Senior Debt to substantially the same extent as, or to a greater extent than, the notes are subordinated to Senior Debt under the indenture. "Permitted Liens" means: (1) Liens of the Company and its Restricted Subsidiaries securing Senior Debt that was permitted by the terms of the indenture to be incurred; (2) Liens in favor of the Company; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Restricted Subsidiary; (4) Liens on property existing at the time of acquisition of the property by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled "--Certain Covenants-- Incurrence of indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of the indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) Liens on assets of the Company or a Receivables Subsidiary incurred in connection with a Qualified Receivables Transaction; (10) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; and 55 (11) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the notes on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Principals" means Morry Weiss, Judith A. Weiss, Harry H. Stone, Gary Weiss, Jeffrey Weiss, Zev Weiss, Elie Weiss and the Irving I. Stone Limited Liability Co. "Qualified Receivables Transaction" means any transaction or series of transactions entered into by the Company or any of its Subsidiaries pursuant to which the Company or any of its Subsidiaries sells, conveys or otherwise transfers to (i) a Receivables Subsidiary (in the case of a transfer by the Company or any of its Subsidiaries) and (ii) any other Person (in the case of a transfer by a Receivables Subsidiary), or grants a security interest in, any accounts receivable (whether now existing or arising in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable. "Receivables Subsidiary" means a Subsidiary of the Company which engages in no activities other than in connection with the financing of accounts receivable and which is designated by the board of directors of the Company (as provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Subsidiary of the Company (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction), (ii) is recourse to or obligates the Company or any Subsidiary of the Company in any way other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction or (iii) subjects any property or asset of the Company or any Subsidiary of the Company (other than accounts receivable and related assets as provided in the definition of 56 "Qualified Receivables Transaction"), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction, (b) with which neither the Company nor any Subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing accounts receivable and (c) with which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve such Subsidiary's financial condition or cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company will be evidenced to the trustee by filing with the trustee a certified copy of the resolution of the board of directors of the Company giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing conditions. "Related Party" means: (1) any controlling stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1). "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Debt" means: (1) all Indebtedness of the Company outstanding under Credit Facilities and all Hedging Obligations with respect thereto; (2) any other Indebtedness of the Company permitted to be incurred under the terms of the indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the notes; and (3) all Obligations with respect to the items listed in the preceding clauses (1) and (2). Notwithstanding anything to the contrary in the preceding, Senior Debt will not include: (1) any liability for federal, state, local or other taxes owed or owing by the Company; (2) any intercompany Indebtedness of the Company or any of its Subsidiaries to the Company or any of its Affiliates; (3) any trade payables; or (4) the portion of any Indebtedness that is incurred in violation of the indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. 57 "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (5) has at least one director on its Board of Directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a certified copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption "-- Certain Covenants -- 58 Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period and (2) no Default or Event of Default would be in existence following such designation. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any specified Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) will at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of the principal United States federal income tax consequences of the purchase, ownership and disposition of the notes to beneficial owners of notes who are United States Holders (as defined below) and the principal United States federal income and estate tax consequences of the purchase, ownership and disposition of the notes to beneficial owners of notes who are Foreign Holders (as defined below). This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change possibly with retroactive effect, or different interpretations. This discussion does not address the tax consequences to subsequent purchasers of notes and is limited to initial purchasers of notes who purchase the notes at the offering price and hold the notes as capital assets, within the meaning of section 1221 of the Code. This discussion also does not address the tax consequences to Foreign Holders that are subject to United States federal income tax on a net basis on income realized with respect to a note because such income is effectively connected with the conduct of a U.S. trade or business. Such Foreign Holders are generally taxed in a similar manner to United States Holders, but certain special rules apply, including branch profits tax. This discussion does not address the tax consequences to persons who hold the notes through a partnership or similar pass-through entity. Moreover, this discussion is for general information only and does not address all of the tax consequences that may be relevant to particular initial purchasers of notes in light of their personal circumstances or to certain types of initial purchasers (such as certain financial institutions, insurance companies, tax-exempt entities, dealers in securities, former U.S. citizens and long-term residents or persons who have hedged the risk of owning a note) or the effect of any applicable state, local or foreign tax laws. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF. UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS 59 As used herein, the term "United States Holder" means a holder of a note that is, for United States federal income tax purposes, (a) a citizen or resident of the United States, (b) a corporation or other entity (other than a partnership) created or organized in or under the laws of the United States or any political subdivision thereof, (c) an estate the income of which is subject to United States federal income taxation regardless of source or (d) a trust if (i) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (ii) the trust has elected to be treated as a United States Holder pursuant to applicable Treasury regulations. PAYMENT OF INTEREST Stated interest paid or accrued on the notes will constitute qualified stated interest and will be taxable to a United States Holder as ordinary income in accordance with the holder's method of accounting for U.S. federal income tax purposes. Alternatively, a United States Holder may elect to include stated interest on the notes (as well as original issue discount ("OID") and, if any, market discount, de minimis market discount and unstated interest on the notes, as adjusted by any amortizable bond premium or acquisition premium) in gross income on a constant yield basis. The mechanics and implications of such an election are complex and, as a result, United Stated Holders should consult their own tax advisors regarding the advisability of making such an election. ORIGINAL ISSUE DISCOUNT The notes will have OID for U.S. federal income tax purposes, and accordingly United States Holders of notes will be subject to special rules relating to the accrual of income for tax purposes. United States Holders of notes generally must include OID in gross income for U.S. federal income tax purposes on an annual basis under a constant yield accrual method regardless of their regular method of tax accounting. As a result, United States Holders will include OID in income in advance of the receipt of cash attributable to such income. However, United States Holders of the notes generally will not be required to include separately in income cash payments received on such notes, even if denominated as interest, to the extent such payments constitute payments of previously accrued OID. The notes will be treated as issued with OID equal to the excess of a note's "stated redemption price at maturity" over its issue price. The stated redemption price at maturity of a note is the total of all payments on the note that are not payments of "qualified stated interest." A qualified stated interest payment is a payment of stated interest unconditionally payable, in cash or property (other than its debt instruments), at least annually at a single fixed rate during the entire term of the note that appropriately takes into account the length of intervals between payments. Stated interest on the notes will be treated as qualified stated interest. The amount of OID includible in income by an initial United States Holder of a note is the sum of the "daily portions" of OID with respect to the note for each day during the taxable year or portion thereof in which such United States Holder holds such note ("accrued OID"). A daily portion is determined by allocating to each day in any "accrual period" a pro-rata portion of the OID that accrued in such period. The "accrual period" of a note may be of any length and may vary in length over the term of the note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the first or last day of an accrual period. The amount of OID that accrues with respect to any accrual period is the excess of (i) the product of the note's adjusted issue price at the beginning of such accrual period and its yield to maturity, determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of such period, over (ii) the amount of qualified stated interest allocable to such accrual period. The "adjusted issue price" of a note at the start of any accrual period is equal to its issue price, increased by the accrued OID for each prior accrual period and reduced by any prior payments made on such note (other than payments of qualified stated interest). IMPACT OF APPLICABLE HIGH YIELD DISCOUNT OBLIGATION RULES 60 If the "yield to maturity" on the notes equals or exceeds the sum of 5% and the appropriate "applicable federal rate" in effect for the month in which the notes are issued (for debt instruments issued in June 2001, the appropriate "applicable federal rate" is 4.96%, assuming semi-annual compounding) and the notes have "significant" OID, the notes will be considered "applicable high yield discount obligations" ("AHYDOS"). A debt instrument has "significant" OID if (a) the aggregate amount which would be includible in gross income with respect to such debt instrument for periods before the close of any accrual period ending after the date 5 years after the date of issue exceeds (b) the sum of (i) the aggregate amount of interest to be paid under the instrument before the close of such accrual period and (ii) the product of the issue price of the debt instrument and its yield to maturity. If the notes are AHYDOS, the Company will not be permitted to deduct for U.S. federal income tax purposes OID accrued on the notes until such time as the Company actually pays such OID in cash or in property other than its stock or its debt (or stock or debt of a person related to us). Moreover, the lesser of (a) the amount of OID on the notes and (b) the product of the total OID on the notes times the ratio of (i) the excess of the note's yield to maturity over the sum of the appropriate applicable federal rate plus 6% to (ii) the yield to maturity (the "Dividend-Equivalent Interest") will not be deductible at any time by us for U.S. federal income tax purposes (regardless of whether the Company actually pays such Dividend-Equivalent Interest in cash or other property). A corporate United States Holder is eligible for the dividends-received deduction for the portion of the Dividend-Equivalent Interest that would have been treated as a dividend had it been distributed by us with respect to its stock. SALE, EXCHANGE OR RETIREMENT OF THE NOTES Upon the sale, exchange, redemption, retirement at maturity or other disposition of a note, a United States Holder generally will recognize taxable gain or loss equal to the difference between the sum of cash plus the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued and unpaid interest, which amount will be taxable as ordinary income unless previously included in income) and such United States Holder's adjusted tax basis in the note. A United States Holder's adjusted tax basis in a note generally will equal the cost of the note to such United States Holder, increased by OID included in gross income with respect to the note and decreased by the amount of any payments (other than stated interest) received by such United States Holder. Gain or loss recognized on the disposition of a note generally will be capital gain or loss and will be long-term capital gain or loss if, at the time of such disposition, the United States Holder's holding period for the note is more than one year. The deduction of capital losses is subject to certain limitations. United States Holders of notes should consult tax advisors regarding the treatment of capital gains and losses. The exchange of an outstanding note by a United States Holder for a registered note pursuant to the exchange offer will not constitute a taxable exchange for United States federal income tax purposes. Accordingly, there will be no United States federal income tax consequences to holders who participate in the exchange offer, and any such holder will have the same adjusted tax basis and holding period in any registered note as it had in the privately-placed, outstanding note immediately before the exchange. BACKUP WITHHOLDING AND INFORMATION REPORTING Backup withholding and information reporting requirements may apply to certain payments ("reportable payments") of principal and interest on a note, and to proceeds of the sale or redemption of a note before maturity. The Company, its agent, a broker, the Trustee or any paying agent, as the case may be, will be required to withhold from any reportable payment that is subject to backup withholding a backup withholding tax on such payment if, among other things, a United States Holder fails to furnish his taxpayer identification number (social security or employer identification number), certify that such number is correct, certify that such holder is not subject to backup withholding or otherwise comply with the applicable requirements of the backup withholding rules. Certain United States Holders, including all corporations, are not subject to backup withholding and information reporting requirements for payments 61 made in respect of the notes. Any amounts withheld under the backup withholding rules from a reportable payment to a United States Holder will be allowed as a credit against such United States Holder's United States federal income tax and may entitle the holder to a refund, provided that the required information is furnished to the IRS. The amount of any reportable payments, including interest, made to the record United States Holders of notes (other than to holders which are exempt recipients) and the amount of tax withheld, if any, with respect to such payments will be reported to such United States Holders and to the IRS for each calendar year. UNITED STATES FEDERAL INCOME TAXATION OF FOREIGN HOLDERS As used herein, the term "Foreign Holder" means a holder (other than a partnership or an entity treated as a partnership for United States federal income tax purposes) of a note that is, for United States federal income tax purposes, neither a United States Holder, as defined above nor a former U.S. citizen or long-term resident, as defined in section 877 of the Code. PAYMENT OF INTEREST ON NOTES In general, payments of interest (whether the interest is stated interest or OID) received by a Foreign Holder will not be subject to a United States federal withholding tax, provided that (a)(i) the Foreign Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (ii) the Foreign Holder is not a controlled foreign corporation that is related to the Company actually or constructively through stock ownership, (iii) the Foreign Holder is not a bank receiving interest described in section 881 (c)(3)(A) of the Code, and (iv) either (A) the beneficial owner of the note, under penalties of perjury, provides us or its agent with such beneficial owner's name and address and certifies on IRS Form W-8BEN (or a suitable substitute form) that it is not a United States Holder or (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") holds the note and provides a statement to us or its agent under penalties of perjury in which it certifies that such an IRS Form W-8BEN (or a suitable substitute) has been received by it from the beneficial owner of the note or qualifying intermediary and furnishes us or its agent a copy thereof or (b) the Foreign Holder is entitled to the benefits of an income tax treaty under which interest on the notes is exempt from United States withholding tax and the Foreign Holder or such Foreign Holder's agent provides a properly executed IRS Form W-8BEN claiming the exemption. Payments of interest not exempt from United States federal withholding tax as described above will be subject to such withholding tax at the rate of 30% (subject to reduction under an applicable income tax treaty). Certain Foreign Holders who claim benefits of a treaty may be required in certain circumstances to obtain a taxpayer identification number and to provide certain documentary evidence issued by foreign governmental authorities to establish residence in a foreign county. Special procedures apply to payments through partnerships or intermediaries. SALE, EXCHANGE OR RETIREMENT OF THE NOTES A Foreign Holder generally will not be subject to United States federal income tax (and generally no tax will be withheld) with respect to gain realized on the sale, exchange, redemption, retirement at maturity or other disposition of a note unless (a) the Foreign Holder is an individual who is present in the United States for a period or periods aggregating 183 or more days in the taxable year of the disposition and, generally, either has a "tax home" or an "office or other fixed place of business" in the United States or (b) a portion of the amount received represents payment of interest, and the Foreign Holder is not exempt from United States federal withholding tax on payments of interest on the note, in which case the interest may be subject to withholding tax at the rate of 30% (subject to reduction under an applicable tax treaty). BACKUP WITHHOLDING AND INFORMATION REPORTING 62 Backup withholding does not apply to payments of interest made by us or a paying agent to Foreign Holders if the certification described above under "-- United States Federal Income Taxation of Foreign Holders -- Payment of Interest on notes" is received, provided that the payor does not have actual knowledge that the holder is a United States Holder. Information reporting may apply to payments of interest even if the certification is provided. If any payments of sales proceeds are made to the beneficial owner of a note by or through the foreign office of a foreign custodian, foreign nominee or other foreign agent of such beneficial owner, or if the foreign office of a foreign "broker" (as defined in applicable Treasury regulations) pays the proceeds of the sale of a note to the seller thereof, backup withholding and information reporting will not apply. Information reporting requirements (but not backup withholding) will apply, however, to a payment by a foreign office of a broker that is (a) a United States person, (b) a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, (c) a "controlled foreign corporation" (generally, a foreign corporation controlled by certain United States shareholders) with respect to the United States, or (d) a foreign partnership with certain connections to the United States, unless the broker has documentary evidence in its records that the holder is a Foreign Holder and certain other conditions are met or the holder otherwise establishes an exemption. Payment by a United States office or a broker is subject to both backup withholding and information reporting unless the holder certifies under penalties of perjury that it is a Foreign Holder or otherwise establishes an exemption. FEDERAL ESTATE TAXES Subject to applicable estate tax treaty provisions, notes held at the time of death (or notes transferred before death but subject to certain retained rights or powers) by an individual who at the time of death is a Foreign Holder will not be included in such Foreign Holder's gross estate for United States federal estate tax purposes provided that the individual does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote or hold the notes in connection with a U.S. trade or business. THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF ITS NOTES, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS. PLAN OF DISTRIBUTION Each broker-dealer that receives registered notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of the registered notes received in exchange for outstanding notes where such outstanding notes were acquired as a result of market-making activities or other trading activities. The Company has agreed to keep the registration statement effective from the time the registered notes are first issued and ending on the earlier of 180 days after the date the exchange offer is completed or the date on which any such broker-dealer no longer own any of the privately-placed outstanding notes. In addition, the Company has agreed that, until December 26, 2001, none of the Company, any of its Subsidiaries, other affiliates over which it exercises management or voting control, or any person acting on their behalf will, without the prior written consent of Goldman Sachs & Co. offer, sell, contract to sell or otherwise dispose of any securities substantially similar to the notes other than in connection with this exchange offer. The Company will not receive any proceeds from any sale of the registered notes by broker-dealers. Registered notes received by any broker-dealer for its own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the registered notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such registered notes. Any broker-dealer that 63 resells registered notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such registered notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of registered notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has been advised by the initial purchasers of the outstanding notes that, following completion of the exchange offer, they intend to make a market in the registered notes to be issued in the exchange offer; however, they are under no obligation to do so and any market activities with respect to the registered notes may be discontinued at any time. LEGAL MATTERS The legality of the notes has been passed on for the Company by Brouse McDowell, Akron, Ohio. EXPERTS The consolidated financial statements and schedule of American Greetings Corporation, appearing in American Greetings Corporation's Annual Report (Form 10-K) for the fiscal year ended February 28, 2001, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon, included therein and incorporated herein by reference. Such consolidated financial statements and schedule are incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. 64 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. The following table sets forth the estimated expenses payable by the registrant in connection with the issuance and distribution of the notes and the Class A Common Shares, and do not include fees and expenses incurred in connection with the initial issuance of the notes in the private sale on June 29, 2001. All the amounts shown are estimates, except for the Commission registration fee which is the actual amount paid in connection with the registration of the $260,000,000 principal amount of notes being registered under this registration statement.
Securities and Exchange Commission registration fee $ 65,000 Accounting fees and expenses ..................................... 18,500 Printing fees and expense ......................................... 5,000 Legal fees and expenses ........................................... 50,000 Miscellaneous...................................................... 2,500 =========== Total.................................................... $ 141,000
* To be completed by amendment Item 15. Indemnification of Directors And Officers. Section 1701.13(E) of the Ohio Revised Code authorizes the indemnification of officers and directors in defense of any civil, criminal, administrative or investigative proceeding. Article IV of the Regulations of the company provides for indemnification in terms consistent with the statutory authority, and the company maintains insurance covering certain liabilities of the directors and the elected and appointed officers of the company and its subsidiaries, including liabilities under the Securities Act. Item 16. Exhibits. See the Exhibit Index at page E-1 of this registration statement. Item 17. Undertakings. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person of the registrant in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-1 The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to its registration statement No. 333-65836 on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Cleveland and State of Ohio, as of the 21st day of November, 2001. AMERICAN GREETINGS CORPORATION By: /s/ Jon Groetzinger, Jr. ---------------------------------- Jon Groetzinger, Jr., Secretary Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on November 21, 2001.
SIGNATURE TITLE /s/Morry Weiss Chairman of the Board; Chief Executive Officer; - -------------- Director (principal executive officer) Morry Weiss /s/James C. Spira President; Chief Operating Officer; Director - ----------------- James C. Spira /s/Scott B. Cowen Director - ----------------- Scott S. Cowen /s/Stephen R. Hardis Director - -------------------- Stephen R. Hardis /s/Jack Kahl Director - ------------ Jack Kahl /s/Harriet Mouchly-Weiss Director - ------------------------ Harriet Mouchly-Weiss /s/Charles A. Ratner Director - -------------------- Charles A. Ratner /S/Harry H. Stone Director - ----------------- Harry H. Stone /s/Jerry Sue Thornton Director - --------------------- Jerry Sue Thornton /s/William S. Meyer Senior Vice President; Chief Financial Officer - -------------------- (principal financial officer) William S. Meyer /s/Joseph B. Cipollone Vice President; Corporate Controller (principal - ---------------------- accounting officer) Joseph B. Cipollone
AMERICAN GREETINGS CORPORATION EXHIBIT INDEX
EXHIBIT DOCUMENT NAME NUMBER 4.1 Indenture dated as of June 29, 2001 between the registrant, as issuer, and National City Bank, as Trustee, with respect to the registrant's 11.75% Senior Subordinated Notes due 2008 4.2 Form of the registrant's 11.75% Senior Subordinated Notes due 2008 (included in Exhibit 4.1) 5 Opinion of Brouse McDowell, A Legal Professional Association, as to the validity of the registrant's 11.75% Senior Subordinated Notes due 2008 12 Statement re Computation of Ratio of Earnings to Fixed Charges* 23.1 Consent of Independent Auditors* 23.2 Consent of Brouse McDowell (included in Exhibit 5.1) 24 Power of Attorney 25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939* 99.1 Form of Letter of Transmittal.* 99.2 Form of Notice of Guaranteed Delivery.* 99.3 Form of Letter from the Registrant to Registered Holders and Depository Trust Company Participants.* 99.4 Form of Instructions from Beneficial Owners to Registered Holders and Depository Trust Company Participants.* 99.5 Form of Letter to Clients.*
* FILED WITH THIS AMENDMENT NO. 1 E-1 EX-12 3 l91453aex12.txt EXHIBIT 12 EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES THOUSANDS OF DOLLARS
FISCAL YEAR ENDED FEBRUARY 28 OR 29, ------------------------------------ 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- Fixed charges: Interest expense $ 30,749 $ 22,992 $ 29,326 $ 34,255 $ 55,387 Interest component of rent expense 17,268 17,445 18,049 18,746 22,956 --------- --------- --------- --------- --------- Total fixed charges $ 48,017 $ 40,437 $ 47,375 $ 53,001 $ 78,343 ========================================================= Earnings (loss) before income taxes and cumulative effect of accounting change $254,330 $292,437 $281,597 $140,624 $ 98,633 ========================================================= Earnings (loss) + fixed charges $302,347 $332,874 $328,972 $193,625 $176,976 Ratio of earnings (loss) to fixed charges 6.3 8.2 6.9 3.7 2.3 (earnings (loss) + fixed charges) / fixed charges
SIX MONTHS ENDED AUGUST 31, -------------------------- 2000 2001 ---- ---- Fixed charges: Interest expense $ 24,583 $ 35,525 Interest component of rent expense 11,478 10,342 -------- ---------- Total fixed charges $ 36,061 $ 45,867 ====================== Earnings (loss) before income taxes and cumulative effect of accounting change $ 4,702 $(185,894) ====================== Earnings (loss) + fixed charges $ 40,763 $(140,027) Ratio of earnings (loss) to fixed charges 1.1 - (earnings (loss) + fixed charges) / fixed charges
EX-23.1 4 l91453aex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Experts" and "Selected Consolidated Financial Data" in Amendment No. 1 to the Registration Statement (Form S-4) No. 333-68536 and related Prospectus of American Greetings Corporation for the registration of 11.75% Senior Subordinated Notes due 2008 ($260,000,000 aggregate principal amount) and to the incorporation by reference therein of our report dated March 27, 2001, with respect to the consolidated financial statements and schedule of American Greetings Corporation included in its Annual Report (Form 10-K) for the year ended February 28, 2001, filed with the Securities and Exchange Commission. Ernst & Young Cleveland, Ohio November 19, 2001 EX-25 5 l91453aex25.txt EXHIBIT 25 Exhibit 25 United States Securities and Exchange Commission Washington, D.C. 20549 ------------------------------------ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------------------------ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ------------------------------------ THE HUNTINGTON NATIONAL BANK (Exact name of trustee as specified in its chatter) - ------------------------------ 31-0966785 (Jurisdiction of incorporation (IRS Employer Identification Number) or organization if not a U.S. national bank) 41 S. High Street 43215 Columbus, Ohio (Zip Code) (Address of principal executive offices) Richard A. Cheap, General Counsel and Secretary The Huntington National Bank 41 S. High Street - HC3412 Columbus, Ohio 43215 Tel: (614) 480-4647 (Name, address and telephone number of agent for service) ------------------------------------ AMERICAN GREETINGS CORPORATION (Exact name of obligor as specified in its charter) Ohio 34-0065325 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) One American Road 44114 Cleveland, Ohio (Zip Code) (Address of principal executive offices) ------------------------------------ AMERICAN GREETINGS CORPORATION 11.75% SENIOR SUBORDINATED NOTES DUE 2008 Debt Securities (Title of the indenture securities) ------------------------------------ 1 GENERAL Pursuant to General Instruction B of the Form T-1, the applicant is providing responses to only Items 1, 2, and 16 of the Form T-1 since the obligor is not in default. Item 1. General Information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Office of the Comptroller of the Currency Federal Deposit Insurance Corporation Central District Chicago Region One Financial Plaza 30 South Wacker Drive 440 South LaSalle, Suite 2700 Chicago, Illinois 60505 Chicago, Illinois 60605
Board of Governors of the Federal Reserve System Washington, D.C. 20551 Federal Reserve Bank of Cleveland - District No.4 1455 East Sixth Street Cleveland, Ohio 44115 (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the obligor If the obligor is an affiliate of the trustee, describe each such affiliation. None. 2 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect. 2. A copy of the Certificate of Authority of the Trustee to Commence Business. 3. A copy of the authorization of the Trustee to exercise corporate trust powers. 4. A copy of the existing By Laws of the Trustee. 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, The Huntington National Bank, a national association organized and existing under the laws of the United States, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Columbus and State of Ohio on the 15th day of October, 2001. THE HUNTINGTON NATIONAL BANK (Trustee) By: /s/ F. G. Lamb ------------------------------------ F. G. Lamb, Vice President (Name and Title) 3 ITEM 16 - Exhibit 1 Charter No. 7745 AMENDED AND RESTATED ARTICLES OF ASSOCIATION OF THE HUNTINGTON NATIONAL BANK (Adopted October 15, 2001) FIRST. The title of this Association shall be The Huntington National Bank. SECOND. The main office of the Association shall be in the City of Columbus, County of Franklin, State of Ohio. The general business of the Association shall be conducted at its main office and its branches. THIRD. The Board of Directors of this Association shall consist of not less than five nor more than twenty-five shareholders, the exact number of directors within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full Board of Directors then in office or by resolution of the shareholders at any annual or special meeting thereof Unless otherwise provided by the laws of the United States, any vacancy in the Board of Directors for any reason, including an increase in the number thereof, may be filled by an action of a majority of the Board of Directors then in office. Each director, during the term of his directorship, shall own shares of this Association, or of another corporation whose shares are acceptable under law as director's qualifying shares, the aggregate par value of which is at least $1,000. FOURTH. The annual meeting of the shareholders for the election of directors and the transaction of whatever other business may be brought before said meeting shall be held at the main office or such other place as the Board of Directors may designate on the date of each year specified therefor in the Bylaws, but if no election is held on that day, it may be held according to such lawful regulations as may be prescribed by the Board of Directors. FIFTH. 5.1 AUTHORIZED SHARES. The authorized amount of capital stock of this Association shall be: (i) 4,000,000 shares of common stock, of the par value of $10.00 per share; (ii) 500,000 shares of Class B preferred stock; of the par value of $1,000 per share; (iii) 2,000,000 shares of Class C preferred stock, of the par value of $25.00 per share; and (iv) 14,000,000 shares of Class D preferred stock, of the par value of $25.00 par value per share; but said capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. The rights and preferences of the Class B, Class C, and Class D preferred stock shall be as set forth in Sections 5.4 through 5.6 hereof. 5.2 NO PREEMPTIVE RIGHTS. No holder of shares of the capital stock of any class of this Association shall have any preemptive or preferential right of subscription to any shares of any class of stock of this Association, whether now or hereafter authorized, or to any obligations convertible into stock of this Association issued or sold, nor any right of subscription to any thereof other than such, if any, as the Board of Directors, in its discretion, may from time to time determine and at such price as the Board of Directors may from time to time fix. 5.3 AUTHORITY TO ISSUE DEBT OBLIGATIONS. This Association, at any time and from time to time, may authorize and issue debt obligations, whether or not subordinated, without the approval of the shareholders. 5.4 CLASS B PREFERRED STOCK. 5.4.1 Definitions. As used herein in reference to the Class B preferred stock: (a) "Accrued Dividends" means an amount equal to dividends on the Class B preferred stock at the rate specified in Section 5.4.2(a) hereof, if, as, and when declared by the Board of Directors of the Association, computed from the date on which such dividends began to accrue on such shares to the date to which dividends are stated to accrue, less the aggregate amount of dividends previously paid thereon. (b) "Designated LIBOR Page" means the display on the Dow Jones Telerate Service for the purpose of displaying the London interbank rates of major banks for U.S. dollars. (c) "LIBOR" means the rate for three-month deposits in U.S. dollars that appears on the Designated LIBOR Page as of 11:00 A.M., London time, on a particular date. If no such rate appears, LIBOR with respect to such date will be determined as follows: (i) the Bank will request the principal London offices of each of four major reference banks in the London interbank market, as selected by the Bank, to provide the Bank with its offered quotation for three-month deposits in U.S. dollars to prime banks in the London interbank market at approximately 11:00 A.M., London time, on such date, and in a principal amount of not less than U.S. $1,000,000, that is representative of a single transaction in such market at such time; (ii) if at least two such quotations are provided, LIBOR with respect to such date will be the arithmetic mean of such quotations; (iii) if fewer than two quotations are provided, LIBOR with respect to such date will be the arithmetic mean of the rates quoted at approximately 11:00 A.M., New York City time, on such date, by three major banks in New York City selected by the Bank for three-month loans in U.S. dollars to leading European banks, and in a principal amount of not less than U.S. $1,000,000, that is representative of a single transaction in U.S. dollars in such market at such time; provided, however, that if the banks so selected by the Bank are not quoting as mentioned in this sentence, LIBOR for such date will be the same as LIBOR for the immediately preceding Dividend Payment Period. -2- (d) "London Banking Day" means a day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. 5.4.2 Dividends. (a) The dividend rate for the Class B preferred stock shall be a variable rate, to be determined quarterly for each calendar quarter during which any Class B preferred stock are outstanding, equal to LIBOR, determined as of the first day of each such quarter or, if the first day of such quarter is not a London Banking Day, then on the first London Banking Day of such quarter. (b) The Board of Directors may declare dividends on the Class B preferred stock quarterly, and may set apart funds for the payment of such dividends at the time of such declaration. Any such dividends, when, as, and if declared by the Board of Directors, shall be payable annually on such date as may be fixed by the Board of Directors to holders of such shares of record on the record date fixed for such purpose by the Board of Directors in advance of the payment of such dividend. Any dividends on the Class B preferred stock shall be payable only out of funds legally available for the payment thereof (c) Dividends on the Class B preferred stock shall not be cumulative; however, so long as any Class B preferred stock remain outstanding, no dividend, except a dividend payable in common shares, shall be declared or paid upon, nor shall any distribution be made or ordered except as aforesaid, in respect of the common shares, nor shall any moneys be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of shares of common stock, in a particular calendar year, unless the full dividend on all outstanding Class B preferred stock for all calendar quarters within such year that have ended prior to the taking of any such action with respect to the common stock shall have been paid or declared and set apart for payment. 5.4.3 Liquidation Preference. The amount payable on the outstanding shares of Class B preferred stock in the event of any voluntary or involuntary liquidation, dissolution, or winding-up of affairs of the Association shall be $1,000 per share, plus the amount of any Accrued Dividends to the date fixed for payment of distributable amounts on such shares. Upon any such liquidation, dissolution, or winding-up of the Association, the holders of Class B preferred stock shall be entitled, before any distribution shall be made to the holders of shares of common stock, to be paid the full preferential amount of $1,000 per share, but the holders of Class B preferred stock shall not be entitled to any further payment with respect to such shares. 5.4.4 Voting Rights. The Class B preferred stock shall be non-voting, except as otherwise required by law. 5.4.5 Redemption. (a) The Class B preferred stock shall be redeemable by the Association at any time at $1,000 per share, plus the full dividend on all outstanding Class B preferred stock for the then current dividend period to the redemption date on shares redeemed (the "Redemption -3- Price") with funds legally available for such purpose. The Association, at the option of the Board of Directors, may at any time redeem the whole, or from time to time may redeem any part, of the Class B preferred stock at such time or times by paying the Redemption Price, in cash, to the holders thereof, provided, however, that less than all of the Class B preferred stock may be redeemed only after or concurrently with making payment of, or declaring or setting apart for payment, the full dividend on all outstanding Class B preferred stock for the then current dividend period. If less than all of the outstanding Class B preferred stock are to be called for redemption, the shares to be redeemed shall be selected either by lot or pro rata, at the option of the Board of Directors, and in such manner as may be prescribed by resolution of the Board of Directors. (b) Not more than 60 days and not less than 10 days prior to the date established for such redemption (the "Redemption Date"), notice of the proposed redemption shall be mailed to the holders of record of the Class B preferred stock to be redeemed, such notice to be addressed to each such shareholder at his last known address shown on the records of the Association, and the time of mailing such notice shall be deemed to be the time of the giving thereof. On or after the Redemption Date, each holder of Class B preferred stock called for redemption shall surrender his certificate(s) for such shares to the Association at the place designated in such notice and shall thereupon be entitled to receive payment of the Redemption Price. In case less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been given as aforesaid, and if on or before the Redemption Date the funds necessary for the redemption shall have been set aside so as to be and continue available therefor, then, notwithstanding that the certificates representing any Class B preferred stock so called for redemption shall not have been surrendered, the dividends thereon shall cease to accrue after the Redemption Date and all rights with respect to the shares so called for redemption shall forthwith after such Redemption Date cease, except only the right of the holders to receive the Redemption Price, without interest. If such notice of redemption of all or any part of the Class B preferred stock shall have been mailed as aforesaid and the Association shall thereafter deposit money for the payment of the Redemption Price pursuant thereto with any bank or trust company (hereinafter referred to as the "depository"), including any affiliate of the Association, selected by the Board of Directors for that purpose, to be applied to such redemption, then from and after the making of such deposit, such shares shall not be deemed to be outstanding for any purpose, and the rights of the holders thereof shall be limited to the rights to receive payment of the Redemption Price, without interest but including Accrued Dividends to the Redemption Date, from the depository upon endorsement, if required, and surrender of the certificates therefor. The Association shall be entitled to receive, from time to time, from the depository, the interest, if any, allowed on such moneys deposited with it, and the holders of any shares so redeemed shall have no claim to any such interest. Any moneys so deposited and remaining unclaimed at the end of three years from the Redemption Date shall, if thereafter requested by resolution of the Board of Directors, be repaid to the Association, and in the event of such repayment to the Association, such holders of record of the shares so called for redemption as shall not have made claim against such moneys prior to such repayment to the Association shall be deemed to be unsecured creditors of the Association for an amount equivalent to the amount deposited as above stated for the redemption of such shares and so repaid to the Association, but shall in no event be entitled to any interest. -4- (c) Subject to the provisions hereof, the Board of Directors shall have authority to prescribe from time to time the manner in which Class B preferred stock shall be redeemed. All Class B preferred stock redeemed at the option of the Association shall be permanently retired in the manner provided by law. (d) Nothing herein contained shall limit any legal right of the Association to purchase any shares of the Class B preferred stock; provided, however, that, except in accordance with an offer made to all holders of Class B preferred stock, the Association shall not purchase or otherwise acquire for a consideration, or permit any affiliate to purchase or otherwise acquire for a consideration, any Class B preferred stock unless the full dividend on all outstanding Class B preferred stock for the then current dividend period shall have been paid or declared and set apart for payment. 5.5 CLASS C PREFERRED STOCK. 5.5.1 Definitions. As used herein in reference to the Class C preferred stock, all terms defined in Section 5.4.1 hereof shall have the meanings specified in such Section 5.4.1, substituting "Class C preferred stock" for "Class B preferred stock" and changing all Section references as appropriate, and the following terms shall be defined as follows: (a) "Business Day" means any day other than a Saturday, Sunday. or a bank holiday. (b) "Dividend Payment Date" means March 31, June 30, September 30, and December 31 of each year, with respect to dividends payable for the Dividend Periods ending on such dates, provided that, if any March 31, June 30, or September 30 is not a Business Day, then the Dividend Payment Date for the Dividend Payment Period ending on such date shall be the next Business Day following such date, and if any December 31 is not a Business Day, then the Dividend Payment Date for the Dividend Payment Period ending on such date shall be the Business Day next preceding December 31. (c) "Dividend Period" (other than the Initial Dividend Period) means the quarterly period commencing on and including the first day, and ending on and including the last day, of each calendar quarter. (d) "Initial Dividend Period" means the first Dividend Period following the issuance of any Class C Shares, which shall commence on and include the first day upon which a share of Class C preferred stock shall be issued and shall end on and include the last day of the calendar quarter in which such issuance occurs. (e) "Junior Stock" means the common stock, the Class B preferred stock, and any and all other classes and series of equity securities of the Association now or hereafter authorized, issued, or outstanding, except Parity Stock and Senior Stock, if any. -5- (f) "Liquidation Value" means $25.00 per share, plus the amount of any Accrued Dividends to the date fixed for payment of distributable amounts on such shares, without interest. (g) "OCC" means the Office of the Comptroller of the Currency. (h) "Optional Redemption Date" means December 31, 2021. (i) "Parity Stock" means the Class D preferred stock. (j) "Record Date" means the record dates, not more than 45 calendar days nor less than 10 calendar days preceding a Dividend Payment Date therefor, as determined by the Board of Directors. (k) "Senior Stock" means any and all classes or series of equity securities of the Association expressly designated as ranking senior to the Class C preferred stock as to dividend rights or rights upon the liquidation of the Association. 5.5.2 Dividends. (a) Payment of Dividends. Holders of Class C preferred stock shall be entitled to receive, if, as, and when authorized and declared by the Board of Directors, out of assets of the Association legally available therefor, noncumulative cash dividends at an annual rate of 7-7/8% of the Liquidation Value, and no more. Such noncumulative cash dividends shall be payable, if and when authorized and declared, quarterly in arrears on a Dividend Payment Date. Each authorized and declared dividend shall be payable to holders of record of the Class C preferred stock as they appear on the stock books of the Association at the close of business on a Record Date; provided, however, that if a redemption date for the Class C preferred stock occurs after a dividend is authorized and declared but before it is paid, such dividend shall be paid as part of the redemption price to the person to whom the redemption price is paid. (b) Proration of Dividends. The amount of dividends payable for the Initial Dividend Period and for any other Dividend Period which, as to a share of Class C preferred stock (determined by reference to the issuance date and the redemption or retirement date thereof), is greater or less than a full Dividend Period shall be computed on the basis of the number of days elapsed in the period using a 360-day year composed of twelve 30-day months. (c) No Interest. Holders of Class C preferred stock shall not be entitled to any interest, or any sum of money in lieu of interest, in respect of any dividend payment or payments on the Class C preferred stock authorized and declared by the Board of Directors which may be unpaid. Any dividend payment made on the Class C preferred stock shall first be credited against the earliest authorized and declared but unpaid cash dividend with respect to the Class C preferred stock. (d) Dividends not Cumulative. The right of holders of Class C preferred stock to receive dividends is noncumulative. Accordingly, if the Board of Directors does not authorize -6- or declare a dividend payable in respect of any Dividend Period, holders of Class C preferred stock shall have no right to receive a dividend in respect of such Dividend Period, and the Association shall have no obligation to pay a dividend in respect of such Dividend Period, whether or not dividends are authorized and declared and payable in respect of any future Dividend Period. (e) Priority as to Dividends. No full dividends or other distributions shall be authorized, declared, or paid or set apart for payment on any Parity Stock or Junior Stock (other than in common shares or other Junior Stock) for any Dividend Period unless full dividends have been or contemporaneously are authorized, declared, and paid, or authorized and declared and a sum sufficient for the payment thereof set apart for such payment, on the Class C preferred stock for such Dividend Period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) for any Dividend Period on the Class C preferred stock and any Parity Stock, dividends authorized and declared on the Class C preferred stock and Parity Stock shall only be authorized and declared pro rata based upon the respective amounts that would have been paid on the Class C preferred stock and such Parity Stock had dividends been authorized and declared in full. In addition to the foregoing restriction, the Association shall not authorize, declare, pay, or set apart funds for any dividends or other distributions (other than in common shares or other Junior Stock) with respect to any common shares or other Junior Stock of the Association or repurchase, redeem, or otherwise acquire, or set apart funds for repurchase, redemption, or other acquisition of, any common shares or other Junior Stock through a sinking fund or otherwise, unless and until (i) the Association shall have authorized, declared, and paid full dividends on the Class C preferred stock for the four most recent preceding Dividend Periods (or such lesser number of Dividend Periods during which Class C preferred stock have been outstanding) or sufficient funds have been paid over to the dividend disbursing agent of the Association for payment of such dividends, and (ii) the Association has authorized and declared a full dividend on the Class C preferred stock for the then-current Dividend Period, and sufficient funds have been paid over to the dividend disbursing agent for the Association for the payment of such dividend for such then-current Dividend Period. (f) Priority of Senior Stock. No dividend shall be paid or set aside for holders of Class C preferred stock for any Dividend Period unless full dividends have been paid or set aside for the holders of Senior Stock, if any, as to dividends for such Dividend Period. (g) Distributions on Liquidation. Any reference to "dividends" or "distributions" in this Section 5.5.2 shall not be deemed to include any distribution made in connection with any voluntary or involuntary dissolution, liquidation, or winding up of the Association. 5.5.3 Liquidation Preference. The amount payable on the outstanding Class C preferred stock in the event of any voluntary or involuntary liquidation, dissolution, or winding-up of affairs of the Association, out of the assets of the Association legally available for distribution to shareholders under applicable law, or the proceeds thereof, shall be equal to the Liquidation Value. Upon any such liquidation, dissolution, or winding-up of the Association, the holders of Class C preferred stock shall be entitled, before any distribution shall be made to the holders of common shares or any other Junior Stock, to be paid the full amount of the -7- Liquidation Value, but the holders of Class C preferred stock shall not be entitled to any further payment with respect to such shares. If the amounts available for distribution in respect of the Class C preferred stock and any outstanding Parity Stock upon any such voluntary or involuntary liquidation, dissolution, or winding up are not sufficient to satisfy the full liquidation rights of all of the outstanding Class C preferred stock and such Parity Stock, then the holders of such outstanding shares shall share ratably in any such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. All distributions made in respect of Class C preferred stock in connection with such a liquidation, dissolution, or winding up of the Association shall be made pro rata to the holders entitled thereto. Neither the consolidation, merger, or other business combination of the Association with or into any other person, nor the sale of all or substantially all of the assets of the Association, shall be deemed to be a liquidation, dissolution or winding up of the Association for purposes of this Section 5.5.3. 5.5.4 Voting Rights. The Class C preferred stock shall be non-voting, except as otherwise required by law. 5.5.5 Redemption. (a) No Mandatory Redemption; Optional Redemption. The Class C preferred stock are not subject to mandatory redemption and, except as hereinafter provided in Section 5.5.5(c) hereof, are not subject to optional redemption by the Association prior to the Optional Redemption Date. On or after the Optional Redemption Date, subject to receipt of prior approval of the OCC, the Class C preferred stock may be redeemed in cash by the Association or any successor or acquiring or resulting entity at its option, in whole or in part, at any time or from time to time, upon notice as provided in Section 5.5.5(d), at the redemption price of $25.00 per share, plus Accrued Dividends to the date fixed for redemption, without interest. (b) Procedures on Redemption. If less than all of the outstanding Class C preferred stock are to be redeemed, the Association will select those shares to be redeemed pro rata, by lot or by such other methods as the Board of Directors in its sole discretion determines to be equitable, provided that such method satisfies any applicable requirements of any securities exchange or quotation system on which the Class C preferred stock are then listed or quoted. If redemption is being effected by the Association, on and after the date fixed for redemption. dividends shall cease to accrue on the Class C preferred stock called for redemption. and they shall be deemed to cease to be outstanding, provided that the redemption price (including any authorized and declared but unpaid dividends to the date fixed for redemption, without interest) has been duly paid or provided for. If redemption is being effected by an entity other than the Association, on and as of the date fixed for redemption, such entity shall be deemed to own the Class C preferred stock being redeemed for all purposes of these Articles of Association, provided that the redemption price (including the amount of any Accrued Dividends to the date fixed for redemption, without interest) has been duly paid or provided for. (c) Notice of Optional Redemption. Notice of any optional redemption, setting forth (i) the date and place fixed for said redemption, (ii) the redemption price, and (iii) a statement that dividends on the Class C preferred stock (A) to be redeemed by the Association will cease to accrue on such redemption date, or (B) to be redeemed by an entity other than the -8- Association will thereafter accrue solely for the benefit of such entity, shall be mailed at least 30 days, but not more than 60 days, prior to said date fixed for redemption to each holder of record of Class C preferred stock to be redeemed at his or her address as the same shall appear on the stock ledger of the Association. If less than all of the Class C preferred stock owned by such holder are then to be redeemed, such notice shall specify the number of shares thereof that are to be redeemed and the numbers of the certificates representing such shares. Notice of any redemption shall be given by first class mail, postage prepaid. Neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives such notice. (d) Status of Redeemed Shares. If such notice of redemption shall have been so mailed, and if, on or before the date fixed for redemption specified in such notice, all funds necessary for such redemption shall have been set aside by the Association (or other entity as provided in subsection (a) or (c) of this Section 5.5.5 separate and apart from its other funds in trust for the account of the holders of Class C preferred stock to be redeemed (so as to be and continue to be available therefor) or delivered to the redemption agent with irrevocable instructions to effect the redemption in accordance with the relevant notice of redemption, then, on and after said redemption date, notwithstanding that any certificate for Class C preferred stock so called for redemption shall not have been surrendered for cancellation or transfer, the Class C preferred stock (i) so called for redemption by the Association shall be deemed to be no longer outstanding and all rights with respect to such Class C preferred stock so called for redemption shall forthwith cease and terminate, or (ii) so called for redemption by an entity other than the Association shall be deemed owned for all purposes of these Articles of Association by such entity, except in each case for the right of the holders thereof to receive, out of the funds so set aside in trust, the amount payable on redemption thereof, but without interest, upon surrender (and endorsement or assignment for transfer, if required by the Association or such other entity) of their certificates. Class C preferred stock redeemed pursuant to this Section 5.5.5, or purchased or otherwise acquired for value by the Association shall, after such acquisition, have the status of authorized and unissued preferred stock and may be reissued by the Association at any time as shares of any series of Preferred Stock other than as Class C preferred stock. (e) Unclaimed Funds. In the event that holders of Class C preferred stock that shall have been redeemed shall not within two (2) years (or any longer period if required by law) after the redemption date claim any amount deposited in trust with a bank or trust company for the redemption of such shares, such bank or trust company shall, upon demand and if permitted by applicable law, pay over to the Association (or other entity that redeemed the shares) any such unclaimed amount so deposited with it, and shall thereupon be relieved of all responsibility in respect thereof, and thereafter the holders of such shares shall, subject to applicable escheat laws, look only to the Association (or other entity that redeemed the shares) for payment of the redemption price thereof, but without interest from the date fixed for redemption. 5.5.6 No Conversion Rights. The holders of Class C preferred stock shall not have any rights to convert such shares into shares of any other class or series of stock or into any other securities of, or any other interest in, the Association. -9- 5.5.7 No Sinking Fund. No sinking fund shall be established for the retirement or redemption of the Class C preferred stock. 5.5.8 No Other Rights. The Class C preferred stock shall not have any designations, preferences, or relative, participating, optional, or other special rights, except as set forth in the Articles of Association or as otherwise required by law. 5.5.9 Compliance with Applicable Law. Declaration by the Board of Directors and payment by the Association of dividends to holders of the Class C preferred stock and repurchase, redemption, or other acquisition by the Association (or another entity as provided in Section 5.5.5 hereof) of Class C preferred stock shall be subject in all respects to any and all restrictions and limitations placed on dividends, redemptions, or other distributions by the Association (or any such other entity) under (i) laws, regulations, and regulatory conditions or limitations applicable to or regarding the Association (or any such other entity) from time to time, and (ii) agreements with federal banking authorities with respect to the Association (or any such other entity) from time to time in effect. 5.5.10 Authorization and Issuance of Additional Shares. The Class C preferred stock shall be subject to the authorization and issuance of Senior Stock, Parity Stock, and Junior Stock to the extent not expressly prohibited by the Articles of Association. 5.6 CLASS D PREFERRED STOCK. 5.6.1 Definitions. As used herein in reference to the Class D preferred stock, all terms defined in Sections 5.4.1 and 5.5.1 hereof shall have the meanings specified in such Sections, substituting "Class D preferred stock" for "Class B preferred stock" and "Class C preferred stock," as appropriate, and changing all Section references as appropriate, except as follows: (a) "Optional Redemption Date" means December 31, 2006. (b) "Parity Stock" means the Class C preferred stock. 5.6.2 Dividends. (a) Dividend Rate. The annual dividend rate for the Class D preferred stock shall be a variable rate, to be determined quarterly for each calendar quarter during which any Class D preferred stock is outstanding, equal to (i) LIBOR, determined as of the first day of each such quarter or, if the first day of such quarter is not a London Banking Day, then on the first London Banking Day during such quarter, plus (ii) 1.625%. (b) Payment of Dividends. Holders of Class D preferred stock shall be entitled to receive, if, as, and when authorized and declared by the Board of Directors, out of assets of the Association legally available therefor, noncumulative cash dividends at an annual dividend rate determined from time to time in accordance with Section 5.6.2(a) hereof on the Liquidation Value, and no more. Such noncumulative cash dividends shall be payable, if and -10- when authorized and declared, quarterly in arrears on a Dividend Payment Date. Each authorized and declared dividend shall be payable to holders of record of the Class D preferred stock as they appear on the stock books of the Association at the close of business on a Record Date; provided, however, that if a redemption date for the Class D preferred stock occurs after a dividend is authorized and declared but before it is paid, such dividend shall be paid as part of the redemption price to the person to whom the redemption price is paid. (c) Proration Of Dividends. The amount of dividends payable for the Initial Dividend Period and for any other Dividend Period which, as to a share of Class D preferred stock (determined by reference to the issuance date and the redemption or retirement date thereof), is greater or less than a full Dividend Period shall be computed on the basis of the number of days elapsed in the period using a 360-day year composed of twelve 30-day months. (d) No Interest. Holders of Class D preferred stock shall not be entitled to any interest, or any sum of money in lieu of interest, in respect of any dividend payment or payments on the Class D preferred stock authorized and declared by the Board of Directors which may be unpaid. Any dividend payment made on the Class D preferred stock shall first be credited against the earliest authorized and declared but unpaid cash dividend with respect to the Class D preferred stock. (e) Dividends Not Cumulative. The right of holders of Class D preferred stock to receive dividends is noncumulative. Accordingly, if the Board of Directors does not authorize or declare a dividend payable in respect of any Dividend Period, holders of Class D preferred stock shall have no right to receive a dividend in respect of such Dividend Period, and the Association shall have no obligation to pay a dividend in respect of such Dividend Period, whether or not dividends are authorized and declared and payable in respect of any future Dividend Period. (f) Priority as to Dividends. No full dividends or other distributions shall be authorized, declared, or paid or set apart for payment on any Parity Stock or Junior Stock (other than in common shares or other Junior Stock) for any Dividend Period unless full dividends have been or contemporaneously are authorized, declared, and paid, or authorized and declared and a sum sufficient for the payment thereof set apart for such payment, on the Class D preferred stock for such Dividend Period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) for any Dividend Period on the Class D preferred stock and any Parity Stock, dividends authorized and declared on the Class D preferred stock and Parity Stock shall only be authorized and declared pro rata based upon the respective amounts that would have been paid on the Class D preferred stock and such Parity Stock had dividends been authorized and declared in full. In addition to the foregoing restriction, the Association shall not authorize, declare, pay, or set apart funds for any dividends or other distributions (other than in common shares or other Junior Stock) with respect to any common shares or other Junior Stock of the Association or repurchase, redeem, or otherwise acquire, or set apart funds for repurchase, redemption, or other acquisition of, any common shares or other Junior Stock through a sinking fund or otherwise, unless and until (i) the Association shall have authorized, declared, and paid full dividends on the Class D preferred stock for the four most recent preceding Dividend Periods (or such lesser number of Dividend Periods during which Class D preferred stock have -11- been outstanding) or sufficient funds have been paid over to the dividend disbursing agent of the Association for payment of such dividends, and (ii) the Association has authorized and declared a full dividend on the Class D preferred stock for the then-current Dividend Period, and sufficient funds have been paid over to the dividend disbursing agent for the Association for the payment of such dividend for such then-current Dividend Period. (g) Priority of Senior Stock. No dividend shall be paid or set aside for holders of Class D preferred stock for any Dividend Period unless full dividends have been paid or set aside for the holders of Senior Stock, if any, as to dividends for such Dividend Period. (h) Distributions on Liquidation. Any reference to "dividends" or "distributions" in this Section 5.6.2 shall not be deemed to include any distribution made in connection with any voluntary or involuntary dissolution, liquidation, or winding up of the Association. 5.6.3 Liquidation Preference. The amount payable on the outstanding Class D preferred stock in the event of any voluntary or involuntary liquidation, dissolution, or winding-up of affairs of the Association, out of the assets of the Association legally available for distribution to shareholders under applicable law, or the proceeds thereof, shall be equal to the Liquidation Value. Upon any such liquidation, dissolution, or winding-up of the Association, the holders of Class D preferred stock shall be entitled, before any distribution shall be made to the holders of common shares or any other Junior Stock, to be paid the full amount of the Liquidation Value, but the holders of Class D preferred stock shall not be entitled to any further payment with respect to such shares. If the amounts available for distribution in respect of the Class D preferred stock and any outstanding Parity Stock upon any such voluntary or involuntary liquidation, dissolution, or winding up are not sufficient to satisfy the full liquidation rights of all of the outstanding Class D preferred stock and such Parity Stock, then the holders of such outstanding shares shall share ratably in any such distribution of assets in proportion to the full respective preferential amounts to which they are entitled. All distributions made in respect of Class D preferred stock in connection with such a liquidation, dissolution, or winding up of the Association shall be made pro rata to the holders entitled thereto. Neither the consolidation, merger, or other business combination of the Association with or into any other person, nor the sale of all or substantially all of the assets of the Association, shall be deemed to be a liquidation, dissolution or winding up of the Association for purposes of this Section 5.6.3. 5.6.4 Voting Rights. The Class D preferred stock shall be non-voting. except as otherwise required by law. 5.6.5 Redemption. (a) No Mandatory Redemption; Optional Redemption. The Class D preferred stock are not subject to mandatory redemption and, except as hereinafter provided in Section 5.6.5(c) hereof, are not subject to optional redemption by the Association prior to the Optional Redemption Date. On or after the Optional Redemption Date, subject to receipt of prior approval of the OCC, the Class D preferred stock may be redeemed in cash by the Association or any successor or acquiring or resulting entity at its option, in whole or in part, at any time or -12- from time to time, upon notice as provided in Section 5.6.5(d), at the redemption price of $25.00 per share, plus Accrued Dividends to the date fixed for redemption, without interest. (b) Procedures on Redemption. If less than all of the outstanding Class D preferred stock are to be redeemed, the Association will select those shares to be redeemed pro rata, by lot or by such other methods as the Board of Directors in its sole discretion determines to be equitable, provided that such method satisfies any applicable requirements of any securities exchange or quotation system on which the Class D preferred stock are then listed or quoted. If redemption is being effected by the Association, on and after the date fixed for redemption, dividends shall cease to accrue on the Class D preferred stock called for redemption, and they shall be deemed to cease to be outstanding, provided that the redemption price (including any authorized and declared but unpaid dividends to the date fixed for redemption, without interest) has been duly paid or provided for. If redemption is being effected by an entity other than the Association, on and as of the date fixed for redemption, such entity shall be deemed to own the Class D preferred stock being redeemed for all purposes of these Articles of Association, provided that the redemption price (including the amount of any Accrued Dividends to the date fixed for redemption, without interest) has been duly paid or provided for. (c) Notice of Optional Redemption. Notice of any optional redemption, setting forth (i) the date and place fixed for said redemption, (ii) the redemption price, and (iii) a statement that dividends on the Class D preferred stock (A) to be redeemed by the Association will cease to accrue on such redemption date, or (B) to be redeemed by an entity other than the Association will thereafter accrue solely for the benefit of such entity, shall be mailed at least 30 days, but not more than 60 days, prior to said date fixed for redemption to each holder of record of Class D preferred stock to be redeemed at his or her address as the same shall appear on the stock ledger of the Association. If less than all of the Class D preferred stock owned by such holder are then to be redeemed, such notice shall specify the number of shares thereof that are to be redeemed and the numbers of the certificates representing such shares. Notice of any redemption shall be given by first class mail, postage prepaid. Neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives such notice. (d) Status of Redeemed Shares. If such notice of redemption shall have been so mailed, and if, on or before the date fixed for redemption specified in such notice, all funds necessary for such redemption shall have been set aside by the Association (or other entity as provided in subsection (a) or (c) of this Section 5.6.5) separate and apart from its other funds in trust for the account of the holders of Class D preferred stock to be redeemed (so as to be and continue to be available therefor) or delivered to the redemption agent with irrevocable instructions to effect the redemption in accordance with the relevant notice of redemption, then, on and after said redemption date, notwithstanding that any certificate for Class D preferred stock so called for redemption shall not have been surrendered for cancellation or transfer, the Class D preferred stock (i) so called for redemption by the Association shall be deemed to be no longer outstanding and all rights with respect to such Class D preferred stock so called for redemption shall forthwith cease and terminate, or (ii) so called for redemption by an entity other -13- than the Association shall be deemed owned for all purposes of these Articles of Association by such entity, except in each case for the right of the holders thereof to receive, out of the funds so set aside in trust, the amount payable on redemption thereof, but without interest, upon surrender (and endorsement or assignment for transfer, if required by the Association or such other entity) of their certificates. Class D preferred stock redeemed pursuant to this Section 5.6.5, or purchased or otherwise acquired for value by the Association shall, after such acquisition, have the status of authorized and unissued preferred stock and may be reissued by the Association at any time as shares of any series of Preferred Stock other than as Class D preferred stock. (e) Unclaimed Funds. In the event that holders of Class D preferred stock that shall have been redeemed shall not within two (2) years (or any longer period if required by law) after the redemption date claim any amount deposited in trust with a bank or trust company for the redemption of such shares, such bank or trust company shall, upon demand and if permitted by applicable law, pay over to the Association (or other entity that redeemed the shares) any such unclaimed amount so deposited with it, and shall thereupon be relieved of all responsibility in respect thereof, and thereafter the holders of such shares shall, subject to applicable escheat laws, look only to the Association (or other entity that redeemed the shares) for payment of the redemption price thereof, but without interest from the date fixed for redemption. 5.6.6 No Conversion Rights. The holders of Class D preferred stock shall not have any rights to convert such shares into shares of any other class or series of stock or into any other securities of, or any other interest in, the Association. 5.6.7 No Sinking Fund. No sinking fund shall be established for the retirement or redemption of the Class D preferred stock. 5.6.8 No Other Rights. The Class D preferred stock shall not have any designations, preferences, or relative, participating, optional, or other special rights, except as set forth in the Articles of Association or as otherwise required by law. 5.6.9 Compliance with Applicable Law. Declaration by the Board of Directors and payment by the Association of dividends to holders of the Class D preferred stock and repurchase, redemption, or other acquisition by the Association (or another entity as provided in Section 5.6.5 hereof) of Class D preferred stock shall be subject in all respects to any and all restrictions and limitations placed on dividends, redemptions, or other distributions by the Association (or any such other entity) under (i) laws, regulations, and regulatory conditions or limitations applicable to or regarding the Association (or any such other entity) from time to time, and (ii) agreements with federal banking authorities with respect to the Association (or any such other entity) from time to time in effect. 5.6.10 Authorization and Issuance of Additional Shares. The Class D preferred stock shall be subject to the authorization and issuance of Senior Stock, Parity Stock, and Junior Stock to the extent not expressly prohibited by the Articles of Association. -14- SIXTH. The Board of Directors shall appoint one of its members President of this Association, who shall be Chairman of the Board, unless the Board appoints another director to be the Chairman. The Board of Directors may appoint one or more directors to be Vice President of the Board. The Board of Directors shall have the power to appoint one or more Vice Presidents, and to appoint a Cashier and such other officers and employees as may be required to transact the business of this Association. The Board of Directors shall have the power to define the duties of the officers and employees of this Association; to fix the salaries to be paid to them; to dismiss them in accordance with the Bylaws; to require bonds from them and to fix the penalty thereof; to regulate the manner in which any increase of the capital of this Association shall be made; to manage and administer the business and affairs of this Association; to make all Bylaws that it may be lawful for them to make; and generally to do and perform all acts that it may be legal for a Board of Directors to do and perform. SEVENTH. The Board of Directors shall have the power to change the location of the main office to any other place within the limits of the City of Columbus, Ohio, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency and shall have the power to establish or change the location of any branch or branches of this Association to any other location, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency. EIGHTH. The Corporate existence of this Association shall continue until terminated in accordance with the laws of the United States. NINTH. The Board of Directors of this Association, or any three or more shareholders owning, in the aggregate, not less than 25 percent of the stock of this Association, may call a special meeting of shareholders at any time. Unless otherwise provided by the laws of the United States, a notice of the time, place, and purpose of every annual, and every special meeting of the shareholders shall be given by first-class mail, postage prepaid, mailed at least ten days prior to the day of such meeting to each shareholder of record at his address as shown upon the books of this Association. TENTH. This Association shall indemnify (a) its directors to the full extent provided by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures provided by such laws; (b) its officers to the same extent it shall indemnify its directors; and (c) its officers who are not directors to such further extent as shall be authorized by the Board of Directors and be consistent with law. The foregoing shall not limit the authority of the Association to indemnify other employees, members of committees and agents consistent with law. This Association may, upon the affirmative vote of a majority of its Board of Directors, purchase insurance for the purpose of indemnifying its directors, members of committees, officers, agents and other employees to the extent that such indemnification is allowed by law, provided, however, that neither indemnification nor insurance coverage therefor shall be extended to a formal order assessing civil money penalties against an Association director or -15- employee pursuant to the provisions of Title 12 United States Code, including, but not limited to, Section 93(b), 504, 1818(i) or 1972(2)(F). ELEVENTH. These Articles of Association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the shares of common stock of this Association, unless the vote of the holders of a greater amount of the shares of common stock is required by law, and in that case by the vote of the holders of such greater amount, and by the affirmative vote of the holders of a majority (or any other percentage as may be required by law) of any other class of the capital stock of the Association as may be required by law. TWELFTH. Wherever in these Articles of Association the context requires, references to the masculine shall be deemed to include the feminine and references to the singular shall be deemed to included the plural. -16- ITEM 16 - Exhibit 2 COMPTROLLER OF THE CURRENCY TREASURY DEPARTMENT [PICTURE] OF THE UNITED STATES WASHINGTON, D.C. WHEREAS, satisfactory evidence has been presented to the Comptroller of the Currency that "THE HUNTINGTON NATIONAL BANK", situated in Columbus, State of Ohio, has complied with all provisions and the statutes of the United States required to be complied with before being authorized to commence the business of banking as a National Banking Association; NOW THEREFORE, I hereby certify that the above-named association is authorized to commence the business of banking as a National Banking Association. IN TESTIMONY WHEREOF, witness my signature and seal of office this 28th day of December, 1979. /s/ John G. Helmann - ------------------------ Comptroller Charter No. 7745. COMPTROLLER OF THE CURRENCY TREASURY DEPARTMENT OF THE UNITED STATES WASHINGTON, D.C. WHEREAS, THE HUNTINGTON NATIONAL BANK, located in Columbus, State of Ohio, being a National Banking Association, organized under the statutes of the United States, has made application for authority to act as Fiduciary. AND WHEREAS, applicable provisions of the statutes of the United States authorize the grant of such authority; NOW THEREFORE, I hereby certify that the necessary approval has been given and that the said association is authorized, effective as of the close of business December 31, 1979, to act in all fiduciary capacities permitted by such statutes. IN TESTIMONY WHEREOF, witness my signature and Seal of Office this Thirty-First day of December, 1979. [SEAL] (signed) John G. Helmann Comptroller of the Currency ITEM 16 - EXHIBIT 4 BYLAWS OF THE HUNTINGTON NATIONAL BANK (As Restated December 15, 1999) ARTICLE I MEETINGS OF SHAREHOLDERS Section 1.1. ANNUAL MEETING. The regular annual meeting of the shareholders of the Association for the election of directors and for the transaction of such other business as may properly come before it shall be held at the principal office of the Association in Columbus, Ohio, or at such other place as the Board of Directors (referred to in these Bylaws as "Directors") may designate, between the hours of 10:00 A.M. and 5:00 P.M., on the third Wednesday in April, at such specific hour as the Directors may designate. Notice of such meeting shall be mailed, first class mail, postage prepaid, at least ten (10) days before the date thereof, addressed to each shareholder at his address appearing on the books of the Association. If, for any reason, directors are not elected at this meeting, the meeting may be adjourned to a later date for such purpose or, if this is not done, the Directors shall order an election to be held on some subsequent day as soon thereafter as practicable, according to the provisions of law; and notice thereof, shall be given in the manner herein provided for the annual meeting. Section 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided by statute, special meetings of the shareholders may be called for any purpose at any time by the Directors or by any shareholder or shareholders owning, in the aggregate, not less than twenty-five percent (25%) of the outstanding shares of stock of the Association. Every such special meeting, unless otherwise provided by law or unless such notice is waived as provided by these Bylaws, shall be called by mailing, first class mail, postage prepaid, not less than ten (10) days before the date fixed for such meeting, to each shareholder at his address appearing on the books of the Association, notice stating the time, place, and purpose of the meeting. Section 1.3. RECORD DATE FOR SHAREHOLDERS' MEETINGS. Shareholders entitled to notice of the annual meeting or any special meeting shall be the shareholders shown by the records of the Association to be shareholders on such record date as may be fixed in advance by the Directors, which date shall not be more than twenty (20) days and not less than ten (10) days before the date set for such shareholders' meeting. Section 1.4. NOMINATIONS FOR ELECTION TO THE BOARD OF DIRECTORS. Nominations may be made by the Directors, Executive Committee of the Board of Directors or by any holder of any outstanding class of capital stock of the Association entitled to vote for the election of directors, provided that, except as hereinafter provided, no person who shall have attained the age of 65 years prior to the date set for the election and who has been employed on a full-time basis by the Association, Huntington Bancshares Incorporated or any affiliate of Huntington Bancshares Incorporated nor any other person who shall have attained the age of 70 years prior to the date set for the election, shall be nominated by the Directors. The age limitations set forth herein for current and former full-time employees shall not be applicable to current or former Chief Executive Officers of this Association or Huntington Bancshares Incorporated. Such Chief Executive Officers shall, instead, be subject to the general age limitations set forth for non-employee directors. Nominations, other than those made by or on behalf of the existing management of the Association, shall be made in writing and shall be delivered or mailed to the -2- President of the Association and to the Comptroller of the Currency, Washington, D.C., not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors, provided however, that if less than 21 days' notice of the meeting is given to shareholders, such nomination shall be mailed or delivered to the President of the Association and to the Comptroller of the Currency not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of capital stock of the Association that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the Association owned by the notifying shareholder. Nominations not made in accordance herewith may, in his discretion, be disregarded by the Chairman of the meeting, and upon his instructions, the vote tellers may disregard all votes cast for each such nominee. Section 1.5. PROXIES. Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing, but no officer or employee of the Association shall act as proxy. Proxies need not be witnessed or acknowledged and shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Section 1.6. QUORUM. At every meeting of shareholders, each shareholder shall be entitled to cast one vote either in person or by proxy for each share of stock held by him as shown by the records of the Association on the record date fixed by the Directors pursuant to Section 1.3 hereof upon any matter coming before the meeting except as otherwise expressly provided by -3- these Bylaws. A majority of the outstanding shares of stock, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders unless otherwise provided by law; but less than a quorum may adjourn a meeting from time to time, and the meeting may be held, as adjourned, without further notice. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting, unless otherwise provided by law or by the Articles of Association. Section 1.7. WAIVER OF NOTICE. Any shareholder may, in writing, waive notice of any regular or special meeting at any time before or after the holding thereof. ARTICLE H DIRECTORS Section 2.1. AUTHORITY OF DIRECTORS. The Directors shall have power to manage and administer the business and affairs of the Association. Except as expressly limited by law, all corporate powers of the Association shall be vested in and may be exercised by the Directors, but the Directors may delegate powers as provided in these Bylaws. Section 2.2. NUMBER. The Directors shall consist of not less than five (5) nor more than twenty-five (25) persons, the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the Directors then in office or by resolution of the shareholders at any meeting thereof, provided, however, that a majority of the Directors may not increase the number of directors to a number which (a) exceeds by more than two (2) the number of directors last elected by the shareholders where such number -4- was fifteen (15) or less, and (b) to a number which exceeds by more than four (4) the number of directors last elected by shareholders where such number was sixteen (16) or more, but in no event shall the number of directors exceed twenty-five (25). Section 2.3. REGULAR MEETINGS. Except as otherwise provided in these Bylaws, regular meetings of the Directors shall be held without a formal legal notice and at such times and places as the Directors shall determine by resolution. Directors may participate in such regular meetings through use of conference telephone or similar communication equipment, so long as all members participating in such meetings can hear one another. Section 2.4. SPECIAL MEETINGS. Except as otherwise provided in these Bylaws, special meetings of the Directors may be called by the Chairman of the Board of Directors (referred to in these Bylaws as the "Chairman"), a Vice Chairman of the Board of Directors (referred to in these Bylaws as a "Vice Chairman"), or the President, upon not less than one (1) hour's notice and at the request of three or more directors, upon not less than two (2) days' notice. Each director shall be given notice stating the time, place and purpose of a special meeting. Notice may be given in writing, in person, by telephone or telegraph. Directors may participate in such special meetings through use of conference telephone or similar communication equipment, so long as all members participating in such meetings can hear one another. Section 2.5 ORGANIZATION MEETING. If possible, the Directors shall meet on the same day of and after the annual meeting of shareholders at which they are elected for the purpose of organizing and for the purpose of electing officers of the Association for the succeeding year, -5- but in any event, the Directors shall be organized and officers elected no later than the next regular meeting of Directors or within thirty (30) days of the date of the annual meeting whichever occurs first. If at the time fixed for such meeting, there shall not be a quorum present, the directors present may adjourn the meeting, from time to time, until a quorum is obtained. Section 2.6. QUORUM. At any meeting of the Directors, a majority of the directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. In the event of the death or disability of Directors by reason of war or other catastrophe, reducing the total Directors to less than that required for a quorum, a majority of the remaining directors shall constitute a quorum. Section 2.7 WAIVER OF NOTICE. Any director may, in writing, waive notice of any regular or special meeting at any time before or after the holding thereof. The presence of a director at a regular or special meeting shall constitute on his part a waiver of the notice for such meeting. Section 2.8. VACANCIES. When any vacancy occurs among the Directors, the remaining Directors may appoint a director to fill such vacancy at any regular meeting of the Directors or at any special meeting called for that purpose. If such a vacancy is to be filled at a regular or special meeting of Directors, not less than five (5) days' notice of such meeting shall be given in writing, in person, by telephone or telegraph to each director of the Association. Such notice shall include a statement that such action is to be taken at the regular or special meeting. Any directorships not filled by the shareholders shall be treated as vacancies to be filled by and in the discretion of the Directors. -6- Section 2.9. TERM. A director elected at the annual meeting of shareholders shall hold office until the next annual meeting of shareholders or until his successor has been elected and qualified. A director elected to fill a vacancy shall hold office until the next annual meeting of shareholders or until his successor is elected and qualified, provided, however, that, unless otherwise provided by law, any director may be removed from office by a majority vote of the outstanding shares of stock entitled to be voted at any special meeting of shareholders called for that purpose. Section 2.10 COMPENSATION. The Directors shall have authority to vote themselves reasonable compensation for their services as Directors. Reasonable compensation shall also be allowable to Directors and members of committees authorized by Directors for attendance at meetings of Director or of any committee. The Directors may provide for their own indemnification and reimbursement of others, by the Association for liability and expenses actually incurred in connection with any action, suit or proceeding, civil or criminal, to which they shall be made a party by reason of having acted for the Association, subject to the limitations set forth in Article Tenth of the Articles of Association, and the Directors may authorize the purchase of insurance to provide therefor. Section 2.11. DECLARATION OF DIVIDENDS. The Directors may, in their discretion, from time to time declare dividends as permitted by law. Such dividends may be payable in money, stock of the Association or in other assets of the Association. The Directors may fix a date not exceeding thirty (30) days preceding the date fixed for the payment of any dividend as the record date for the determination of shareholders entitled to receive payment of any dividend, provided the record date shall be not less than seven (7) days after the date on which the dividend -7- is declared; and only shareholders of record on the date so fixed shall be entitled to receive such dividend notwithstanding any transfer of shares on the books of the Association after any record date so fixed. Section 2.12. POWER OF DIRECTORS TO APPOINT COMMITTEES. The Directors having the power to manage and administer the business and affairs of the Association from time to time may delegate these powers to committees which, except as otherwise provided in these Bylaws, may, but need not necessarily, include directors. By the appointment of such committees, the Directors do not thereby relieve themselves of their responsibility of directing the business and affairs of the Association. The committees so appointed, including committees of the Trust Department, shall be annually appointed by the Directors at their organization meeting unless they shall specifically determine not to appoint such committees. The Directors shall appoint a Chairman of each committee and such Chairman or any member of the committee designated by him shall preside at the meetings of the committee. In the event of the death, prolonged absence or the inability of the Chairman of any committee to act, the Executive Committee may appoint an Acting Chairman of such committee who shall assume the duties and have the powers of the Chairman of such committee until the Chairman returns to service or the Directors elect a new Chairman. Alternate members may be appointed to each committee and such alternate members may act at any meeting of a committee at which a regular committee member or members shall be absent. Unless otherwise stated in these Bylaws, each committee shall meet upon the call of its Chairman or upon the call of any two of its members. A majority of the members of any committee shall constitute a quorum and each committee may elect its own Secretary who need not be from among its own members. Minutes of all meetings of committees shall be kept and shall be presented to regular meetings of the -8- Directors. Members of all committees may participate in meetings of their respective committees through use of conference telephone or similar communications equipment, so long as all members participating in such meetings can hear one another. Each committee shall keep minutes of its meetings, and such minutes shall be submitted at the next regular meeting of Directors, and any action taken by the Directors with respect thereto shall be entered into the minutes of the Directors. ARTICLE III COMMITTEES (Exclusive of Trust Department) Section 3.1. EXECUTIVE COMMITTEE. The members of the Executive Committee shall be directors and shall include the Chief Executive Officer, and no less than three (3) other directors of the Association who are not officers. Except as otherwise provided in these Bylaws, the Executive Committee may exercise all of the powers of Directors during intervals between meetings thereof, including the power to authorize the execution of contracts, deeds, leases, and other agreements respecting real or personal property. It may fill vacancies occurring in any committee appointed by the Directors between regular meetings of the Directors. It may fill vacancies occurring in any offices between meetings of Directors and, when deemed necessary, may create new offices and elect persons to fill such offices it shall have general supervision over all expenditures of the Association and shall consider and act upon any matter submitted to it by the Directors or by the Chairman of such -9- Committee and shall advise the Directors in regard to the policies of the Association and the conduct of its affairs. The Executive Committee shall not, however, exercise the power of Directors to declare dividends. Section 3.2. AUDIT COMMITTEE. There shall be an Audit Committee composed of not less than three (3) outside Directors, all of whom shall be independent of management of the Association, at least two (2) of whom shall have banking or related financial management expertise, and none of whom shall be large customers of the Association, all as further set forth in 12 C.F.R. Part 363, as amended from time to time. None of the members of the Audit Committee shall also be members of any Trust Committee appointed by the Directors. It shall be among the duties of the Audit Committee to (a) make an examination at least once during each calendar year and within 15 months of the last such examination into the affairs of the Association or cause suitable examinations to be made by an independent public accountant responsible only to the Directors; (b) report the result of such examination to the Directors at the next regular meeting thereafter; (c) review with management and this Association's independent public accountant the basis for the reports issued under 12 C.F.R. Part 363; (d) oversee the internal audit function; (e) review with management and the independent public accountant the adequacy of internal controls and the resolution of identified material weaknesses and reportable conditions in internal controls; (f) conduct or cause to be conducted periodic audits of the Trust Department or adopt an adequate continuous audit system; and (g) perform such other duties as are determined from time to time by the Board of Directors. The Audit Committee shall be entitled to retain and have access to its own outside legal counsel at its discretion. -10- Section 3.3. COMPENSATION COMMITTEE. There shall be a Compensation Committee composed of not less than three (3) Directors or other persons, none of whom shall be active officers. In the absence of any appointment to the contrary, the chairman, members and alternates from time to time serving on the Compensation Committee of the Board of Directors of Huntington Bancshares Incorporated, shall be deemed to be the chairman, members and alternates, respectively, of the Compensation Committee of this Association. It shall be the duty of the Compensation Committee to act upon matters of compensation in accordance with Section 4.3 of ARTICLE IV of these Bylaws. Section 3.4. OTHER COMMITTEES. The Directors may appoint such other committees from time to time as they may deem proper for the management of the business and affairs of the Association, and the Directors may delegate to the Executive Committee or to the Chairman of the Executive Committee the appointment of other committees which they may deem necessary for the direction of the business and affairs of the Association. ARTICLE IV OFFICERS Section 4.1. OFFICERS. The officers of this Association shall be a Chairman, President, one or more Vice Presidents, a Cashier, one or more Assistant Cashiers and such other officers as may be designated as such from time to time by the Directors. The Directors may also elect one or more Vice Chairmen and one or more Regional Presidents and if so elected, they shall be officers of the Association. The Chairman, a Vice Chairman, or the President shall be designated by the Directors as Chief Executive Officer of the Association, -11- The duties, powers and authority of officers shall be such as usually pertain to their respective offices, unless otherwise prescribed in these Bylaws or by the Directors. If the Directors shall elect a Chairman, he shall preside at all meetings of the shareholders and Directors and, in the Chairman's absence, the President shall preside at such meetings; and in the President's absence, a Vice Chairman shall preside, and in the absence of any of the foregoing any Vice President who is also a director may preside. The Directors may elect a Secretary and may elect one or more Assistant Secretaries, who need not be directors, and they shall hold office at the pleasure of the Directors. Section 4.2. TENURE OF OFFICE. The Chairman, President, and any Vice Chairman shall hold office during the year for which the Directors electing them were elected and until their successors, respectively, shall be elected, unless such officers shall resign, become disqualified, or be removed. Either the President or the Chairman or a Vice Chairman may be removed from office for cause by two-thirds (2/3) vote of the total number of directors then in office. Any vacancy occurring in the office of President shall be filled for the unexpired term by the Directors. Any vacancy occurring in the office of the Chairman or Vice Chairman may he filled for the unexpired term by the Directors. The Vice Presidents. Cashier and subordinate officers shall hold their offices or positions, respectively, during the pleasure of the Directors. The Directors may appoint or discharge agents and employees, define their duties and conditions of employment and, from time to time, fix their compensation, or may delegate such authority to any committees or officers of the Association. -12- Section 4.3. COMPENSATION. The compensation of the Chairman, President and any Vice Chairman shall be fixed by the Directors upon recommendation of the Compensation Committee. The compensation of all other officers and all employees shall be fixed by the Chief Executive Officer or by such other officers as may be designated by him. Section 4.4. BOND. All officers and employees shall be bonded in favor of the Association in an amount deemed sufficient from time to time by the Directors against losses arising from their unfaithful performance of duties. ARTICLE V TRUST DEPARTMENT Section 5.1. SEPARATE DEPARTMENT. There shall be a separate and independent department of the Association, designated the Trust Department, which shall perform the fiduciary responsibilities of the Association. Section 5.2. MANAGEMENT. Subject to the provisions of this ARTICLE V, the management and immediate supervision of the Trust Department shall be in charge of the officer or officers appointed by the Directors. Such officer or officers may be known as Trust Officers or Assistant Trust Officers. Their duties shall be the operation of the Trust Department and such other duties as may be described in these Bylaws or assigned to them by the Directors. Section 5.3. TRUST COMMITTEE. If the Directors appoint a Trust Committee, the Trust Committee shall have control and supervision of all activities of the Trust Department. Any -13- Trust Committee may delegate its authority to such other committees as it may establish, or to the officers of the Association. Section 5.4. ACCEPTANCE AND CLOSING OF TRUSTS. The acceptance, closing and relinquishment of all trusts shall be approved by the Directors, any Trust Committee appointed by the Directors or any officers or other committees designated by the Directors and shall be recorded in the records of the Trust Department. Documents and instruments in connection with acceptance and termination of trusts may be executed by any Trust Officer, Assistant Trust Officer or other officer authorized pursuant to Section 8.2 of these Bylaws or by any other person designated by the Directors. Section 5.5 TRUST DEPARTMENT FILES. There shall be maintained in the Trust Department files containing all fiduciary records necessary to assure that its fiduciary responsibilities have been properly undertaken and discharged. Section 5.6. TRUST INVESTMENTS. Funds held in a fiduciary capacity shall be invested in accordance with the instrument establishing the fiduciary relationship and local law. Where such instrument does not specify the character and class of investments to be made and does not vest in the Association a discretion in the matter, funds held pursuant to such instrument shall be invested in investments in which corporate fiduciaries may invest under local law. -14- ARTICLE VI STOCK AND STOCK CERTIFICATES Section 6.1. CERTIFICATES. The shares of stock of the Association shall be represented by certificates signed by the Chairman, a Vice Chairman, the President or a Vice President and the Cashier, an Assistant Cashier, the Secretary or an Assistant Secretary, manually or by facsimile and shall bear the seal of the Association or a printed or engraved facsimile of the seal, shall be in such form as the Directors may prescribe, and shall be issued for one or more full shares only. Section 6.2 TRANSFER. Shares of stock shall be transferable only on the books of the Association by the holder or by an attorney or legal representative thereof duly authorized by a power of attorney filed with the Association and upon surrender of the stock certificate or certificates for such shares properly endorsed. Section 6.3. ADDRESS OF SHAREHOLDERS. Every shareholder shall keep the Association advised of his mailing address. The Association may rely upon its shareholder records as to the mailing address of any shareholder unless and until otherwise advised in writing. Section 6.4. LOST CERTIFICATES. The holder of any shares of stock of this Association, the certificate or certificates for which shall have been lost or destroyed, shall immediately notify the Association of such fact. A new certificate or certificates may be issued upon satisfactory proof of the loss or destruction of the old certificate, and the Association may -15- require a bond which shall be in such sum, contain such terms and provisions, and have such surety or sureties as the Association may require. ARTICLE VII SEAL Section 7.1. FORM. The seal of the Bank shall consist of the words "The Huntington National Bank, Columbus, Ohio" in concentric circles with the word "Seal" appearing in the inner circle, and shall be in the form impressed hereon. Section 7.2. USE OF SEAL. The seal may be affixed to any document by the Secretary, any Assistant Secretary, the Cashier, any Assistant Cashier or other person specifically authorized by the Directors, the Executive Committee, the Chairman, a Vice Chairman or the President. ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.1 FISCAL YEAR. The Fiscal Year of the Association shall be the calendar year. Section 8.2. EXECUTION OF INSTRUMENTS. All agreements contracts, indentures, mortgages, deeds, conveyances, leases, assignments, notes, transfers, certificates, declarations, -16- receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments or documents may be signed, executed, acknowledged, verified, delivered or accepted in behalf of the Association by the Chairman, a Vice Chairman, or the President, or any Vice President, or the Secretary, or any Assistant Secretary, or the Cashier, and, if in connection with the exercise of fiduciary powers of the Association, by any of said officers or by any Trust Officer, Assistant Trust Officer, Assistant Vice President or any other officer employed in the Trust Department. Any such instruments may also be executed, acknowledged, verified, delivered or accepted in behalf of the Association in such other manner and by such other officers and employees as the Directors may from time to time direct. The provisions of this Section 8.2. are supplementary to any other provision of these Bylaws. Section 8.3. RECORDS. The Articles of Association, the Bylaws and the proceedings of all meetings of the shareholders, the Directors, and standing committees of Directors, shall be recorded in appropriate minute books provided for the purpose. The minutes of each meeting shall be signed by the Secretary, Assistant Secretary, Cashier or other Officer appointed to act as Secretary of the meeting. Section 8.4. RULES OF CONSTRUCTION. Wherever in these Bylaws the context requires, references to the masculine shall be deemed to include the feminine and references to the singular shall be deemed to include the plural. -17- Section 8.5. ELECTION OF DIRECTORS OF THE FEDERAL RESERVE BANK OF CLEVELAND. The Chairman, Vice Chairman, President or other Executive Officers of the Association as designated by the Directors pursuant to Regulation "O" of the Board of Governors of the Federal Reserve system are authorized to nominate on behalf of the Association one candidate for Director of Class A and one candidate for Director of Class B of the Federal Reserve Bank of Cleveland, Cleveland, Ohio. The Chairman, Vice Chairman, President or other Executive Officers of the Association are authorized to cast the vote of the Association in the elections of Class A and Class B Directors of the Federal Reserve Bank of Cleveland, Cleveland, Ohio. This authority may be exercised repeatedly and from time to time. Section 8.6. ACTION BY SHAREHOLDERS OR DIRECTORS WITHOUT A MEETING. Anything contained in these Bylaws to the contrary notwithstanding, any action which may be authorized or taken at a meeting of the shareholders or of the Directors or of a committee of the Directors, as the case may be, may be authorized or taken without a meeting with the affirmative vote or approval of, and in a writing or writings signed by all the shareholders who would be entitled to notice of a meeting of the shareholders held for such purpose, or all the Directors, or all the members of such committee of the Directors, respectively, which writing or writings shall be filed with or entered upon the records of the Association. -18- ARTICLE IX BYLAWS Section 9.1. INSPECTION. A copy of these Bylaws, with all amendments thereto, shall at all times be kept in a convenient place at the Main Office of the Association, and shall be open for inspection to all shareholders, during banking hours. Section 9.2. AMENDMENTS. These Bylaws may be amended, altered or repealed by a vote of a majority of the outstanding shares of stock of the Association or by a majority vote of the Directors, then in office. If such amendment, alteration or repeal is made by the Directors it may be made at a regular or special meeting of Directors held upon not less than five (5) day's notice. Such notice to Directors may be given in writing, in person, by telephone or telegraph. Notice to either shareholders or Directors of a meeting to amend, alter or repeal these Bylaws shall state that such action is to be taken. -19- ITEM 16 - EXHIBIT 6 To: U.S. Securities and Exchange Commission In connection with the attached Form T-1 filing and pursuant to Section 321(b) of the Trust Indenture Act of 1939 (the "Act"), The Huntington National Bank does hereby certify that all reports of examinations by Federal, State, Territorial, and District authorities may be furnished by such authorities to the U.S. Securities and Exchange Commission. Such reports may be furnished confidentially to the Attorney General of the United States when deemed necessary by the Commission, or requested by her, for the purpose of enabling her to perform her duties under the Act. THE HUNTINGTON NATIONAL BANK By: /s/ F.G. Lamb ------------------------------------ F.G. Lamb, Vice President ITEM 16 - EXHIBIT 7 TO FORM T-1 (Attached) Federal Financial Institutions Examination Council Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064.0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Expires March 31,2002 Please refer to page i, 1 Table of Contents, for the required disclosure of estimated burden. CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES-FFIEC 031 Report at the close of business June 30, 2001 (20010331) (RCRI 9999) This report is required by law: 12 U.S.C. 324 (State member banks); 12 U.S.C. 1817 (State nonmember banks): and 12 U.S.C. 161 (National banks). This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National banks. I, John D. VanFleet, Sr. Vice President Name and Title of Officer Authorized to Sign Report of the named bank do hereby declare that the Reports of Condition and Income (including the supporting schedules) for this report date have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief. /s/ John D. VanFleet - ---------------------------------------------- Signature of Officer Authorized to Sign Report July 30, 2001 - ----------------- Date of Signature The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. We, the undersigned directors (trustees), attest to the correctness of the Report of Condition (including the supporting schedules) for this report date and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in Conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ Illegible signature - ---------------------------- Director (Trustee) /s/ Illegible signature - ---------------------------- Director (Trustee) /s/ Illegible signature - ---------------------------- Director (Trustee) SUBMISSION OF REPORTS Each bank must prepare its Reports of Condition and Income either: (a) in electronic form and then file the computer data file directly with the banking agencies' collection agent, Electronic Data Systems Corporation (EDS), by modem or on Computer diskette; or (b) in hard-copy (paper) form and arrange for another party to convert the paper report to electronic form. That party (if other than EDS) must transmit the bank's computer data file to EDS. For electronic filing assistance, contact EDS Call Report Services, 2150 N. Prospect Ave., Milwaukee, WI 53202, telephone (800) 255-1571. To fulfill the signature and attestation requirement for the Reports of Condition and Income for this report date, attach this signature page (or a photocopy or a computer-generated version of this page) to the hard-copy record of the completed report that the bank places in its files. FDIC Certificate Number 0 6 5 6 0 (RCRI 9050) http://www. huntington. corn - ---------------------------------------------------------------------------- Primary Internet Web Address of Bank (Home Page), if any (TEXT 4087) (Example: www.examplebank.com The Huntington National Bank - ------------------------------- Legal Title of Bank (TEXT 9010) Columbus - ---------------- City (TEXT 9130) OH 43215 - ---------------------------------------------------------------------------- State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220) Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page i 2 Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices TABLE OF CONTENTS Signature Page Cover Report of Income Schedule RI - Income Statement RI-1, 2, 3 Schedule RI-A - Changes in Equity Capital RI-4 Schedule RI-B - Charge-offs and Recoveries on Loans and Leases and Changes in Allowance for Loan and Lease Losses RI-4, 5 Schedule RI-D - Income from International Operations RI-6 Schedule RI-E - Explanations RI-7, 8 REPORT OF CONDITION Schedule RC - Balance Sheet RC-1, 2 Schedule RC-A - Cash and Balances Due From Depository Institutions RC-3 Schedule RC-B - Securities RC-3, 4, 5 DISCLOSURE OF ESTIMATED BURDEN The estimated average burden associated with this information collection is 35.5 hours per respondent and is estimated to vary from 14 to 500 hours per response, depending on individual circumstances. Burden estimates include the time for reviewing instructions, gathering and maintaining data in the required form, and completing the information collection, but exclude the time for compiling and maintaining business records in the normal course of a respondent's activities. A Federal agency may not conduct or sponsor, and an organization (or a person) is not required to respond to a collection of information, unless it displays a currently valid OMB control number. Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, D.C. 20503, and to one of the following: Secretary Board of Governors of the Federal Reserve System Washington, D.C. 20551 Legislative and Regulatory Analysis Division Office of the Comptroller of the Currency Washington, D.C. 20219 Assistant Executive Secretary Federal Deposit Insurance Corporation Washington, D.C. 20429 Schedule RC-C - Loans and Lease Financing Receivables: Part I. Loans and Leases C-6, 7 Part II. Loans to Small Businesses and Small Farms (to be completed for the June report only; not included in the forms for the September and December reports) RC-7a, 7b Schedule RC-D - Trading Assets and Liabilities (to be completed only by selected banks) RC-8 Schedule RC-E - Deposit Liabilities RC-9, 10 Schedule RC-F-Other Assets RC-11 Schedule RC-G - Other Liabilities RC-11 Schedule RC-H - Selected Balance Sheet Items for Domestic Offices RC-12 Schedule RC-I - Assets and Liabilities of IBFs RC-12 Schedule RC-K - Quarterly Averages RC-13 Schedule RC-L - Derivatives and Off-Balance Sheet Items RC-14, 15 Schedule RC-M - Memoranda RC-16 Schedule RC-N - Past Due and Nonaccrual Loans, Leases and Other Assets RC-17, 18 Schedule RC-O - Other Data for Deposit Insurance and FICO Assessments RC-19, 20 Schedule RC-R - Regulatory Capital RC-21, 22, 23, 24 Schedule RC-S - Securitization and Assets Sales Activities RC-25, 26, 27, 27a Schedule RC-T - Fiduciary and Related Services (to be completed beginning December 31, 2001) RC-28, 29,30 Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income RC-31 Special Report (to be completed by all banks) For information or assistance, National and State nonmember banks should contact the FDIC's Reports Analysis and Quality Control Section, 550 17th Street, NW, Washington, D.C. 20429, toll free on (800) 688-FDIC(3342), Monday through Friday between 8:00 a.m. and 5:00 p.m., Eastern time, State member banks should contact their Federal Reserve District Bank. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RI-1 3 Consolidated Report of Income for the period January 1, 2001 - June 30, 2001 ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS. Schedule RI-Income Statement
Dollar Amounts in Thousands RIAD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------- 1. Interest Income: a. Interest and fee income on loans: (1) In domestic offices: (a) Loans secured by real estate ........................................ 4011 292,244 1.a.(1)(a) (b) Loans to finance agricultural production and other loans to farmers ............................................................. 4024 2,704 1.a.(1)(b) (c) Commercial and industrial loans ..................................... 4012 259,734 1.a.(1)(c) (d) Loans to individuals for household, family, and other personal expenditures: (1) Credit Cards ...................................................... B485 0 1.a.(1)(d)(1) (2) Other (includes single payment, installment, all student loans, and revolving credit plans other than credit cards) ........ B486 207,931 1.a.(1)(d)(2) (e) Loans to foreign governments and other official institutions ........ 4056 0 1.a.(1)(e) (f) All other loans in domestic offices ................................. B487 2,179 1.a.(1)(f) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ........ 4059 0 1.a.(2) (3) Total interest and fee income on loans (sum of items 1 .a.(1) (a) through 1 .a.(2)) ................................................. 4010 764,792 1.a.(3) b. Income from lease financing receivables ................................... 4065 124,440 1.b. c. Interest income on balances due from depository institutions(1) ........... 4115 35 1.c. d. Interest and dividend income on securities: (1) U.S. Treasury securities and U.S. Government agency obligations (excluding mortgage-backed securities) ................................. B488 27,097 1.d.(1) (2) Mortgage-backed securities ............................................ B489 71,643 I.d.(2) (3) All other securities (includes securities issued by states and political subdivisions in the U.S.) ................................... 4060 17,416 1.d.(3) e. Interest income from trading assets ....................................... 4069 905 1.e. f. Interest income on federal funds sold and securities purchased under agreements to resell ...................................................... 4020 3,358 1.f. g. Other interest income ..................................................... 4518 603 1.g. h. Total interest income (sum of items 1.a.(3) through 1.g.) ................. 4107 1,010,289 1.h. 2. Interest expense: a. Interest on deposits: (1) Interest on deposits in domestic offices: (a) Transaction accounts (NOW accounts, ATS accounts, and telephone and preauthorized transfer accounts) ................................ 4508 8,757 2.a.(1)(a) (b) Nontransaction accounts: (1) Savings deposits (include MMDAs) .................................. 0093 126,308 2.a.(1)(b)(1) (2) Time deposits of $100,000 or more ................................. A517 41,550 2.a.(1)(b)(2) (3) Time deposits of less than $100,000 ............................... A518 171,332 2.a.(1)(b)(3) (2) Interest on deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs ................................................ 4172 9,152 2.a.(2) b. Expense of federal funds purchased and securities sold under agreements to repurchase ............................................................. 4180 56,566 2.b. c. Interest on trading liabilities and other borrowed money .................. 4185 75,550 2.c.
- ---------- (1) Includes interest income on time certificates of deposits not held for trading. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RI-2 [4] Schedule RI-Continued
Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou - --------------------------------------------------------------------------------------------------------------- 2. Interest expense (continued): d. Interest on subordinated notes and debentures ......................... 4200 29,287 2.d. e. Total interest expense (sum of items 2.a through 2.d) ................. 4073 518,502 2.e. 3. Net interest income (item 1.h minus 2.e) .............................. 4074 491,787 3. 4. Provision for loan and lease losses ................................... 4230 150,554 4. 5. Noninterest income: a. Income from fiduciary activities(1) ................................... 4070 28,869 5.a. b. Service charges on deposit accounts in domestic offices ............... 4080 78,694 5.b. c. Trading revenue(2) .................................................... A220 2,020 5.c. d. Investment banking, advisory, brokerage, and underwriting fees and commissions ....................................................... B490 20,206 5.d. e. Venture capital revenue ............................................... B491 0 5.e. f. Net servicing fees .................................................... B492 13,380 5.f. g. Net securitization income ............................................. B493 3,616 5.g. h. Insurance commissions and fees ........................................ B494 2,419 5.h. i Net gains (losses) on sales of loans and leases ....................... 5416 0 5.i. j. Net gains (losses) on sales of other real estate owned ................ 5415 (121) 5.j. k. Net gains (losses) on sales of other assets (excluding securities) .... B496 2,909 5.k. l. Other noninterest income .............................................. B497 69,460 5.l. m. Total noninterest income (sum of items 5.a through 5.I) ............... 4079 221,452 5.m. 6. a. Realized gains (losses) on held-to-maturity securities ............. 3521 0 6.a. b. Realized gains (losses) on available-for-sale securities .............. 3196 4,787 6.b. 7. Noninterest expense: a. Salaries and employee benefits ........................................ 4135 203,737 7.a. b. Expenses of premises and fixed assets (net of rental income)(excluding salaries and employee benefits and mortgage interest) ................. 4217 74,734 7.b. c. Amortization expense of intangible assets (includes goodwill) ......... 4531 18,919 7.c. d. Other noninterest expense* ............................................ 4092 166,702 7.d. e. Total noninterest expense (sum of items 7.a through 7.d) .............. 4093 463,091 7.e. 8. Income (loss) before income taxes and extraordinary items and other adjustments (item 3 plus or minus items 4, 5.m, 6.a, 6.b, and 7.e) .................................................... 4301 104,381 8. 9. Applicable income taxes (on item 8) ................................... 4302 21,928 9. 10. Income (loss) before extraordinary items and other adjustments (item 8 minus item 9) ................................................. 4300 82,453 10. 11. Extraordinary items and other adjustments, net of income taxes* ....... 4320 0 11. 12. Net income (loss) (sum of items 10 and 11) ............................ 4340 82,453 12.
- ---------- * Describe on Schedule RI-E - Explanations (1) For banks required to complete Schedule RC-T, items 12 through 19, income from fiduciary activities reported in Schedule RI, item 5.a, must equal the amount reported in Schedule RC-T, item 19. (2) For banks required to complete Schedule RI, Memorandum item 8, trading revenue reported in Schedule RI, item S.c, must equal the sum of Memorandum items B.a through 8.d. SCHEDULE RI-CONTINUED FFIEC 031 Page RI-3 5 Memoranda
Year-to-date -------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------- 1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after August 7, 1986, that is not deductible for federal income tax purposes .......................................................................... 4513 6,250 M.1. 2. Income from the sale and servicing of mutual funds and annuities in domestic offices (included in Schedule RI, item 8) ......................................... 8431 19,058 M.2. 3. Income on tax-exempt loans and leases to states and political subdivisions in the U.S. (included in Schedule RI, items 1.a and 1.b above) .......................... 4313 143 M.3. 4. Income on tax-exempt securities issued by states and political subdivisions in the U.S. (included in Schedule RI, item 1.d. (3)) ..................................... 4507 4,147 M.4. 5. Number of full-time equivalent employees at end of current period (round to Number nearest whole number) ............................................................. 4150 9,421 M.5. 6. Not Applicable CC YY MM DD 7. If the reporting bank has restated its balance sheet as a result of applying push down accounting this calendar year, report the date of the bank's acquisition(1)...................................................................... 9106 0000/00/00 M.7. 8 Trading revenue (from cash instruments and definitive instruments) (sum of Memorandum Items 8.a through 8.d must equal Schedule RI, item 5.c) (To be completed by banks that reported average trading assets (Schedule RC-K, RIAD Bil Mil Thou item 7) of $2 million or more for any quarter of the preceding calendar year. --------------------- a. Interest rate exposures ......................................................... 8757 1,980 M.8.a. b. Foreign exchange exposures ...................................................... 8758 60 M.8.b. c. Equity security and index exposures ............................................. 8759 0 M.8.c. d. Commodity and other exposures ................................................... 8760 0 M.8.d. RIAD Bil Mil Thou 9. Impact on income of derivatives held for purposes other than trading: --------------------- a. Net increase (decrease) to interest income ...................................... 8761 3,721 M.9.a. b. Net (increase) decrease to interest expense ..................................... 8762 (10,289) M.9.b. c. Other (noninterest) allocations ................................................. 8763 933 M.9.c. 10. Credit losses on derivatives (see instructions) A251 0 M.10. RIAD (Y/N) 11. Does the reporting bank have a Subchapter S election in effect for federal income ------ ---- tax purposes for the current tax year? (enter "Y" for YES or "N" for NO) ........... A530 N M.11.
- --------------- (1) For example, a bank acquired on June 1, 2001, would report 20010601. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RI-4 Schedule RI-A - Changes in Equity Capital /6/ Indicate decreases and losses in parentheses. Dollar Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------ 1. Total equity capital most recently reported for the December 31, 2000, Reports of Condition and Income (i.e., after adjustments from amended Reports of Income) ........................................................ 3217 2,069,127 1. 2. Restatements due to corrections of material accounting errors and changes in accounting principles* ................................................. B507 (9,113)2. 3. Balance end of previous calendar year as restated (sum of items 1 and 2)... B508 2,060,014 3. 4. Net income (loss) (must equal Schedule RI, item 12) ....................... 4340 82,453 4. 5. Sale, conversion, acquisition, or retirement of capital stock, net (excluding treasury stock transactions) ................................... B509 0 5. 6. Treasury stock transactions, net .......................................... B510 0 6. 7. Changes incident to business combinations, net ............................ 4356 0 7. 8. LESS: Cash dividends declared on preferred stock .......................... 4470 0 8. 9. LESS: Cash dividends declared on common stock ............................. 4460 78,996 9. 10. Other comprehensive income (1) ........................................... B511 31,721 10. 11. Other transactions with parent holding company* (not included in items 5, 6, 8, or 9 above)......................................................... 4415 0 11. 12. Total equity capital end of current period (sum of items 3 through 11) (must equal Schedule RC, item 28) ........................................ 3210 2,095,192 12.
- ------- *Describe on Schedule RI-E - Explanations. (1) Includes changes in net unrealized holding gains (losses) on available-for-sale securities, changes in accumulated net gains (losses) on cash flow hedges, foreign currency translation adjustments, and changes in minimum pension liability adjustments. Schedule RI-B - Charge-offs and Recoveries on Loans and Leases and Changes in Allowance for Loan and Lease Losses Part I. Charge-offs and Recoveries on Loans and Leases (Column A) (Column B) PART I EXCLUDES CHARGE-OFFS AND RECOVERIES THROUGH Charges-offs(1) Recoveries THE ALLOCATED TRANSFER RISK RESERVE. ---------------------------------------------------- Calendar year-to-date ---------------------------------------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------- 1. Loans secured by real estate: a. Construction, land development, and other land loans in domestic offices........................................ 3582 845 3583 108 1.a. b. Secured by farmland in domestic offices ................ 3584 18 3585 0 1.b. c. Secured by 1-4 family residential properties in domestic offices: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit .......................................... 5411 3,096 5412 165 1.c.(1) (2) Closed-end loans secured by 1-4 family residential properties ......................................... 5413 392 5414 91 1.c.(2) d. Secured by multifamily (5 or more) residential properties in domestic offices .......................... 3588 54 3589 6 1.d. e. Secured by nonfarm nonresidential properties in domestic offices ................................................ 3590 2,336 3591 210 1.e. f. In foreign offices ..................................... B512 0 B513 0 1.f. 2. Loans to depository institutions and acceptances of other banks: a. To U.S. banks and other U.S. depository institutions ... 4653 0 4663 0 2.a. b. To foreign banks ....................................... 4654 3 4664 16 2.b. 3. Loans to finance agricultural production and other loans to farmers ................................................ 4655 55 4665 0 3. 4. Commercial and industrial loans: a. To U.S. addressees (domicile) .......................... 4645 22,965 4617 2,944 4.a. b. To non-U.S. addressees (domicile) ...................... 4646 0 4618 0 4.b. 5. Loans to individuals for household, family, and other personal expenditures: a. Credit cards ........................................... B514 0 B515 0 5.a. b. Other (includes single payment, installment, all student loans, and revolving credit plans other than credit cards) .......................................... B516 53,213 B517 10,172 5.b.
- --------- (1) Include write-downs arising from transfers of loans to the held-for-sale account. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RI-5 Schedule RI-B - Continued 7 Part I. Continued
------------------------------------------------- (Column A) (Column B) Charge-offs(1) Recoveries ------------------------------------------------- Calendar year-to-date ------------------------------------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------ 6. Loans to foreign governments and official institutions ................. 4643 0 4627 0 6. 7. All other loans ........................................................ 4644 5 4628 1 7. 8. Lease financing receivables: a. To U.S. addressees (domicile) ....................................... 4658 28,139 4668 3,850 8.a. b. To non-U.S. addressees (domicile) ................................... 4659 0 4669 0 8.b. 9. Total (sum of items 1 through 8) ....................................... 4635 111,121 4605 17,563 9.
Memoranda
------------------------------------------------- (Column A) (Column B) Charge-offs(1) Recoveries ------------------------------------------------- Calendar year-to-date ------------------------------------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------ 1. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RI-B, part I, items 4 and 7, above ............................ 5409 0 5410 0 M.1. 2. Loans secured by real estate to non-U.S. addressees (domicile) (included in Schedule RI-B, part I, item 1, above) ............................... 4652 0 4662 0 M.2.
- -------------------- (1) Include write-downs arising from transfers of loans to the held-for-sale account. Part II. Changes in Allowance for Loan and Lease Losses
Dollar Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------ 1. Balance most recently reported for the December 31, 2000, Reports of Condition and Income (i.e., after adjustments from amended Reports of Income) ...................................... B522 297,175 1. 2. Recoveries (must equal part I, item 9, column B above) ........................................ 4605 17,563 2. 3. LESS: Charge-offs (sum of Part I, item 9, column A above and Schedule RI-E, item 6.a.) ........ C079 111,121 3. 4. Provision for loan and lease losses (must equal Schedule RI, item 4) .......................... 4230 150,554 4. 5. Adjustments* (see instructions for this schedule) ............................................. 4815 (3,038) 5. 6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, item 4.c) ... 3123 351,133 6.
- -------------------- (1) Include as a negative number write-downs arising from transfers of loans to the held-for-sale account. Describe on Schedule RI-E - Explanations, item 6. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RI-6 Schedule RI-D - Income from International Operations 8 For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations account for more than 10 percent of total revenues, total assets, or net income.
Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------- 1. Interest income and expense attributable to international operations: a. Gross interest income .......................................................... B523 N/A 1.a. b. Gross interest expense ......................................................... B524 N/A 1.b. 2. Net interest income attributable to international operations (item 1.a minus 1.b) .. B525 N/A 2. 3. Noninterest income and expense attributable to international operations: a. Noninterest income attributable to international operations .................... 4097 N/A 3.a. b. Provision for loan and lease losses attributable to international operations ... 4235 N/A 3.b. c. Other noninterest expense attributable to international operations ............. 4239 N/A 3.c. d. Net noninterest income (expense) attributable to international operations (items 3.a minus 3.b and 3.c) ......................................................... 4843 N/A 3.d. 4. Estimated pretax income attributable to international operations before capital allocation adjustments (sum of items 2 and 3.d) .................................... 4844 N/A 4. 5. Adjustment to pretax income for internal allocations to international operations to reflect the effects of equity capital on overall bank funding costs ................ 4845 N/A 5. 6. Estimated pretax income attributable to international operations after capital allocation adjustment (sum of items 4 and 5) ....................................... 4846 N/A 6. 7. Income taxes attributable to income from international operations as estimated in item 6 .......................................................................... 4797 N/A 7. 8. Estimated net income attributable to international operations (items 6 minus 7) .... 4341 N/A 8.
'7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RI-7 9 Schedule RI-E - Explanations SCHEDULE RI-E IS TO BE COMPLETED EACH QUARTER ON A CALENDAR YEAR-TO-DATE BASIS. Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
Year-to-date --------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------- 1. Other noninterest income (from Schedule RI, item 5.I) Itemize and describe amounts that exceed 1% of the sum of Schedule RI, items 1.h and 5.m: a. [TEXT C013] Income and fees from the printing and sale of checks ................ C013 0 1.a. b. [TEXT C014] Earnings on/increase in value of cash surrender value of life insurance ....................................................................... C014 0 1.b. c. [TEXT C016] Income and fees from automated teller machines (ATMs) ............... C016 0 1.c. d. [TEXT 4042] Rent and other income from real estate owned ........................ 4042 0 1.d. e. [TEXT C015] Safe deposit box rent ............................................... C015 0 1.e. [TEXT 4461] f. Income from Bank Owned Life Insurance ............................... 4461 19,121 1.f. [TEXT 4462] g. ................................................................................. 4462 0 1.g. [TEXT 4463] h. ................................................................................. 4463 0 1.h. 2. Other noninterest expense (from Schedule RI, item 7.d) Itemize and describe amounts that exceed 1% of the sum of Schedule RI, items 1.h and 5.m: a. [TEXT C017] Data processing expenses ............................................ C017 0 2.a. b. [TEXT 0497] Advertising and marketing expenses .................................. 0497 0 2.b. c. [TEXT 4136] Directors' fees ..................................................... 4136 0 2.c. d. [TEXT C018] Printing, stationery, and supplies .................................. C018 0 2.d. e. [TEXT 8403] Postage ............................................................. 8403 0 2.e. f. [TEXT 4141] Legal fees and expenses ............................................. 4141 0 2.f. g. [TEXT 4146] FDIC deposit insurance assessments .................................. 4146 0 2.g. [TEXT 4464] h. Lease Residual Charge ............................................... 4464 20,000 2.h. [TEXT 4467] i. Corporate Overhead Charges .......................................... 4467 14,639 2.i. [TEXT 4468] j. ................................................................................. 4468 0 2.j. 3. Extraordinary items and other adjustments and applicable income tax effect (from Schedule RI, item 11) (itemize and describe all extraordinary items and other adjustments): a. (1) [TEXT 6373] Effect of adopting FAS 133, "Accounting for Derivative Instruments and Hedging Activities" ............................. 6373 0 3.a.(1) (2) Applicable income tax effect 4486 0 3.a.(2) [TEXT 4487] b. (1) n/a ............................................................. 4487 0 3.b.(1) (2) Applicable income tax effect 4488 0 3.b.(2) [TEXT 4489] c. (1) n/a ............................................................. 4489 0 3.c.(1) (2) Applicable income tax effect 4491 0 3.c.(2)
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RI-8 10 Schedule RI-E - Continued
Year-to-date --------------------- Dollar Amounts in Thousands RIAD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------- 4. Restatements due to corrections of material accounting errors and changes in accounting principles (from Schedule RI-A, item 2) (itemize and describe all restatements): [TEXT B526] a. Change in accounting method for derivatives ......................... B526 (9,113) 4.a. [TEXT B527] b. n/a ................................................................. B527 0 4.b. 5. Other transactions with parent holding company (from Schedule RI-A, item 11) (itemize and describe all such transactions): [TEXT 4498] a. n/a ................................................................. 4498 0 5.a. [TEXT 4499] b. n/a ................................................................. 4499 0 5.b. 6. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, item 5) (itemize and describe all adjustments): [TEXT 5523] a. Write-downs arising from transfers of loans to the held-for-sale account ............................................... 5523 0 6.a. [TEXT 4522] b. Allowance of securitized loans....................................... 4522 (3,038) 6.b. 7. Other explanations (the space below is provided for the bank to briefly describe, at its option, any other significant items affecting the Report of Income): Other explanations (Either enter text in the field below or skip and leave blank for "No comment"): (TEXT 4769)
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-1 11 Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for June 30, 2001 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. Schedule RC - Balance Sheet
Dollar Amounts in Thousands RCFD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS l. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1) ........................................... 0081 886,195 1.a. b. Interest-bearing balances(2) .................................................................... 0071 1,322 1.b. 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A) ...................................... 1754 14,978 2.a. b. Available-for-sale securities (from Schedule RC-B, column D) .................................... 1773 3,088,779 2.b. 3. Federal funds sold and securities purchased under agreements to resell ............................. 1350 54,696 3. 4. Loans and lease financing receivables (from Schedule RC-C): a. Loans and leases held for sale .................................................................. 5369 376,671 4.a. b. Loans and leases, net of unearned income ...................................... B528 21,047,712 4.b. c. LESS: Allowance for loan and lease losses ..................................... 3123 351,133 4.c. d. Loans and leases, net of unearned income and allowance (item 4.b minus 4.c) ..................... B529 20,696,579 4.d. 5. Trading assets (from Schedule RC-D) ................................................................ 3545 1,640 5. 6. Premises and fixed assets (including capitalized leases) ........................................... 2145 450,553 6. 7. Other real estate owned (from Schedule RC-M) ....................................................... 2150 9,913 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ........... 2130 5,364 8. 9. Customers' liability to this bank on acceptances outstanding ....................................... 2155 15,335 9. 10. Intangible assets: a. Goodwill ........................................................................................ 3163 636,109 10.a. b. Other intangible assets (from Schedule RC-M) .................................................... 0426 120,283 10.b. 11. Other assets (from Schedule RC-F) .................................................................. 2160 1,459,280 11. 12. Total assets (sum of items i through 11) ........................................................... 2170 27,817,697 12.
- ---------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. Schedule RC - Continued
Dollar Amounts in Thousands RCON Bil Mil Thou ____________________________________________________________________________________________________ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I)........................................... 2200 18,678,563 13.a. (1) Noninterest-bearing(1)..............RCON 6631 3,841,843 13.a.(1) (2) Interest-bearing....................RCON 6636 14,836,720 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs RCFN (from Schedule RC-E, part II).................................... 2200 489,983 13.b (1) Noninterest-bearing.................RCFN 6631 0 13.b.(1) (2) Interest-bearing....................RCFN 6636 489,983 RCFD 13.b.(2) 14. Federal funds purchased and secured sold under agreements to repurchase....................................................... 2800 2,454,471 14. 15. Trading liabilities (from Schedule RC-D)............................ 3548 0 15. 16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases)(from Schedule RC-M)....................... 3190 2,122,208 16. 17. Not applicable 18. Bank's liability on acceptances executed and outstanding............ 2920 15,335 18. 19. Subordinated notes and debentures(2)................................ 3200 953,547 19. 20. Other liabilities (from Schedule RC-G).............................. 2930 593,212 20. 21. Total liabilities (sum of items 13 through 20)...................... 2948 25,307,319 21. 22. Minority interest in consolidated subsidiaries...................... 3000 415,186 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus....................... 3838 0 23. 24. Common Stock........................................................ 3230 40,000 24. 25. Surplus (exclude all surplus related to preferred stock)............ 3839 451,268 25. 26. a. Retained earnings................................................ 3632 1,608,819 26.a. b. Accumulated other comprehensive income (3)....................... B530 (4,895) 26.b. 27. Other equity capital components (4)................................. A130 0 27. 28. Total equity capital (sum of items 23 through 27)................... 3210 2,095,192 28. 29. Total liabilities, minority interest, and equity capital (sum of items 21, 22, and 28)............................................... 3300 27,817,697 29. MEMORANDUM TO BE REPORTED WITH THE MARCH REPORT OF CONDITION. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external auditors as of any RCFD Number date during 2000.....................................................6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Attestation on bank management's assertion on the effectiveness of the bank's internal control over financial reporting by a certified public accounting firm 4 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 5 = Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 6 = Review of the bank's financial statements by external auditors 7 = Compilation of the bank's financial statements by external auditors 8 = Other audit procedures (excluding tax preparation work) 9 = No external audit work ___________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus. (3) Includes net unrealized holding gains (losses) on available-for-sale securities, accumulated net gains (losses) on cash flow hedges, cumulative foreign currency translation adjustments, and minimum pension liability adjustments. (4) Includes treasury stock and unearned Employee Stock Ownership Plan shares. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-3 Schedule RC-A - Cash and Balances Due From Depository Institutions 13 Exclude assets held for trading.
------------------------------------------------- (Column A) (Column B) Consolidated Domestic Bank Offices ------------------------------------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------ 1. Cash items in process of collection, unposted debits, and currency and coin .................................................................... 0022 789,752 1. a. Cash items in process of collection and unposted debits .............. 0020 579,836 1.a. b. Currency and coin .................................................... 0080 209,916 1.b. 2. Balances due from depository institutions in the U.S. ................... 0082 68,878 2. a. U.S. branches and agencies of foreign banks (including their IBFs) ... 0083 0 2.a. b. Other commercial banks in the U.S. and other depository institutions in the U.S. (including their IBFs) ................................... 0085 68,878 2.b. 3. Balances due from banks in foreign countries and foreign central banks .. 0070 0 3. a. Foreign branches of other U.S. banks ................................. 0073 0 3.a. b. Other banks in foreign countries and foreign central banks ........... 0074 0 3.b. 4. Balances due from Federal Reserve Banks ................................. 0090 28,887 0090 28,887 4. 5. Total (sum of items 1 through 4) (total of column A must equal Schedule RC, sum of items 1.a and 1.b) .................................. 0010 887,517 0010 887,517 5.
Schedule RC-B - Securities Exclude assets held for trading.
-------------------------------------------------------------------------------------- Held-to-maturity Available-for-sale -------------------------------------------------------------------------------------- (Column A) (Column B) (Column C) (Column D) Amortized Cost Fair Value Amortized Cost Fair Value -------------------------------------------------------------------------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------ 1. U.S. Treasury securities .......... 0211 0 0213 0 1286 0 1287 0 1. 2. U.S. Government agency obligations (exclude mortgage-backed securities): a. Issued by U.S. Government agencies(1) .................... 1289 0 1290 0 1291 0 1293 0 2.a. b. Issued by U.S. Government sponsored agencies(2) .......... 1294 0 1295 0 1297 949,552 1298 950,567 2.b. 3. Securities issued by states and political subdivisions in the U.S. .......................... 8496 14,978 8497 15,159 8498 127,125 8499 125,048 3.
- ---------- (1) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (2) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-4 Schedule RC-B - Continued [14]
Held-to-maturity Available-for-sale --------------------------------------------- ---------------------------------------------- (Column A) (Column B) (Column C) (Column D) Amortized Cost Fair Value Amortized Cost Fair Value ---------------------- --------------------- ---------------------- ---------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou ---- --- --- ---- ---- --- --- ---- ---- --- --- ---- ---- --- --- ---- 4. Mortgage-backed securities (MBS): a. Pass-through securities: (1) Guaranteed by GNMA.............. 1698 0 1699 0 1701 19,960 1702 20,482 4.a.(1) (2) Issued by FNMA and FHLMC......... 1703 0 1705 0 1706 985,429 1707 986,960 4.a.(2) (3) Other pass-through securities........ 1709 0 1710 0 1711 0 1713 0 4.a.(3) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): (1) Issued or guaranteed by FNMA, FHLMC, or GNMA..... 1714 0 1715 0 1716 572,505 1717 573,874 4.b.(1) (2) Collateralized by MBS issued or guaranteed by FNMA, FHLMC, or GNMA..... 1718 0 1719 0 1731 0 1732 0 4.b.(2) (3) All other mortgage-backed securities......... 1733 0 1734 0 1735 292,819 1736 288,673 4.b.(3) 5. Asset-backed securities (ABS): a. Credit card receivables........... B838 0 B839 0 B840 0 B841 0 5.a. b. Home equity lines..... B842 0 B843 0 B844 0 B845 0 5.b. c. Automobile loans...... B846 0 B847 0 B848 0 B849 0 5.c. d. Other consumer loans................. B850 0 B851 0 B852 0 B853 0 5.d. e. Commercial and industrial loans...... B854 0 B855 0 B856 0 B857 0 5.e. f. Other................. B858 0 B859 0 B860 0 B861 0 5.f. 6. Other debt securities: a. Other domestic debt securities....... 1737 0 1738 0 1739 139,497 1741 139,531 6.a. b. Foreign debt securities............ 1742 0 1743 0 1744 3,500 1746 3,500 6.b. 7. Investments in mutual funds and other equity securities with readily determinable fair values(1)................ A510 144 A511 144 7. 8. Total (sum of items 1 through 7) (total of column A must equal Schedule RC, item 2.a) (total of column D must equal Schedule RC, item 2.b)................ 1754 14,978 1771 15,159 1772 3,090,531 1773 3,088,779 8.
- ----------------------- (1) Report Federal Reserve stock, Federal Home Loan Bank stock, and bankers' bank stock in Schedule RC-F, item 4. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-5 15 Schedule RC-B - Continued Memoranda
Dollar Amounts in Thousands RCFD Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------- 1. Pledged securities(1) 0416 2,801,650 M.1. 2. Maturity and repricing data for debt securities(1),(2)(excluding those in nonaccrual status): a. Securities issued by the U.S. Treasury, U.S. Government agencies, and states and political subdivisions in the U.S.; other non-mortgage debt securities; and mortgage pass-through securities other than those backed by closed-end first lien 1-4 family residential mortgages with a remaining maturity or next repricing date of:(3),(4) (1) Three months or less A549 3,108 M.2.a.(1) (2) Over three months through 12 months A550 12,937 M.2.a.(2) (3) Over one year through three years A551 359,925 M.2.a.(3) (4) Over three years through five years A552 780,255 M.2.a.(4) (5) Over five years through 15 years A553 77,400 M.2.a.(5) (6) Over 15 years A554 0 M.2.a.(6) b. Mortgage pass-through securities backed by closed-end first lien 1-4 family residential mortgages with a remaining maturity or next repricing date of:(3),(5) (1) Three months or less A555 0 M.2.b.(1) (2) Over three months through 12 months A556 0 M.2.b.(2) (3) Over one year through three years A557 0 M.2.b.(3) (4) Over three years through five years A558 38,997 M.2.b.(4) (5) Over five years through 15 years A559 249,315 M.2.b.(5) (6) Over 15 years A560 719,129 M.2.b.(6) c. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS; exclude mortgage pass-through securities) with an expected average life of:(6) (1) Three years or less A561 65,207 M.2.c.(1) (2) Over three years A562 797,340 M.2.c.(2) d. Debt securities with a REMAINING MATURITY of one year or less (included in Memorandum items 2.a through 2.c above) A248 16,045 M.2.d. 3. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or trading securities during the calendar year-to-date (report the amortized cost at date of sale or transfer) 1778 0 M.3. 4. Structured notes (included in the held-to-maturity and available-for-sale accounts in Schedule RC-B, items 2,3,5, and 6): a. Amortized cost 8782 0 M.4.a. b. Fair value 8783 0 M.4.b.
- ---------- (1) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value. (2) Exclude investments in mutual funds and other equity securities with readily determinable fair values. (3) Report fixed rate debt securities by remaining maturity and floating rate debt securities by next repricing date. (4) Sum of Memorandum item 2.a.(1) through 2.a.(6) plus any nonaccrual debt securities in the categories of debt securities reported in Memorandum item 2.a. that are included in Schedule RC-N, item 9, column C, must equal Schedule RC-B, sum of items 1,2,3,5, and 6, columns A and D, plus mortgage pass-through securities other than those backed by closed-end first lien 1-4 family residential mortgages included in Schedule RC-B, item 4.a, columns A and D. (5) Sum of Memorandum items 2.b.(1) through 2.b.(6) plus any nonaccrual mortgage pass-through securities backed by closed-end first lien 1-4 family residential mortgages included in Schedule RC-N, item 9, column C, must equal Schedule RC-B, item 4.a, sum of columns A and D, less the amount of mortgage pass-through securities other than those backed by closed-end first lien 1-4 family residential mortgages included in Schedule RC-B, item 4.a, columns A and D. (6) Sum of Memorandum items 2.c.(1) and 2.c.(2) plus any nonaccrual "Other mortgage-backed securities" included in Schedule RC-N, item 9, column C, must equal Schedule RC-B, item 4.b, sum of columns A and D. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-6 Schedule RC-C - Loans and Lease Financing Receivables Part 1. Loans and Leases Do not deduct the allowance for loan and lease losses from amounts reported in this schedule. Report (1) loans and leases held for sale at the lower of cost or market value and (2) other loans and leases, net of unearned income. Report loans and leases net of any applicable allocated transfer risk reserve. Exclude assets held for trading and commercial paper.
(Column A) (Column B) Consolidated Domestic Bank Offices Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------- 1. Loans secured by real estate .................................................. 1410 9,286,135 1. a. Construction, land development, and other land loans ....................... 1415 1,046,901 1.a. b. Secured by farmland (including farm residential and other improvements ............................................................... 1420 80,754 1.b. c. Secured by 1-4 family residential properties: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit ..................................... 1797 2,256,072 1.c.(1) (2) Closed-end loans secured by 1-4 family residential properties: (a) Secured by first liens ............................................. 5367 1,343,311 1.c.(2)(a) (b) Secured by junior liens ............................................ 5368 1,134,402 1.c.(2)(b) d. Secured by multifamily (5 or more) residential properties .................. 1460 190,722 1.d. e. Secured by nonfarm nonresidential properties ............................... 1480 3,233,973 1.e. 2. Loans to depository institutions and acceptances of other banks: a. To commercial banks in the U.S. ............................................ B531 4,340 2.a. (1) To U.S. branches and agencies of foreign banks ......................... B532 0 2.a.(1) (2) To other commercial banks in the U.S. .................................. B533 4,340 2.a.(2) b. To other depository institutions in the U.S. ............................... B534 6,123 B534 6,123 2.b. c. To banks in foreign countries .............................................. B535 0 2.c. (1) To foreign branches of other U.S. banks ................................ B536 0 2.c.(1) (2) To other banks in foreign countries .................................... B537 0 2.c.(2) 3. Loans to finance agricultural production and other loans to farmers ........... 1590 64,084 1590 64,084 3. 4. Commercial and industrial loans: a. To U.S. addressees (domicile) .............................................. 1763 5,238,485 1763 5,238,485 4.a. b. To non-U.S. addressees (domicile) .......................................... 1764 52 1764 52 4.b. 5. Not applicable 6. Loans to individuals for household, family, and other personal expenditures (i.e., consumer loans)(includes purchased paper): a. Credit cards ............................................................... B538 0 B538 0 6.a. b. Other revolving credit plans ............................................... B539 71,270 B539 71,270 6.b. c. Other consumer loans (includes single payment, installment, and all student loans) ............................................................. 2011 3,231,105 2011 3,231,105 6.c. 7. Loans to foreign governments and official institutions (including foreign central banks) ................................................................ 2081 0 2081 0 7. 8. Obligations (other than securities and leases) of states and political subdivisions in the U.S. ...................................................... 2107 73,500 2107 73,500 8. 9. Other loans ................................................................... 1563 244,172 9. a. Loans for purchasing or carrying securities (secured and unsecured) ........ 1545 35,817 9.a. b. All other loans (exclude consumer loans) ................................... 1564 208,355 9.b. 10. Lease financing receivables (net of unearned income) .......................... 2165 3,205,173 10. a. Of U.S. addressees (domicile) .............................................. 2182 3,205,173 10.a. b. Of non-U.S. addressees (domicile) .......................................... 2183 0 10.b. 11. LESS: Any unearned income on loans reflected in items 1-9 above ............... 2123 56 2123 56 11. 12. Total loans and leases, net of unearned income (sum of items 1 through 10 minus item 11)(total of column A must equal Schedule RC, sum of items 4.a and 4.b) .................................................................. 2122 21,424,383 2122 21,424,383 12.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-7 Schedule RC-C -- Continued 17 Part I. Continued Memoranda
Dollar Amounts in Thousands RCFD Bil Mil Thou - -------------------------------------------------------------------------------------------------------------------------------- 1. Loans and leases restructured and in compliance with modified terms (included in Schedule RC-C, part I, above and not reported as past due or nonaccrual in Schedule RC-N, Memorandum item 1) (exclude loans secured by 1-4 family residential properties and loans to individuals for household, family, and other personal expenditures)... 1616 1,290 M.1. 2. Maturity and repricing data for loans and leases (excluding those in nonaccrual status): a. Closed-end loans secured by first liens on 1-4 family residential properties in domestic offices (reported in Schedule RC-C, part I, item 1.c.(2)(a), column B) with a remaining maturity or next repricing date of:(1),(2) RCON (1) Three months or less................................................................... A564 266,287 M.2.a.(1) (2) Over three months through 12 months.................................................... A565 135,290 M.2.a.(2) (3) Over one year through three years...................................................... A566 187,436 M.2.a.(3) (4) Over three years through five years.................................................... A567 167,570 M.2.a.(4) (5) Over five years through 15 years....................................................... A568 177,185 M.2.a.(5) (6) Over 15 years.......................................................................... A569 394,356 M.2.a.(6) b. All loans and leases (reported in Schedule RC-C, part I, items 1 through 10, column A) EXCLUDING closed-end loans secured by first liens on 1-4 family residential properties in domestic offices (reported in Schedule RC-C, part I, item 1.c.(2)(a), column B) with a remaining maturity or next repricing date of:(1),(3) RCFD (1) Three months or less................................................................... A570 6,564,006 M.2.b.(1) (2) Over three months through 12 months.................................................... A571 1,702,988 M.2.b.(2) (3) Over one year through three years...................................................... A572 2,317,518 M.2.b.(3) (4) Over three years through five years.................................................... A573 4,723,577 M.2.b.(4) (5) Over five years through 15 years....................................................... A574 4,386,685 M.2.b.(5) (6) Over 15 years.......................................................................... A575 246,759 M.2.b.(6) c. Loans and leases (reported in Schedule RC-C, part I, items 1 through 10, column A) with REMAINING MATURITY of one year or less (excluding those in nonaccrual status)......... A247 4,516,316 M.2.c 3. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RC-C, part I, items 4 and 9, column A(4).... 2746 143,122 M.3. 4. Adjustable rate closed-end loans secured by first liens on 1-4 family residential properties RCON in domestic offices (included in Schedule RC-C, part I, item 1.c.(2)(a), column B)............ 5370 579,509 M.4. 5. Loans secured by real estate to non-U.S. addressees (domicile) (included in Schedule RC-C, RCFD part I, item 1, column A, above).............................................................. B837 0 M.5.
- ---------- (1) Report fixed rate loans and leases by remaining maturity and floating rate loans by next repricing date. (2) Sum of Memorandum items 2.a.(1) through 2.a.(6) plus total nonaccrual closed-end loans secured by first liens on 1-4 family residential properties in domestic offices included in Schedule RC-N, item 1.c.(2), column C, must equal total closed-end loans secured by first liens on 1-4 family residential properties from Schedule RC-C, part I, item 1.c.(2)(a), column B. (3) Sum of Memorandum items 2.b.(1) through 2.b.(6), plus total nonaccrual loans and leases from Schedule RC-N, sum of items 1 through 8, column C, minus nonaccrual closed-end loans secured by first liens on 1-4 family residential properties in domestic offices included in Schedule RC-N, item 1.c.(2), column C, must equal total loans and leases from Schedule RC-C, part I, sum of items 1 through 10, column A, minus total closed-end loans secured by first liens on 1-4 family residential properties in domestic offices from Schedule RC-C, part I, item 1.c.(2)(a), column B. (4) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-7a Schedule RC-C - Continued 17a Part II. Loans to Small Businesses and Small Farms Schedule RC-C, Part II is to be reported only with the June Report of Condition. Report the number and amount currently outstanding as of June 30 of business loans with "original amounts" of $1,000,000 or less and farm loans with "original amounts" of $500,000 or less. The following guidelines should be used to determine the "original amount" of a loan: (1) For loans drawn down under lines of credit or loan commitments, the "original amount" of the loan is the size of the line of credit or loan commitment when the line of credit or loan commitment was most recently approved, extended, or renewed prior to the report date. However, if the amount currently outstanding as of the report date exceeds this size, the "original amount" is the amount currently outstanding on the report date. (2) For loan participations and syndications, the "original amount" of the loan participation or syndication is the entire amount of the credit originated by the lead lender. (3) For all other loans, the "original amount" is the total amount of the loan at origination or the amount currently outstanding as of the report date, whichever is larger. LOANS TO SMALL BUSINESSES
RCON (Y / N) 1. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by nonfarm nonresidential properties" in domestic offices reported in Schedule RC-C, part I, item 1.e, column B, and all or substantially all of the dollar volume of your bank's "Commercial and industrial loans to U.S. addressees" in domestic offices reported in Schedule RC-C, part I, item 4.a, column B, have original amounts of $100,000 or less (if your bank has no loans outstanding in both of these two loan categories, place an "N" in the box to the right for NO, otherwise mark it "Y" for YES.) ........................................................................... 6999 N 1. If YES, complete items 2.a and 2.b below, skip items 3 and 4, and go to item 5. If NO and your bank has loans outstanding in either loan category, skip items 2.a and 2.b, complete items 3 and 4 below, and go to item 5. If NO and your bank has no loans outstanding in both loan categories, skip items 2 through 4, and go to item 5.
----------------- 2. Report the total number of loans currently outstanding for each of the following Number of Loans Schedule RC-C, part I, loan categories: ----------------- a. "Loans secured by nonfarm nonresidential properties" in domestic offices reported in Schedule RC-C, part I, item 1.e, column B (Note: Item 1.e, column B, divided by the number of loans should NOT RCON exceed $100,000.) ............................................................. 5562 N/A 2.a. b. "Commercial and industrial loans to U.S. addressees" in domestic offices reported in Schedule RC-C, part I, item 4.a, column B (Note: Item 4.a, column B, divided by the number of loans should NOT exceed $100,000.) ............................................................. 5563 N/A 2.b. -----------------
(Column A) (Column B) Amount Currently Dollar Amounts in Thousands Number of Loans Outstanding - ------------------------------------------------------------------------------------------------------------------------------- 3. Number and amount currently outstanding of "Loans secured by nonfarm nonresidential RCON RCON Bil Mil Thou properties" in domestic offices reported in Schedule RC-C, part 1, item 1.e, column B (sum of items 3.a through 3.c must be less than or equal to Schedule RC-C, part 1, item 1.e, column B): a. With original amounts of $100,000 or less ...................................... 5564 2,639 5565 115,835 3.a. b. With original amounts of more than $100,000 through $250,000 ................... 5566 2,611 5567 328,841 3.b. c. With original amounts of more than $250,000 through $1,000,000 ................. 5568 2,667 5569 1,035,238 3.c. 4. Number and amount currently outstanding of "Commercial and industrial loans to U.S. addressees" in domestic offices reported in Schedule RC-C, part I, item 4.a, column B (sum of items 4.a through 4.c must be less than or equal to Schedule RC-C, part I, item 4.a, column B): a. With original amounts of $100,000 or less ...................................... 5570 18,968 5571 500,196 4.a. b. With original amounts of more than $100,000 through $250,000 ................... 5572 2,260 5573 260,046 4.b. c. With original amounts of more than $250,000 through $1,000,000 ................. 5574 2,365 5575 839,709 4.c. - -------------------------------------------------------------------------------------------------------------------------------
FFIEC 031 Page RC-7b 17b 7/30/2001 - The Huntington National B - Certificate Number 08560 Schedule RC-C - Continued Part II. Continued
RCON (Y/N) ----- ----- AGRICULTURAL LOANS TO SMALL FARMS 5. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by farmland (including farm residential and other improvements)" in domestic offices reported in Schedule RC-C, part I, item 1.b, column B, and all or substantially all of the dollar volume of your bank's "Loans to finance agricultural production and other loans to farmers" in domestic offices reported in Schedule RC-C, part I, item 3, column B, have original amounts of $100,000 or less (If your bank has no loans outstanding in both of these two loan categories, place an "N" in the box to the right for NO, otherwise mark it "Y" for YES.) ........................................... 6860 N 5.
If YES, complete items 6.a and 6.b below, and do not complete items 7 and 8. If NO and your bank has loans outstanding in either loan category, skip items 6.a and 6.b and complete items 7 and 8 below. If NO and your bank has no loans outstanding in both loan categories, do not complete items 6 through 8.
Number of Loans ---------------------------- RCON ---- 6. Report the total number of the loans currently outstanding for each of the following Schedule RC-C, part I, loan categories: a. "Loans secured by farmland (including farm residential and other improvements)" in domestic offices reported in Schedule RC-C, part I, item 1.b, column B (Note: Item 1.b, column B, divided by the number of loans should NOT exceed $100,000.) ......... 5576 N/A 6.a. b. "Loans to finance agricultural production and other loans to farmers" in domestic offices reported in Schedule RC-C, part I, item 3, column B (Note: Item 3, column B, divided by the number of loans should NOT exceed $100,000.) ........................ 5577 N/A 6.b.
(Column A) (Column B) Amount Currently Dollar Amounts in Thousands Number of Loans Outstanding - ------------------------------------------------------------------------- --------------------- ------------------- RCON RCON Bil Mil Thou ---- ---- --- --- ---- 7. Number and amount currently outstanding of "Loans secured by farmland (including farm residential and other improvements)" in domestic offices reported in Schedule RC-C, part I, item 1.b, column B (sum of items 7.a through 7.c must be less than or equal to Schedule RC-C, part I, item 1.b, column B): a. With original amounts of $100,000 or less ...................... 5578 280 5579 12,403 7.a. b. With original amounts of more than $100,000 through $250,000.... 5580 142 5581 17,033 7.b. c. With original amounts of more than $250,000 through $500,000.... 5582 58 5583 16,783 7.c. 8. Number and amount currently outstanding of "Loans to finance agricultural production and other loans to farmers" in domestic offices reported in Schedule RC-C, part I, item 3, column B (sum of items 8.a through 8.c must be less than or equal to Schedule RC-C, part I, item 3, column B): a. With original amounts of $100,000 or less ..................... 5584 719 5585 20,025 8.a. b. With original amounts of more than $100,000 through $250,000... 5586 158 5587 19,779 8.b. c. With original amounts of more than $250,000 through $500,000... 5588 41 5589 9,809 8.c.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-8 18 Schedule RC-D - Trading Assets and Liabilities Schedule RC-D is to be completed by banks that reported average trading assets (Schedule RC-K; item 7) of $2 million or more for any quarter of the preceding calendar year.
Dollar Amounts in Thousands RCON Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------- ASSETS 1. U.S. Treasury securities in domestic offices...................................................... 3531 0 1. 2. U.S. Government agency obligations in domestic offices (exclude mortgage-backed securities)...... 3532 0 2. 3. Securities issued by states and political subdivisions in the U.S. in domestic offices........... 3533 0 3. 4. Mortgage-backed securities (MBS) in domestic offices: a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA......................... 3534 0 4.a. b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA (include CMOs, REMICs, and stripped MBS)..................................................... 3535 0 4.b. c. All other mortgage-backed securities......................................................... 3536 0 4.c. 5. Other debt securities in domestic offices........................................................ 3537 0 5. 6. - 8. Not applicable 9. Other trading assets in domestic offices......................................................... 3541 1,640 9. 10. Trading assets in foreign offices............................................................RCFN 3542 0 10. 11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity contracts: a. In domestic offices......................................................................RCON 3543 0 11.a. b. In foreign offices.......................................................................RCFN 3543 0 11.b. 12. Total trading assets (sum of items 1 through 11)(must equal Schedule RC, item 5).............RCFD 3545 1,640 12. RCFD Bil Mil Thou LIABILITIES ------------------------ 13. Liability for short positions.................................................................... 3546 0 13. 14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity contracts........................................................................................ 3547 0 14. 15. Total trading liabilities (sum of items 13 and 14)(must equal Schedule RC, item 15).............. 3548 0 15.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-9 Schedule RC-E - Deposit Liabilities 19 Part I. Deposits in Domestic Offices
Nontransaction Transaction Accounts Accounts _____________________________________________________________ (Column A) (Column B) (Column C) Total transaction Memo: Total Total accounts (including demand deposits nontransaction total demand (included in accounts deposits) column A) (including MMDAs) ____________________________________________________________________________________________________________________________________ Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou ____________________________________________________________________________________________________________________________________ Deposits of: 1. Individuals, partnerships, and corporations (include all certified and official checks)........... B549 4,920,018 B550 13,164,109 1. 2. U.S. Government....................................... 2202 48 2520 0 2. 3. States and political subdivisions in the U.S.......... 2203 137,921 2530 431,977 3. 4. Commercial banks and other depository institutions in the U.S............................... B551 23,521 B552 0 4. 5. Banks in foreign countries............................ 2213 969 2236 0 5. 6. Foreign governments and official institutions (including foreign central banks)..................... 2216 0 2377 0 6. 7. Total (sum of items 1 through 6)(sum of columns A and C must equal Schedule RC, item 13.a).............. 2215 5,082,477 2210 3,357,646 2385 13,596,086 7.
Memoranda
Dollar Amount in Thousands RCON Bil Mil Thou _________________________________________________________________________________________________________________ 1. Selected components of total deposits (ie., sum of item 7, columns A and C): a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts................................ 6835 880,235 M.1.a. b. Total brokered deposits.................................... 2365 100,233 M.1.b. c. Fully insured brokered deposits (included in Memorandum item 1.b above): (1) Issued in denominations of less than $100,000.......... 2343 0 M.1.c.(1) (2) Issued either in denominations of $100,000 or in denominations greater than $100,000 and participated out by the broker in shares of $100,000 or less................................................ 2344 48,905 M.1.c.(2) d. Maturity data for brokered deposits: (1) Brokered deposits issued in denominations of less than $100,000 with a remaining maturity of one year or less (included in Memorandum item 1.c.(1) above)..... A243 0 M.1.d(1) (2) Brokered deposits issued in denominations of $100,000 or more with a remaining maturity of one year or less (included in Memorandum item 1.b above)......... A244 52,000 M.1.d.(2) e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. reported in item 3 above which are secured or collateralized as required under state law)(to be completed for the December report only).... 5590 N/A M.1.e. 2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.c must equal item 7, column C above): a. Savings deposits (1) Money market deposit accounts (MMDAs).................... 6810 3,148,119 M.2.a.(1) (2) Other savings deposits (excludes MMDAs).................. 0352 3,637,792 M.2.a.(2) b. Total time deposits of less than $100,000.................... 6648 5,447,117 M.2.b. b. Total time deposits of $100,000 or more ..................... 2604 1,363,085 M.2.c.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-10 Schedule RC-E - Continued /20/ Part 1. Continued
Memoranda (continued) Dollar Amounts in Thousands RCON Bil Mil Thou - ----------------------------------------------------------------------------------------------------- 3. Maturity and repricing data for time deposits of less than $100,000; a. Time deposits of less than $100,000 with a remaining maturity of next repricing date of (1),(2) (1) Three months or less .............................................. A579 1,398,000 M.3.a.(1) (2) Over three months through 12 months ............................... A580 2,611,289 M.3.a.(2) (3) Over one year through three years ................................. A581 1,313,333 M.3.a.(3) (4) Over three years .................................................. A582 124,495 M.3.a.(4) b. Time deposits of less than $100,000 with a REMAINING MATURITY of one year or less (included in Memorandum items 3.a.(1) through 3.a.(4) above(3) .............................................................. A241 4,009,289 M.3.b. 4. Maturity and repricing data for time deposits of $100,000 or more: a. Time deposits of $100,000 or more with a remaining maturity or next repricing date of (1),(4) (1) Three months or less .............................................. A584 600,184 M.4.a.(1) (2) Over three months through 12 months ............................... A585 504,458 M.4.a.(2) (3) Over one year through three years ................................. A586 173,006 M.4.a.(3) (4) Over three years .................................................. A587 85,410 M.4.a.(4) b. Time deposits of $100,000 or more with a REMAINING MATURITY of one year or less (included in Memorandum items 4.a.(1) through 4.a.(4) above(3) .............................................................. A242 1,104,644 M.4.b.
- ------ (1) Report fixed rate time deposits by remaining maturity and floating rate time deposits by next repricing date. (2) Sum of Memorandum items 3.a.(1) through 3.a.(4) must equal Schedule RC-E, Memorandum item 2.b. above. (3) Report both fixed and floating rate time deposits by remaining maturity. Exclude floating rate time deposits with a next repricing date of one year or less that have a remaining maturity of over one year. (4) Sum of Memorandum items 4.a.(1) through 4.a.(4) must equal Schedule RC-E, Memorandum item 2.c above. Part II. Deposits in Foreign Offices (including Edge and Agreement subsidiaries and IBFs)
Dollar Amounts in Thousands RCFN Bil Mil Thou - ----------------------------------------------------------------------------------------------------- Deposits of: 1. Individuals, partnerships, and corporations (include all certified and official checks) ..................................................... B553 489,983 1. 2. U.S. banks (including IBFs and foreign branches of U.S. banks) and other U.S. depository institutions.............................................. B554 0 2. 3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs ..................................................... 2625 0 3. 4. Foreign governments and official institutions (including foreign central banks) ................................................................... 2650 0 4. 5. U.S. Government and states and political subdivisions in the U.S. ........ B555 0 5. 6. Total (sum of items 1 through 5) (must equal Schedule RC, item 13.b ...... 2200 489,983 6.
Memorandum Dollar Amounts in Thousands RCFN Bil Mil Thou - ----------------------------------------------------------------------------------------------------- 1. Time deposits with a remaining maturity of one year or less (included in Part II, item 6 above) ................................................ A245 489,983 M.1.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-11 21 SCHEDULE RC-F - OTHER ASSETS
Dollar Amounts in Thousands RCFD Bil Mil Thou - ----------------------------------------------------------------------------- ------------------ 1. Accrued interest receivable(1).......................................... B556 130,016 1. 2. Net deferred tax assets(2).............................................. 2148 0 2. 3. Interest-only strips receivable (not in form of a security)(3) on: a. Mortgage loans..................................................... A519 0 3.a. b. Other financial assets............................................. A520 0 3.b. 4. Equity securities that DO NOT have readily determinable fair values(4).. 1752 16,738 4. 5. Other (itemize and describe amounts greater than $25,000 that exceed 25% of this item)........................................................... 2168 1,312,526 5. a. TEXT 2166 Prepaid expenses 2166 0 5.a. b. TEXT C009 Cash surrender value of life insurance C009 0 5.b. c. TEXT 1578 Repossessed personal property (including vehicles) 1578 0 5.c. d. TEXT C010 Derivatives with a positive fair value held for purposes other than trading C010 0 5.d. e. TEXT 3549 Bank owned life insurance 3549 824,062 5.e. f. TEXT 3550 3550 0 5.f. g. TEXT 3551 3551 0 5.g. 6. Total (sum of items 1 through 5)(must equal Schedule RC, item 11)...... 2160 1,459,280 6.
SCHEDULE RC-G - OTHER LIABILITIES
Dollar Amounts in Thousands RCON Bil Mil Thou - ----------------------------------------------------------------------------- ------------------ 1. a. Interest accrued and unpaid on deposits in domestic offices(5)..... 3645 60,774 1.a. b. Other expenses accrued and unpaid (includes accrued income taxes RCFD payable)........................................................... 3646 76,928 1.b. 2. Net deferred tax liabilities(2)......................................... 3049 366,489 2. 3. Allowance for credit losses on off-balance sheet credit exposures....... B557 0 3. 4. Other (itemize and describe amounts greater than $25,000 that exceed 25% of this item)........................................................... 2938 89,021 4. a. TEXT 3066 Accounts payable 3066 0 4.a. b. TEXT C011 Deferred compensation liabilities C011 0 4.b. c. TEXT 2932 Dividends declared but not yet payable 2932 0 4.c. d. TEXT C012 Derivatives with a negative fair value held for purposes other than trading C012 0 4.d. e. TEXT 3552 Deferred income on sale/ leaseback agreement 3552 44,970 4.e. f. TEXT 3553 3553 0 4.f. g. TEXT 3554 3554 0 4.g. 5. Total (sum of items 1 through 4)(must equal Schedule RC, item 20)........ 2930 593,212 5.
- ---------------- (1) Include accrued interest receivable on loans, leases, debt securities, and other interest-bearing assets. (2) See discussion of deferred income taxes in Glossary entry on "income taxes." (3) Report interest-only strips receivable in the form of a security as available-for-sale securities in Schedule RC, item 2.b, or as trading assets in Schedule RC, item 5, as appropriate. (4) Include Federal Reserve stock, Federal Home Loan Bank stock, and bankers' bank stock. (5) For savings banks, include "dividends" accrued and unpaid on deposits. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-12 Schedule RC-H - Selected Balance Sheet Items for Domestic Offices 22
----------------------- Domestic Offices ----------------------- Dollar Amounts in Thousands RCON Bil Mil Thou - ----------------------------------------------------------------------------------------------------------- 1. Customers' liability to this bank on acceptances outstanding ................... 2155 15,335 1. 2. Bank's liability on acceptances executed and outstanding ....................... 2920 15,335 2. 3. Federal funds sold and securities purchased under agreements to resell ......... 1350 54,696 3. 4. Federal funds purchased and securities sold under agreements to repurchase ..... 2800 2,454,471 4. 5. Other borrowed money ........................................................... 3190 2,122,208 5. EITHER 6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs .... 2163 0 6. OR 7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ...... 2941 1,125,100 7. 8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) ........................................................ 2192 27,817,697 8. 9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs) ........................................................ 3129 24,182,219 9.
IN ITEMS 10-17, REPORT THE AMORTIZED (HISTORICAL) COST OF BOTH HELD-TO-MATURITY RCON Bil Mil Thou AND AVAILABLE-FOR-SALE SECURITIES IN DOMESTIC OFFICES. ----------------------- 10. U.S. Treasury securities ...................................................... 1039 0 10. 11. U.S. Government agency obligations (exclude mortgage-backed securities) ....... 1041 949,552 11. 12. Securities issued by states and political subdivisions in the U.S. ............ 1042 142,103 12. 13. Mortgage-backed securities (MBS): a. Pass-through securities: (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................ 1043 1,005,389 13.a.(1) (2) Other pass-through securities ........................................... 1044 0 13.a.(2) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................ 1209 572,505 13.b.(1) (2) All other mortgage-backed securities .................................... 1280 292,819 13.b.(2) 14. Other domestic debt securities (include domestic asset-backed securities) ..... 1281 139,497 14. 15. Foreign debt securities (include foreign asset-backed securities) ............. 1282 3,500 15. 16. Investments in mutual funds and other equity securities with readily determinable fair values ...................................................... A510 144 16. 17. Total amortized (historical) cost of both held-to-maturity and available-for- sale securities (sum of items 10 through 16) .................................. 1374 3,105,509 17. 18. Equity securities that do not have readily determinable fair values ........... 1752 16,738 18.
Schedule RC-I - Assets and Liabilities of IBFs To be completed only by banks with IBFs and other "foreign" offices.
----------------------- Domestic Offices ----------------------- Dollar Amounts in Thousands RCFN Bil Mil Thou - ----------------------------------------------------------------------------------------------------------- 1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .. 2133 N/A 1. 2. Total IBF liabilities (component of Schedule RC, item 21) ...................... 2898 N/A 2.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-13 23 Schedule RC-K - Quarterly Averages (1)
Dollar Amounts in Thousands RCFD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------- ASSETS 1. Interest-bearing balances due from depository institutions.......................... 3381 1,304 1. 2. U.S. Treasury securities and U.S. Government agency obligations(2) (excluding mortgage-backed securities)......................................................... B558 959,058 2. 3. Mortgage-backed securities(2)....................................................... B559 2,135,983 3. 4. All other securities(2), (3) (includes securities issued by states and political subdivisions in the U.S.)........................................................... B560 352,054 4. 5. Federal funds sold and securities purchased under agreements to resell.............. 3365 97,434 5. 6. Loans: a. Loans in domestic offices: RCON (1) Total loans.................................................................. 3360 21,588,817 6.a.(1) (2) Loans secured by real estate................................................. 3385 9,323,510 6.a.(2) (3) Loans to finance agricultural production and other loans to farmers.......... 3386 65,440 6.a.(3) (4) Commercial and industrial loans.............................................. 3387 5,305,452 6.a.(4) (5) Loans to individuals for household, family and other personal expenditures: (a) Credit cards............................................................. B561 0 6.a.(5)(a) (b) Other (includes single payment, installment, all student loans, and revolving credit plans other than credit cards).......................... B562 3,381,032 6.a.(5)(b) b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs....RCFN 3360 0 6.b. 7. Trading assets..................................................................RCFD 3401 28,285 7. 8. Lease and financing receivables (net of unearned income)........................RCFD 3484 3,199,624 8. 9. Total assets(4).................................................................RCFD 3368 28,042,844 9. LIABILITIES 10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, and telephone and preauthorized transfer accounts) (exclude RCON demand deposits).................................................................... 3485 1,757,244 10. 11. Nontransaction accounts in domestic offices: a. Savings deposits (include MMDAs)................................................. B563 6,582,727 11.a. b. Time deposits of $100,000 or more................................................ A514 1,506,023 11.b. c. Time deposits of less than $100,000.............................................. A529 5,623,540 11.c. 12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs........................................................................RCFN 3404 424,576 12. 13. Federal funds purchased and securities sold under agreements to repurchase......RCFD 3353 2,597,067 13. 14. Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases).............................................................RCFD 3355 2,156,484 14.
- ---------- (1) For all items, banks have the option of reporting either (1) an average of DAILY figures for the quarter, or (2) an average of WEEKLY figures (i.e., the Wednesday of each week of the quarter). (2) Quarterly averages for all debt securities should be based on amortized cost. (3) Quarterly averages for all equity securities should be based on historical cost. (4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity securities without readily determinable fair values at historical cost. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-14 Schedule RC-L - Derivatives and Off-Balance Sheet Items 24 Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk.
Dollar Amounts in Thousands RCFD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------- 1. Unused commitments: a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home equity lines ...................................................................................... 3814 3,554,305 1.a. b. Credit card lines .......................................................................... 3815 0 1.b. c. Commercial real estate, construction, and land development: (1) Commitments to fund loans secured by real estate ....................................... 3816 622,220 1.c.(1) (2) Commitments to fund loans not secured by real estate ................................... 6550 70,085 1.c.(2) d. Securities underwriting .................................................................... 3817 0 1.d. e. Other unused commitments ................................................................... 3818 4,550,405 1.e. 2. Financial standby letters of credit and foreign office guarantees ............................. 3819 776,120 2. a. Amount of financial standby letters of credit conveyed to others 3820 10,024 2.a. 3. Performance standby letters of credit and foreign office guarantees ........................... 3821 85,098 3. a. Amount of performance standby letters of credit conveyed to others 3822 3,815 3.a. 4. Commercial and similar letters of credit ...................................................... 3411 265,309 4. 5. To be completed by banks with $100 million or more in total assets: Participations in acceptances (as described in the instructions) conveyed to others by the reporting bank ................................................................................ 3428 0 5. 6. Securities lent (including customers' securities lent where the customer is indemnified against loss by the reporting bank) ................................................................... 3433 0 6. 7. Notional amount of credit derivatives: a. Credit derivatives on which the reporting bank is the guarantor ............................ A534 0 7.a. b. Credit derivatives on which the reporting bank is the beneficiary .......................... A535 0 7.b. 8. Spot foreign exchange contracts ............................................................... 8765 2,583 8. 9. All other off-balance sheet liabilities (exclude derivatives ) (itemize and describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") .............. 3430 0 9. a. [TEXT 3432] Securities borrowed 3432 0 9.a. b. [TEXT 3434] Commitments to purchase when-issued securities 3434 0 9.b. [TEXT 3555] c. 3555 0 9.c. [TEXT 3556] d. 3556 0 9.d. [TEXT 3557] e. 3557 0 9.e. 10. All other off-balance sheet assets (exclude derivatives) (itemize and describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") ........................ 5591 0 10. a. [TEXT 3435] Commitments to sell when-issued securities 3435 0 10.a. [TEXT 5592] b. 5592 0 10.b. [TEXT 5593] c. 5593 0 10.c. [TEXT 5594] d. 5594 0 10.d. [TEXT 5595] e. 5595 0 10.e.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-15 Schedule RC-L - Continued [25]
--------------------------------------------- ----------------------------------------- (Column A) (Column B) (Column C) (Column D) Interest Rate Foreign Exchange Equity Derivative Commodity and Dollar Amounts in Thousands Contracts Contracts Contracts Other Contracts ---------------------- -------------------- -------------------- --------------------- Derivatives Position Indicators Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou ---- --- --- ---- ---- --- --- ---- ---- --- --- ---- ---- --- --- ---- 11. Gross amounts (e.g., notional amounts) (for each column, sum of items 11.a. through 11.e. must equal sum of items 12 and 13): RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696 a. Futures contracts....... 250,000 0 0 0 11.a. RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700 b. Forward contracts....... 820,912 79,850 0 0 11.b. c. Exchange-traded option contracts: RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704 (1) Written options..... 0 0 0 0 11.c.(1) RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708 (2) Purchased options... 0 0 0 0 11.c.(2) d. Over-the-counter option contracts: RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712 (1) Written options.... 1,055,956 0 0 0 11.d.(1) RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716 (2) Purchased options.. 1,670,956 0 0 0 11.d.(2) RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720 e. Swaps.................. 5,052,639 34,650 0 0 11.e. 12. Total gross notional amount of derivative contracts held for RCFD A126 RCFD A127 RCFD 8723 RCFD 8724 trading .................. 4,069,550 79,850 0 0 12. 13. Total gross notional amount of derivative contract held for purposes other than RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728 trading................... 4,780,913 34,650 0 0 13. a. Interest rate swaps where the bank has agreed to pay a fixed RCFD A589 rate .................. 2,145,000 13.a. 14. Gross fair values of derivative contracts: a. Contracts held for trading: RCFD 8733 RCFD 8734 RCFD 8735 RCFD 8736 (1) Gross positive fair value......... 51,430 1,619 0 0 14.a.(1) RCFD 8737 RCFD 8738 RCFD 8739 RCFD 8740 (2) Gross negative fair value......... 46,543 1,577 0 0 14.a.(2) b. Contracts held for purposes other than trading: RCFD 8741 RCFD 8742 RCFD 8743 RCFD 8744 (1) Gross positive fair value......... 42,046 0 0 0 14.b.(1) RCFD 8745 RCFD 8746 RCFD 8747 RCFD 8748 (2) Gross negative fair value......... 38,192 8,717 0 0 14.b.(2)
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-16 - ------------------------- ---- Schedule RC-M - Memoranda 26 - ------------------------- ---- ---------------------- Dollar Amounts in Thousands RCFD | Bil | Mil| Thou - --------------------------------------------------------------------------------------------------------------------------- 1. Extensions of credit by the reporting bank to its executive officers, directors, principal shareholders, and their related interests as of the report date: a. Aggregate amount of all extensions of credit to all executive officers, directors, principal shareholders, and their related interests .................................................... 6164 | 349,706 1.a. b. Number of executive officers, directors, and principal shareholders to whom the amount of all extensions of credit by the reporting bank (including extensions of credit to related interests) equals or exceeds the lesser of $500,000 or 5 percent Number of total capital as defined for this purpose in agency regulations........... 6165 | 12 1.b. 2. Intangible assets other than goodwill: a. Mortgage servicing assets .................................................................... 3164 | 41,479 2.a. (1) Estimated fair value of mortgage servicing assets................... A590 | 42,425 2.a.(1) b. Purchased credit card relationships and nonmortgage servicing assets ......................... B026 19,722 2.b. c. All other identifiable intangible assets ..................................................... 5507 59,082 2.c. d. Total (sum of items 2.a, 2.b, and 2.c) (must equal Schedule RC, item 10.b) ................... 0426 120,283 2.d. 3. Other real estate owned: a. Direct and indirect investments in real estate ventures ...................................... 5372 0 3.a. b. All other real estate owned: RCON | (1) Construction, land development, and other land in domestic offices ....................... 5508 554 3.b.(1) (2) Farmland in domestic offices ............................................................. 5509 0 3.b.(2) (3) 1-4 family residential properties in domestic offices .................................... 5510 5,841 3.b.(3) (4) Multifamily (5 or more) residential properties in domestic offices ....................... 5511 0 3.b.(4) (5) Nonfarm nonresidential properties in domestic offices .................................... 5512 3,518 3.b.(5) (6) In foreign offices ............................................................... | RCFN 5513 0 3.b.(6) RCFD | c. Total (sum of items 3.a and 3.b) (must equal Schedule RC, item 7) ............................ 2150 9,913 3.c. 4. Investments in unconsolidated subsidiaries and associated companies: a. Direct and indirect investments in real estate ventures ...................................... 5374 4,314 4.a. b. All other investments in unconsolidated subsidiaries and associated companies ................ 5375 1,050 4.b. c. Total (sum of items 4.a and 4.b) (must equal Schedule RC, item 8) ............................ 2130 5,364 4.c. 5. Other borrowed money: a. Federal Home Loan Bank advances: (1) With a remaining maturity of one year or less ............................................ 2651 4,000 5.a.(1) (2) With a remaining maturity of more than one year through three years ...................... B565 13,000 5.a.(2) (3) With a remaining maturity of more than three years ....................................... B566 0 5.a.(3) b. Other borrowings: (1) With a remaining maturity of one year or less ............................................ B571 1,157,267 5.b.(1) (2) With a remaining maturity of more than one year through three years ...................... B567 627,243 5.b.(2) (3) With a remaining maturity of more than three years ....................................... B568 320,698 5.b.(3) c. Total (sum of items 5.a.(1) through 5.b.(3) must equal Schedule RC, item 16) ................. 3190 2,122,208 5.c. ------------ 6. Does the reporting bank sell private label or third party mutual funds and annuities? RCFD | (Y/N) ------------ Enter "Y" for YES or "N" for NO ........................................................................... B569 | Y 6. ---------------------- RCFD | Bil | Mil| Thou ---------------------- 7. Assets under the reporting bank's management in proprietary mutual funds and annuities .......... B570 2,823,375 7.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-17 Schedule RC-N - Past Due and Nonaccrual Loans, Leases, and other Assets 27 (Column A) (Column B) (Column C) Past Due Past due 90 Nonaccrual 30 through 89 days or more days and still and still accruing accruing ------------------------- ------------------------- ------------------------- Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou 1. Loans secured by real estate: a. Construction, land development, and other land loans in domestic offices............................ 2759 18,339 2769 792 3492 3,819 1.a. b. Secured by farmland in domestic offices............................ 3493 1,051 3494 60 3495 1,259 1.b. c. Secured by 1-4 family residential properties in domestic offices: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit.. 5398 24,561 5399 8,178 5400 0 1.c.(1) (2) Closed-end loans secured by 1-4 family residential properties.. 5401 52,662 5402 13,034 5403 15,187 1.c.(2) d. Secured by multifamily (5 or more) residential properties in domestic offices............................ 3499 1,214 3500 0 3501 1,274 1.d. e. Secured by nonfarm nonresidential properties in domestic offices..... 3502 36,798 3503 8,756 3504 50,525 1.e. RCFN RCFN RCFN f. In foreign offices................. B572 0 B573 0 B574 0 1.f. 2. Loans to depository institutions and acceptances of other banks: a. To U.S. banks and other U.S. RCFD RCFD RCFD depository institutions............ 5377 0 5378 0 5379 0 2.a. b. To foreign banks................... 5380 0 5381 0 5382 0 2.b. 3. Loans to finance agricultural production and other loans to farmers............................... 1594 637 1597 533 1583 2,598 3. 4. Commercial and industrial loans: a. To U.S. addressees (domicile)...... 1251 117,901 1252 9,237 1253 78,780 4.a. b. To non-U.S. addressees (domicile).. 1254 0 1255 0 1256 0 4.b. 5. Loans to individuals for household, family, and other personal expenditures: a. Credit cards....................... B575 0 B576 0 B577 0 5.a. b. Other (includes single payment, installment, all student loans, and revolving credit plans other than credit cards)...................... B578 90,213 B579 16,921 B580 449 5.b. 6. Loans to foreign governments and official institutions................. 5389 0 5390 0 5391 0 6. 7. All other loans....................... 5459 0 5460 0 5461 889 7. 8. Lease financing receivables: a. Of U.S. addressees (domicile)...... 1257 73,450 1258 9,566 1259 2 8.a. b. Of non-U.S. addressees (domicile).. 1271 0 1272 0 1791 0 8.b. 9. Debt securities and other assets (exclude other real estate owned and other repossessed assets)............. 3505 0 3506 0 3507 0 9.
FFIEC 031 7/30/2001 - The Huntington National B - Certificate Number 06560 Page RC-18 28 Schedule RC-N - Continued Amounts reported in Schedule RC-N, items 1 through 8, above include guaranteed and unguaranteed portions of past due and nonaccrual loans and leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in items 1 through 8.
(Column A) (Column B) (Column C) Past Due Past due 90 Nonaccrual 30 through 89 days or more days and still and still accruing accruing -------------------- -------------------- -------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou - ---------------------------------------------------- -------------------- -------------------- -------------------- 10. Loans and leases reported in items 1 through 8 above which are wholly or partially guaranteed by the U.S. Government ......................... 5612 2,558 5613 3,046 5614 5,050 10. a. Guaranteed portion of loans and leases included in item 10 above ..................... 5615 2,225 5616 2,852 5617 3,153 10.a.
Memoranda
(Column A) (Column B) (Column C) Past Due Past due 90 Nonaccrual 30 through 89 days or more days and still and still accruing accruing -------------------- -------------------- -------------------- Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou - ---------------------------------------------------- -------------------- -------------------- -------------------- 1. Restructured loans and leases included in Schedule RC-N, items 1 through 8, above (and not reported in Schedule RC-C, Part I, Memorandum item 1) ............................. 1658 0 1659 0 1661 0 M.1. 2. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RC-N, items 4 and 7, above ........... 6558 0 6559 0 6560 0 M.2. 3. Loans secured by real estate to non-U.S. addressees (domicile) (included in Schedule RC-N, item 1, above) ................ 1248 0 1249 0 1250 0 M.3. 4. Not applicable
(Column A) (Column B) Past Due 30 Past due 90 through 89 days days or more -------------------- -------------------- RCFD Bil Mil Thou RCFD Bil Mil Thou -------------------- -------------------- 5. Interest rate, foreign exchange rate, and other commodity and equity contracts: Fair value of amounts carried as assets ....... 3529 0 3530 0 M.5.
Person to whom questions about the Reports of Condition and Income should be directed: Bill Talzerow, Manager of Financial Reporting - ------------------------------------------------------------------------------- Name and Title (TEXT 8901) bill.telzerow@huntington.com - ------------------------------------------------------------------------------- E-mail Address (TEXT 4086) (614) 480-4563 (614) 480-5284 - ------------------------------------- ---------------------------------------- Telephone: Area code/phone number/ FAX: Area code/phone number (TEXT 9116) extension (TEXT 8902) 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-19 Schedule RC-O - Other Data for Deposit Insurance and FICO Assessments 29
Dollar Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------ 1. Unposted debits (see instructions): a. Actual amount of all unposted debits ...................................................... 0030 0 1.a. OR b. Separate amount of unposted debits: (1) Actual amount of unposted debits to demand deposits ................................... 0031 0 1.b.(1) (2) Actual amount of unposted debits to time and savings deposits(1) ...................... 0032 0 1.b.(2) 2. Unposted credits (see instructions): a. Actual amount of all unposted credits ..................................................... 3510 3,256 2.a. OR b. Separate amount of unposted credits: (1) Actual amount of unposted credits to demand deposits .................................. 3512 0 2.b.(1) (2) Actual amount of unposted credits to time and savings deposits(1) ..................... 3514 0 2.b.(2) 3. Uninvested trust funds (cash) held in bank's own trust department (not included in total deposits in domestic offices) ................................................................ 3520 0 3. 4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in Puerto Rico and U.S. territories and possessions (not included in total deposits): a. Demand deposits of consolidated subsidiaries .............................................. 2211 0 4.a. b. Time and savings deposits(1) of consolidated subsidiaries ................................. 2351 0 4.b. c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... 5514 0 4.c. 5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. 2229 0 5.a. b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... 2383 0 5.b. c. Interest accrued and unpaid on deposits in insured branches (included in Schedule RC-G, item 1.b.) ................................................................................ 5515 0 5.c. 6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on behalf of its respondent depository institutions that are also reflected as deposit liabilities of the reporting bank: a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item 7, column B) ................................................................................. 2314 0 6.a. b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, item 7, column A or C, but not column B) .................................................. 2315 0 6.b. 7. Unamortized premiums and discounts on time and savings deposits:(1),(2) a. Unamortized premiums ...................................................................... 5516 0 7.a. b. Unamortized discounts ..................................................................... 5517 0 7.b. 8. To be completed by banks with "Oakar deposits." a. Deposits purchased or acquired from other FDIC-insured institutions during the quarter (exclude deposits purchased or acquired from foreign offices other than insured branches in Puerto Rico and U.S. territories and possessions): (1) Total deposits purchased or acquired from other FDIC-insured institutions during the quarter ........................................................................... A531 0 8.a.(1) (2) Amount of purchased or acquired deposits reported in item 8.a.(1) above attributable to a secondary fund (i.e., BIF members report deposits attributable to SAIF; SAIF members report deposits attributable to BIF) .......................................... A532 0 8.a.(2) b. Total deposits sold or transferred to other FDIC-insured institutions during the quarter (exclude sales or transfers by the reporting bank of deposits in foreign offices other than insured branches in Puerto Rico and U.S. territories and possessions) ..................... A533 11,013 8.b.
- ----------- (1) For FDIC insurance and FICO assessment purposes, "time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits. (2) Exclude core deposit intangibles. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-20 Schedule RC-O - Continued 30
Dollar Amounts in Thousands RCON Bil Mil Thou - ----------------------------------------------------------------------------------------------------------------------- 9. Deposits in lifeline accounts................................................................... 5596 9. 10. Benefit-responsive "Depository Institution Investment Contracts" (included in total deposits in domestic offices)........................................................................... 8432 0 10. 11. Adjustments to demand deposits in domestic offices and in insured branches in Puerto Rico and U.S. territories and possessions reported in Schedule RC-E for certain reciprocal demand balances: a. Amount by which demand deposits would be reduced if the reporting bank's reciprocal demand balances with the domestic offices of U.S. banks and savings associations and insured branches in Puerto Rico and U.S. territories and possessions that were reported on a gross basis in Schedule RC-E had been reported on a net basis.......................... 8785 1,078 11.a. b. Amount by which demand deposits would be increased if the reporting bank's reciprocal demand balances with foreign banks and foreign offices of other U.S. banks (other than insured branches in Puerto Rico and U.S. territories and possessions) that were reported on a net basis in Schedule RC-E had been reported on a gross basis.......................... A181 0 11.b. c. Amount by which demand deposits would be reduced if cash items in process of collection were included in the calculation of the reporting bank's net reciprocal demand balances with the domestic offices of U.S. banks and savings associations and insured branches in Puerto Rico and U.S. territories and possessions in Schedule RC-E............... A182 0 11.c. 12. Amount of assets netted against deposit liabilities in domestic offices and in insured branches in Puerto Rico and U.S. territories and possessions on the balance sheet (Schedule RC) in accordance with generally accepted accounting principles (exclude amounts related to reciprocal demand balances): a. Amount of assets netted against demand deposits............................................ A527 0 12.a. b. Amount of assets netted against time and savings deposits.................................. A528 0 12.b.
Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands RCON Bil Mil Thou - ----------------------------------------------------------------------------------------------------------------------- 1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and 1.b.(1) must equal Schedule RC, item 13.a): a. Deposit accounts of $100,000 or less: (1) Amount of deposit accounts of $100,000 or less.......................................... 2702 12,783,252 M.1.a.(1) (2) Number of deposit accounts of $100,000 or less (to be Number completed for the June report only)................................. 3779 1,837,906 M.1.a.(2) b. Deposit accounts of more than $100,000: (1) Amount of deposit accounts of more than $100,000........................................ 2710 5,895,311 M.1.b.(1) Number (2) Number of deposit accounts of more than $100,000.................... 2722 22,054 M.1.b.(2) 2. Estimated amount of uninsured deposits in domestic offices of the bank: a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000 and subtracting the result from the amount of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(1) above. Indicate in the box to the right whether your bank has a method or procedure for determining a better estimate of uninsured deposits than the estimate RCON (Y/N) described above (enter "Y" for YES or "N" for NO)................................................... 6861 N M.2.a. b. If the box is marked YES, report the estimate of uninsured deposits RCON Bil Mil Thou determined by using your bank's method or procedure......................................... 5597 N/A M.2.b. 3. Has the reporting institution been consolidated with a parent bank or savings association in that parent bank's or parent savings association's Call Report or Thrift Financial Report? If so, report the legal title and FDIC Certificate Number of the parent bank or parent savings association: RCON FDIC Cert No. TEXT A545 A545 M.3. -------------------------------------------------------------------------------------------------------------------
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-21 31 Schedule RC-R - Regulatory Capital
Dollar Amounts in Thousands RCFD Bil Mil Thou - -------------------------------------------------------------------------------------------------------------------------- TIER 1 CAPITAL 1. Total equity capital (from Schedule RC, item 28)............................................. 3210 2,095,192 1. 2. LESS: Net unrealized gains (losses) on available-for-sale securities(1)(if a gain, report as a positive value; if a loss, report as a negative value)..................................... 8434 (1,134) 2. 3. LESS: Net unrealized loss on available-for-sale EQUITY securities(1)(report loss as a POSITIVE value).............................................................................. A221 0 3. 4. LESS: Accumulated net gains (losses) on cash flow hedges(1)(if a gain, report as a positive value; if a loss, report as a negative value)................................................ A336 (3,761) 4. 5. LESS: Nonqualifying perpetual preferred stock................................................ B588 0 5. 6. Qualifying minority interests in consolidated subsidiaries................................... B589 415,087 6. 7. LESS: Disallowed goodwill and other disallowed intangible assets............................. B590 695,191 7. 8. LESS: Disallowed servicing assets and purchased credit card relationships.................... B591 5,268 8. 9. LESS: Disallowed deferred tax assets......................................................... 5610 0 9. 10. Other additions to (deductions from) Tier 1 capital.......................................... B592 0 10. 11. Tier 1 capital (sum of items 1, 6, and 10, less items 2, 3, 4, 5, 7, 8, and 9)............... 8274 1,814,715 11. TIER 2 CAPITAL 12. Qualifying subordinated debt and redeemable preferred stock.................................. 5306 730,000 12. 13. Cumulative perpetual preferred stock includible in Tier 2 capital............................ B593 0 13. 14. Allowance for loan and lease losses includible in Tier 2 capital............................. 5310 341,410 14. 15. Unrealized gains on available-for-sale equity securities includible in Tier 2 capital........ 2221 0 15. 16. Other Tier 2 capital components.............................................................. B594 0 16. 17. Tier 2 capital (sum of items 12 through 16).................................................. 5311 1,071,410 17. 18. Allowable Tier 2 capital (lesser of item 11 or 17)........................................... 8275 1,071,410 18. 19. Tier 3 capital allocated for market risk..................................................... 1395 0 19. 20. LESS: Deductions for total risk-based capital................................................ B595 0 20. 21. Total risk-based capital (sum of items 11, 18, and 19, less item 20)......................... 3792 2,886,125 21. TOTAL ASSETS FOR LEVERAGE RATIO 22. Average total assets (from Schedule RC-K, item 9)............................................ 3368 28,042,844 22. 23. LESS: Disallowed goodwill and other disallowed intangible assets (from item 7 above)......... B590 695,191 23. 24. LESS: Disallowed servicing assets and purchased credit card relationships (from item 8 above)................................................................................ B591 5,268 24. 25. LESS: Disallowed deferred tax assets (from item 9 above)..................................... 5610 0 25. 26. LESS: Other deductions from assets for leverage capital purposes............................. B596 0 26. 27. Average total assets for leverage capital purposes (item 22 less items 23 through 26)........ A224 27,342,385 27. ADJUSTMENTS FOR FINANCIAL SUBSIDIARIES 28. Adjustment to total risk-based capital reported in item 21................................... B503 0 28. 29. Adjustment to risk-weighted assets reported in item 62....................................... B504 0 29. 30. Adjustment to average total assets reported in item 27....................................... B505 0 30.
(Column A) (Column B) RCFD Percentage RCFD Percentage ----------------- -------------------- CAPITAL RATIOS (Column B is to be completed by all banks. Column A is to be completed by banks with financial subsidiaries.) 31. Tier 1 leverage ratio (2)............................................... 7273 N/A 7204 6.64 31. 32. Tier 1 risk-based capital ratio (3)..................................... 7274 N/A 7206 6.65 32. 33. Total risk-based capital ratio (4)...................................... 7275 N/A 7205 10.57 33.
- ---------- (1) Report amount included in Schedule RC, item 26.b, "Accumulated other comprehensive income." (2) The ratio for column B is item 11 divided by item 27. The ratio for column A is item 11 minus one half of item 28 divided by (item 27 minus item 30). (3) The ratio for column B is item 11 divided by item 62. The ratio for column A is item 11 minus one half of item 28 divided by (item 62 minus item 29). (4) The ratio for column B is item 21 divided by item 62. The ratio for column A is item 21 minus item 28 divided by (item 62 minus item 29). 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-22 Schedule RC - R - Continued 32 Banks are not required to risk-weight each on-balance sheet asset and the credit equivalent amount of each off-balance sheet item that qualifies for a risk weight of less than 100 percent (50 percent for derivatives) at its lower risk weight. When completing items 34 through 54 of Schedule RC-R, each bank should decide for itself how detailed a risk-weight analysis it wishes to perform. In other words, a bank can choose from among its assets and off-balance sheet items that have a risk weight of less than 100 percent which ones to risk-weight at an appropriate lower risk weight, or it can simply risk-weight some or all of these items at a 100 percent risk weight (50 percent for derivatives).
(Column C) (Column D) (Column E) (Column F) (Column A) (Column B) ____________________________________________________________ Totals Items Not Allocation by Risk Weight Category (from Subject to ____________________________________________________________ Schedule RC) Risk-Weighting 0% 20% 50% 100% ____________________________________________________________________________________________ Dollar Amounts in Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Thousands ________________________________________________________________________________________________________________________ BALANCE SHEET ASSET CATEGORIES 34. Cash and balances due from depository institutions (Column A equals the sum of Schedule RC, items RCFD 0010 RCFD B600 RCFD B601 RCFD B602 1.a and 1.b)......... 887,517 238,803 648,714 0 34. 35. Held-to-maturity RCFD 1754 RCFD B603 RCFD B604 RCFD B605 RCFD B606 RCFD B607 securities........... 14,978 0 0 4,642 10,336 0 35. 36. Available-for-sale RCFD 1773 RCFD B608 RCFD B609 RCFD B610 RCFD B611 RCFD B612 securities........... 3,088,779 136,660 19,960 2,608,445 318,985 4,729 36. 37. Federal funds sold and securities purchased under RCFD 1350 RCFD B613 RCFD B614 RCFD B616 agreements to resell.. 54,696 0 31,982 22,714 37. 38. Loans and leases held RCFD 5369 RCFD B617 RCFD B618 RCFD B619 RCFD B620 RCFD B621 for sale.............. 376,671 0 0 0 376,671 0 38. 39. Loans and leases, net of unearned RCFD B528 RCFD B622 RCFD B623 RCFD B624 RCFD B625 RCFD B626 income(1)............. 21,047,712 0 0 10,515 1,534,033 19,503,164 39. 40. LESS: Allowance for loan and lease RCFD 3123 RCFD 3123 losses................ 351,133 351,133 40. RCFD 3545 RCFD B627 RCFD B628 RCFD B629 RCFD B630 RCFD B631 41. Trading Assets........ 1,640 0 0 0 0 1,640 41. RCFD B639 RCFD B640 RCFD B641 RCFD B642 RCFD B643 RCFD 5339 42. All other assets (2).. 2,696,837 700,459 14,306 25,728 0 1,956,344 42. 43. Total assets (sum of items 34 RCFD 2170 RCFD B644 RCFD 5320 RCFD 5327 RCFD 5334 RCFD 5340 through 42)........... 27,817,697 485,986 273,069 3,330,026 2,240,025 21,488,591 43.
__________ (1) Include any allocated transfer risk reserve in column B. (2) Includes premises and fixed assets, other real estate owned, investments in unconsolidated subsidiaries and associated companies, customers' liabilities on acceptances outstanding, intangible assets, and other assets. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-23 Schedule RC-R - Continued 33
---------------------------------------------------------------------------------------------------------- (Column A) (Column B) (Column C) (Column D) (Column E) (Column F) -------------------------------------------------------------- Face Value Credit Credit Allocation by Risk Weight Category or Notional Conversion Equivalent -------------------------------------------------------------- Amount Factor Amount(1) 0% 20% 50% 100% Dollar Amounts -------------- -------------- -------------- -------------- -------------- -------------- in Thousands Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------------------ Derivatives and Off-Balance Sheet Items RCFD 3819 RCFD B645 RCFD B646 RCFD B647 RCFD B648 RCFD B649 44. Financial standby letters of credit ..... 776,120 1.00 776,120 0 0 0 776,120 44. 45. Performance standby letters RCFD 3821 RCFD B650 RCFD B651 RCFD B652 RCFD B653 RCFD B654 of credit ..... 85,098 0.50 42,549 0 0 0 42,549 45. 46. Commercial and similar letters RCFD 3411 RCFD B655 RCFD B656 RCFD B657 RCFD B658 RCFD B659 of credit ..... 285,309 0.20 53,062 0 0 0 53,062 46. 47. Risk participation in bankers acceptances acquired by the reporting RCFD 3429 RCFD B660 RCFD B661 RCFD B662 RCFD B663 institution ... 0 1.00 0 0 0 0 47. RCFD 3433 RCFD B664 RCFD B665 RCFD B666 RCFD B667 RCFD B668 48. Securities lent .......... 0 1.00 0 0 0 0 0 48. 49. Retained recourse on small business obligations sold with RCFD A250 RCFD B669 RCFD B670 RCFD B671 RCFD B672 RCFD B673 recourse ...... 0 1.00 0 0 0 0 0 49. 50. Retained recourse on financial assets sold with low-level RCFD 1727 RCFD 2243 RCFD B674 recourse ...... 0 12.50* 0 0 50. 51. All other financial assets sold RCFD B675 RCFD B676 RCFD B677 RCFD B678 RCFD B679 RCFD B680 with recourse . 1,164,686 1.00 1,164,686 0 0 45,016 1,119,670 51. 52. All other off-balance sheet RCFD B681 RCFD B682 RCFD B683 RCFD B684 RCFD B685 RCFD B686 liabilities... 0 1.00 0 0 0 0 0 52. 53. Unused commitments with an original maturity exceeding RCFD 3833 RCFD B687 RCFD B688 RCFD B689 RCFD B690 RCFD B691 one year ..... 3,958,204 0.50 1,979,102 0 0 0 1,979,102 53. 54. Derivative RCFD A167 RCFD B693 RCFD B694 RCFD B695 contracts .... 135,940 0 75,891 60,049 54.
- ---------- * Or institution-specific factor. If your institution uses a different conversion factor, overwrite 12.50 above. (1) Column A multiplied by credit conversion factor. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-24 Schedule RC-R - Continued 34
(Column C) (Column D) (Column E) (Column F) -------------- -------------- -------------- -------------- Allocation by Risk Weight Category --------------------------------------------------------------- 0% 20% 50% 100% -------------- -------------- -------------- --------------- Dollar Amounts in Thousands Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou - ------------------------------------------------------ -------------- -------------- -------------- --------------- Totals 55. Total assets, derivatives, and off-balance sheet items by risk weight category (for each RCFD B696 RCFD B697 RCFD B698 RCFD B699 column, sum of items 43 through 54)................ 273,069 3,405,917 2,345,090 25,459,094 55. 56. Risk weight factor................................. x 0% x 20% x 50% x 100% 56. 57. Risk-weighted assets by risk weight category RCFD B700 RCFD B701 RCFD B702 RCFD B703 (for each column, item 55 multiplied by item 56)... 0 681,183 1,172,545 25,459,094 57. RCFD 1651 58. Market risk equivalent assets...................... 0 58. 59. Risk-weighted assets before deductions for excess allowance for loan and lease losses and allocated transfer risk reserve (sum of item 57, columns C RCFD B704 through F, and item 58)............................ 27,312,822 59. RCFD A222 60. LESS: Excess allowance for loan and lease losses.. 9,723 60. RCFD 3128 61. LESS: Allocated transfer risk reserve............. 0 61. 62. Total risk-weighted assets (item 59 minus items 60 RCFD A223 and 61)........................................... 27,303,099 62.
Memoranda
Dollar Amounts in Thousands RCFD Tril Bil Mil Thou - ------------------------------------------------------------------------------------ ---------------------------------- 1. Current credit exposure across all derivative contracts covered by the risk- based capital standards....................................................... 8764 95,095 M.1.
With a remaining maturity of ---------------------------------------------------------------------- (Column A) (Column B) (Column C) One year or less Over one year Over five years through five years ----------------------------------------------------------------------- RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou ----------------------------------------------------------------------- 2. Notional principal amounts of derivative contracts:(1) a. Interest rate contracts................... 3809 3,626,889 8766 2,045,078 8767 1,872,541 M.2.a. b. Foreign exchange contracts................ 3812 79,850 8769 34,650 8770 0 M.2.b. c. Gold contracts............................ 8771 0 8772 0 8773 0 M.2.c. d. Other precious metals contracts........... 8774 0 8775 0 8776 0 M.2.d. e. Other commodity contracts................. 8777 0 8778 0 8779 0 M.2.e. f. Equity derivative contracts............... A000 0 A001 0 A002 0 M.2.f.
- ---------------- (1) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts. FFIEC 031 Page RC-25 35 7/30/2001 - The Huntington National B-Certificate Number 06560 SCHEDULE RC-S - SECURITIZATION AND ASSET SALE ACTIVITIES ALL OF SCHEDULE RC-S IS TO BE COMPLETED BEGINNING JUNE 30, 2001.
(Column A) (Column B) (Column C) (Column D) 1 - 4 Family Home Credit Residential Equity Card Auto Loans Lines Receivables Loans ---------------- ---------------- ---------------- ---------------- Dollar Amounts in Thousands Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou ---------------- ---------------- ---------------- ---------------- BANK SECURITIZATION ACTIVITIES 1. Outstanding principal balance of assets sold and securitized by the reporting bank with servicing retained or with recourse or other seller-provided credit RCFD B705 RCFD B706 RCFD B707 RCFD B708 enhancements.................................. 0 0 0 1,298,807 2. Maximum amount of credit exposure arising from recourse or other seller-provided credit enhancements provided to structures reported in item 1 in the form of: a. Retained interest-only strips (included in Schedules RC-B or RC-F or in RCFD B712 RCFD B713 RCFD B714 RCFD B715 Schedule RC, item 5)...................... 0 0 0 138,412 b. Standby letters of credit, subordinated RCFD B719 RCFD B720 RCFD B721 RCFD B722 securities, and other enhancements......... 0 0 0 0 3. Reporting bank's unused commitments to provide liquidity to structures reported in RCFD B726 RCFD B727 RCFD B728 RCFD B729 item 1........................................ 0 0 0 0 4. Past due loan amounts included in item 1: RCFD B733 RCFD B734 RCFD B735 RCFD B736 a. 30-89 days past due........................ 0 0 0 30,005 RCFD B740 RCFD B741 RCFD B742 RCFD B743 b. 90 days or more past due................... 0 0 0 5,203 5. Charge-offs and recoveries on assets sold and securitized with servicing retained or with recourse or other seller-provided credit enhancements (calendar year-to-date): RIAD B747 RIAD B748 RIAD B749 RIAD B750 a. Charge-offs................................ 0 0 0 19,888 RIAD B754 RIAD B755 RIAD B756 RIAD B757 b. Recoveries................................. 0 0 0 8,497
(Column E) (Column F) (Column G) Other Commercial All Other Consumer & Industrial Loans and Loans Loans All Leases ----------------- ---------------- ---------------- Dollar Amounts in Thousands Bil Mil Thou Bil Mil Thou Bil Mil Thou ----------------- ---------------- ---------------- BANK SECURITIZATION ACTIVITIES 1. Outstanding principal balance of assets sold and securitized by the reporting bank with servicing retained or with recourse or other seller-provided credit RCFD B709 RCFD B710 RCFD B711 enhancements.................................. 0 0 0 1. 2. Maximum amount of credit exposure arising from recourse or other seller-provided credit enhancements provided to structures reported in item 1 in the form of: a. Retained interest-only strips (included in Schedules RC-B or RC-F or in Schedule RCFD B716 RCFD B717 RCFD B718 RC, item 5)................................ 0 0 0 2.a. b. Standby letters of credit, subordinated RCFD B723 RCFD B724 RCFD B725 securities, and other enhancements......... 0 0 0 2.b. 3. Reporting bank's unused commitments to provide RCFD B730 RCFD B731 RCFD B732 liquidity to structures reported in item 1.... 0 0 0 3. 4. Past due loan amounts included in item 1: RCFD B737 RCFD B738 RCFD B739 a. 30-89 days past due........................ 0 0 0 4.a. RCFD B744 RCFD B745 RCFD B746 b. 90 days or more past due................... 0 0 0 4.b. 5. Charge-offs and recoveries on assets sold and securitized with servicing retained or with recourse or other seller-provided credit enhancements (calendar year-to-date): RIAD B751 RIAD B752 RIAD B753 a. Charge-offs................................ 0 0 0 5.a. RIAD B758 RIAD B759 RIAD B760 b. Recoveries................................. 0 0 0 5.b.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-26 Schedule RC-S - Continued 36 (Column A) (Column B) (Column C) (Column D) (Column E) 1-4 Family Home Credit Auto Other Residential Equity Card Loans Consumer Loans Lines Receivables Loans -------------- -------------- -------------- -------------- -------------- Dollar Amounts in Thousands Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou - ---------------------------------------------------------------------------------------------------------------------------- 6. Amount of ownership (or seller's) interests carried as: a. Securities (included in Schedule RC-B or in RCFD B761 RCFD B762 Schedule RC, item 5)............... 0 0 b. Loans RCFD B500 RCFD B501 (included in Schedule RC-C)........ 0 0 7. Past due loan amounts included in interests reported in item 6.a: RCFD B764 RCFD B765 a. 30 - 89 days past due.............. 0 0 RCFD B767 RCFD B768 b. 90 days or more past due........... 0 0 8. Charge-offs and recoveries on loan amounts included in interests reported in item 6.a (calendar year-to-date): RIAD B770 RIAD B771 a. Charge-offs........................ 0 0 RIAD B773 RIAD B774 b. Recoveries......................... 0 0 FOR SECURITIZATION FACILITIES SPONSORED BY OR OTHERWISE ESTABLISHED BY OTHER INSTITUTIONS 9. Maximum amount of credit exposure arising from credit enhancements provided by the reporting bank to other institutions' securitization structures in the form of standby letters of credit, purchased subordinated securities, and RCFD B776 RCFD B777 RCFD B778 RCFD B779 RCFD B780 other enhancements................... 0 0 0 0 0 10. Reporting bank's unused commitments to provide liquidity to other institutions' securitization RCFD B783 RCFD B784 RCFD B785 RCFD B786 RCFD B787 structures........................... 0 0 0 0 0
(Column F) (Column G) Commercial All Other & Industrial Loans and Loans All Leases -------------- -------------- Dollar Amounts in Thousands Bil Mil Thou Bil Mil Thou - --------------------------------------------------------------------------- 6. Amount of ownership (or seller's) interests carried as: a. Securities (included in Schedule RC-B or in RCFD B763 Schedule RC, item 5)............... 0 6.a. b. Loans RCFD B502 (included in Schedule RC-C)........ 0 6.b. 7. Past due loan amounts included in interests reported in item 6a.: RCFD B766 a. 30 - 89 days past due.............. 0 7.a. RCFD B769 b. 90 days or more past due........... 0 7.b. 8. Charge-offs and recoveries on loan amounts included in interests reported in item 6.a (calendar year-to-date): RIAD B772 a. Charge-offs........................ 0 8.a. RIAD B775 b. Recoveries......................... 0 8.b. FOR SECURITIZATION FACILITIES SPONSORED BY OR OTHERWISE ESTABLISHED BY OTHER INSTITUTIONS 9. Maximum amount of credit exposure arising from credit enhancements provided by the reporting bank to other institutions' securitization structures in the form of standby letters of credit, purchased subordinated securities, and RCFD B781 RCFD B782 other enhancements................ 0 0 9. 10. Reporting bank's unused commitments RCFD B788 RCFD B789 to provide liquidity to other institutions' securitization structures........................ 0 0 10.
FFIEC 031 7/30/2001 - The Huntington National B - Certificate Number 06560 Page RC-27 37 Schedule RC-S - Continued
(Column A) (Column B) (Column C) (Column D) (Column E) (Column F) (Column G) 1-4 Family Home Credit Auto Other Commercial All Other Residential Equity Card Loans Consumer & Industrial Loans and Loans Lines Receivables Loans Loans All Leases ------------ ------------- ------------ ------------ ------------ ------------ ------------ Dollar Amounts in Thousands Bil Mil Thou Bill Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou Bil Mil Thou - -------------------------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------ BANK ASSET SALES 11. Assets sold with recourse or other seller-provided credit enhancements and not securitized by the reporting RCFD B790 RCFD B791 RCFD B792 RCFD B793 RCFD B794 RCFD B795 RCFD B796 bank ...................... 0 0 0 0 0 0 0 11. 12. Maximum amount of credit exposure arising from recourse or other seller- provided credit enhancements provided to assets reported RCFD B797 RCFD B798 RCFD B799 RCFD B800 RCFD B801 RCFD B802 RCFD B803 12. in item 11 ................ 0 0 0 0 0 0 0
MEMORANDUM ITEMS 1, 2 AND 3 ARE TO BE COMPLETED BEGINNING JUNE 30, 2001.
Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou - --------------------------------------------------------------------------------------------- ----------------------- 1. Small business obligations transferred with recourse under Section 208 of the Riegle Community Development and Regulatory Improvement Act of 1994: a. Outstanding principal balance ......................................................... A249 0 M.1.a. b. Amount of retained recourse on these obligations as of the report date ................ A250 0 M.1.b. 2. Outstanding principal balance of assets serviced for others: a. 1-4 family residential mortgages serviced with recourse or other sevicer-provided credit enhancements ................................................................... B804 45,016 M.2.a. b. 1-4 family residential mortgages serviced with no recourse or other servicer-provided credit enhancements ................................................................... B805 4,887,592 M.2.b. c. Other financial assets (1) ............................................................ A591 1,298,807 M.2.c. 3. Asset-backed commercial paper conduits: a. Maximum amount of credit exposure arising from credit enhancements provided to conduit structures in the form of standby letters of credit, subordinated securities, and other enhancements: (1) Conduits sponsored by the bank, a bank affiliate, or the bank's holding company ... B806 0 M.3.a.(1) (2) Conduits sponsored by other unrelated institutions ................................ B807 0 M.3.a.(2) b. Unused commitments to provide liquidity to conduit structures: (1) Conduits sponsored by the bank, a bank affiliate, or the bank's holding company ... B808 0 M.3.b.(1) (2) Conduits sponsored by other unrelated institutions ................................ B809 0 M.3.b.(2)
- -------------- (1) Memorandum item 2.c is to be completed beginning June 30, 2001, if the principal balance of other financial assets serviced for others is more than $10 million. 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-28 Schedule RC-T - Fiduciary and Related Services [38] SCHEDULE RC-T IS TO BE COMPLETED BEGINNING DECEMBER 31, 2001. ITEMS 12 THROUGH 23 AND MEMORANDUM ITEM 4 WILL NOT BE MADE AVAILABLE TO THE PUBLIC ON AN INDIVIDUAL INSTITUTION BASIS. RCFD (Y/N) 1. Does the institution have fiduciary powers? (enter "Y" for YES or "N" for NO) ..................... A345 N/A 1. (If "NO," do not complete Schedule RC-T.) 2. Does the institution exercise the fiduciary powers it has been granted? (enter "Y" for YES or RCFD (Y/N) "N" for NO) ....................................................................................... A346 N/A 2. 3. Does the institution have any fiduciary or related activity (in the form of assets or accounts) to report in this schedule? (enter "Y" for YES or "N" for NO) (if "NO," do not complete the rest RCFD (Y/N) of Schedule RC-T.) ............................................................................... B867 N/A 3.
If the answer to item 3 is "YES," complete the applicable items of Schedule RC-T, as follows: Institutions with total fiduciary assets (item 9, sum of columns A and B) greater than $250 million (as of the preceding December 31) or with gross fiduciary and related services income greater than 10% of revenue (net interest income plus noninterest income) for the preceding calendar year must complete: - - Items 4 through 19.a quarterly, - - Items 20 through 23 annually with the December report, and - - Memorandum items 1 through 4 annually with the December report. Institutions with total fiduciary assets (item 9, sum of columns A and B) greater than $100 million but less than or equal to $250 million (as of the preceding December 31) that do not meet the fiduciary income test for quarterly reporting must complete: - - Items 4 through 23 annually with the December report, and - - Memorandum items 1 through 4 annually with the December report. Institutions with total fiduciary assets (item 9, sum of columns A and B) of $100 million or less (as of the preceding December 31) that do not meet the fiduciary income test for quarterly reporting must complete: - - Items 4 through 11 annually with the December report, and - - Memorandum items 1 through 3 annually with the December report.
--------------------------------------------- ----------------------------------------- (Column A) (Column B) (Column C) (Column D) Managed Non-Managed Number of Number of Assets Assets Managed Non-Managed Accounts Accounts ---------------------- -------------------- -------------------- --------------------- Dollar Amounts in Thousands Tril Bil Mil Thou Tril Bil Mil Thou ---- --- --- ---- ---- --- --- ---- FIDUCIARY AND RELATED ASSETS RCFD B868 RCFD B869 RCFD B870 RCFD B871 4. Personal trust and agency accounts .................. N/A N/A N/A N/A 4. 5. Retirement related trust and agency accounts: a. Employee benefit - RCFD B872 RCFD B873 RCFD B874 RCFD B875 defined contribution.... N/A N/A N/A N/A 5.a. b. Employee benefit - RCFD B876 RCFD B877 RCFD B878 RCFD B879 defined benefit ........ N/A N/A N/A N/A 5.b. RCFD B880 RCFD B881 RCFD B882 RCFD B883 c. Other retirement accounts ............... N/A N/A N/A N/A 5.c. RCFD B884 RCFD B885 RCFD C001 RCFD C002 6. Corporate trust and agency accounts .................. N/A N/A N/A N/A 6. RCFD B886 RCFD B888 7. Investment management agency accounts ........... N/A N/A 7. RCFD B890 RCFD B891 RCFD B892 RCFD B893 8. Other fiduciary accounts... N/A N/A N/A N/A 8.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-29 39 Schedule RC-T -- Continued
(Column C) (Column D) (Column A) (Column B) Number of Number of Managed Non-Managed Managed Non-Managed Assets Assets Accounts Accounts ------ ------ -------- -------- Dollar Amounts in Thousands Tril Bil Mil Thou Tril Bil Mil Thou - ------------------------------------------------------------------------------------------- FIDUCIARY AND RELATED ASSETS -- Continued 9. Total fiduciary accounts RCFD B894 RCFD B895 RCFD B896 RCFD B897 (sum of items 4 through 8).................. N/A N/A N/A N/A 9. RCFD B898 RCFD B899 10. Custody and safekeeping accounts........... N/A N/A 10. 11. Fiduciary accounts held in foreign RCFN B900 RCFN B901 RCFN B902 RCFN B903 offices (included in items 9 and 10)....... N/A N/A N/A N/A 11.
Dollar Amounts in Thousands RIAD Bil Mil Thou - ------------------------------------------------------------------------------------------------------------------ FIDUCIARY AND RELATED SERVICES INCOME 12. Personal trust and agency accounts........................ B904 N/A 12. 13. Retirement related trust and agency accounts: a. Employee benefit - defined contribution................ B905 N/A 13.a. b. Employee benefit - defined benefit..................... B906 N/A 13.b. c. Other retirement accounts.............................. B907 N/A 13.c. 14. Corporate trust and agency accounts....................... A479 N/A 14. 15. Investment management agency accounts..................... B908 N/A 15. 16. Other fiduciary accounts.................................. A480 N/A 16. 17. Custody and safekeeping accounts.......................... B909 N/A 17. 18. Other fiduciary and related services income............... B910 N/A 18. 19. Total gross fiduciary and related services income (sum of items 12 through 18) (must equal Schedule R1, item 5.a)................................................. 4070 N/A 19. a. Fiduciary and related services income - foreign offices (included in item 19).......................... B912 N/A 19.a. 20. Less: Expenses............................................ C058 N/A 20. 21. Less: Net losses from fiduciary and related services...... A488 N/A 21. 22. Plus: Intracompany income credits for fiduciary and related services.................................... B911 N/A 22. 23. Net fiduciary and related services income................. A491 N/A 23.
Memoranda
Managed Assets ------------------------------------------ Dollar Amounts in Thousands RCFD Bil Mil Thou - -------------------------------------------------------------------------------------------------------------------- 1. Managed assets held in personal trust and agency accounts: a. Noninterest-bearing deposits........................................ B913 N/A M.1.a. b. Interest-bearing deposits........................................... B914 N/A M.1.b. c. U.S. Treasury and U.S. Government agency obligations................ B915 N/A M.1.c. d. State, county, and municipal obligations............................ B916 N/A M.1.d. e. Money market mutual funds........................................... B917 N/A M.1.e. f. Other short-term obligations........................................ B918 N/A M.1.f. g. Other notes and bonds............................................... B919 N/A M.1.g. h. Common and preferred stocks......................................... B920 N/A M.1.h. i. Real estate mortgages............................................... B921 N/A M.1.i. j. Real estate......................................................... B922 N/A M.1.j. k. Miscellaneous assets................................................ B923 N/A M.1.k. l. Total managed assets held in personal trust and agency accounts (sum of Memorandum items 1.a through 1.k) (must equal Schedule RC-T, item 4, column A)............................................. B868 N/A M.1.l.
7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-30 Schedule RC-T - Continued /40/
(Column A) (Column B) Memoranda - Continued Number of Principal Amount Issues Outstanding --------------------------------- Dollar Amounts in Thousands RCFD Tril Bil Mil Thou - ----------------------------------------------------------------------------------------------------------------- 2. Corporate trust and agency accounts: RCFD B928 a. Corporate and municipal trusteeships .....................................B927 N/A N/A M.2.a. b. Transfer agent, registrar, paying agent, and other corporate agency ......B929 N/A M.2.b.
(Column A) (Column B) Number of Market Values of Funds Fund Assets --------------------------------- Dollar Amounts in Thousands RCFD RCFD Bil Mil Thou - ----------------------------------------------------------------------------------------------------------------- 3. Collective investments funds and common trust funds: a. Domestic equity ..........................................................B931 N/A B932 N/A M.3.a. b. International/Global equity ..............................................B933 N/A B934 N/A M.3.b. c. Stock/Bond blend .........................................................B935 N/A B936 N/A M.3.c. d. Taxable bond .............................................................B937 N/A B938 N/A M.3.d. e. Municipal bond ...........................................................B939 N/A B940 N/A M.3.e. f. Short term investments/Money market ......................................B941 N/A B942 N/A M.3.f. g. Specialty/Other ..........................................................B943 N/A B944 N/A M.3.g. h. Total collective investment funds (sum of Memorandum items 3.a through 3.g) .....................................................................B945 N/A B946 N/A M.3.h.
(Column A) (Column B) (Column C) Gross Losses Gross Losses Recoveries Managed Non-Managed Accounts Accounts ----------------------------------------------- Dollar Amounts in Thousands RIAD Mil Thou RIAD Mil Thou RIAD Mil Thou - ----------------------------------------------------------------------------------------------------------------- 4. Fiduciary settlements, surcharges, and other losses: a. Personal trust and agency accounts .........................B947 N/A B948 N/A B949 N/A M.4.a. b. Retirement related trust and agency accounts ...............B950 N/A B951 N/A B952 N/A M.4.b. c. Investment management agency accounts ......................B953 N/A B954 N/A B955 N/A M.4.c. d. Other fiduciary accounts and related services...............B956 N/A B957 N/A B958 N/A M.4.d. e. Total fiduciary settlements, surcharges, and other losses (sum of Memorandum items 4.a through 4.d) (sum of columns A and B minus column C must equal Schedule RC-T, item 21).....................................B959 N/A B960 N/A B961 N/A M.4.e.
Person to whom questions about Schedule RC-T - Fiduciary and Related Services should be directed: N/A -------------------------------------------------------------------------- Name and Title (TEXT B962) N/A -------------------------------------------------------------------------- E-mail Address (TEXT B926) N/A N/A --------------------------------- ------------------------------------- Telephone: Area code/phone FAX: Area code/phone number number/extension (TEXT B964) (TEXT B963) 7/30/2001 - The Huntington National B - Certificate Number 06560 FFIEC 031 Page RC-31 41 Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income at close of business on June 30, 2001 ------------- The Huntington National B Columbus ,OH - ---------------------------------- -------------- --------- Legal Title of Bank City State The management of the reporting bank may, if it wishes, submit a brief narrative statement on the amounts reported in the Reports of Condition and Income. This optional statement will be made available to the public, along with the publicly available data in the Reports of Condition and Income, in response to any request for individual bank report data. However,the information reported in Schedule RC-T, items 12 through 23 and Memorandum item 4, is regarded as confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-T, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a statement may check the "No comment" box below and should make no entries of any kind in the space provided for the narrative statement; i.e., DO NOT enter in this space such phrases as "No statement,""Not applicable,""N/A,""No comment," and "None." The optional statement must be entered on this sheet. The statement should not exceed 100 words. Further, regardless of the number of words, the statement must not exceed 750 characters, including punctuation, indentation, and standard spacing between words and sentences. If any submission should exceed 750 characters, as defined, it will be truncated at 750 characters with no notice to the submitting bank and the truncated statement will appear as the bank's statement both on agency computerized records and in computer-file releases to the public. All information furnished by the bank in the narrative statement must be accurate and not misleading. Appropriate efforts shall be taken by the submitting bank to ensure the statement's accuracy. The statement must be signed, in the space provided below, by a senior officer of the bank who thereby altests to its accuracy. If, subsequent to the original submission, material changes are submitted for the data reported in the Reports of Condition and Income, the existing narrative statement will be deleted from the files, and from disclosure; the bank, at its option, may replace it with a statement, under signature, appropriate to the amended data. The optional narrative statement will appear in agency records and in release to the public exactly as submitted (or amended as described in the preceding paragraph) by the management of the bank (except for the truncation of statements exceeding the 750-character limit described above). THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK. - ------------------------------------------------------------------------------- BANK MANAGEMENT STATEMENT (Either enter text in the field below or skip and leave blank for "No comment"): (TEXT 6980) - -------------------------------------- ----------------- Signature of Executive Officer of Bank Date of Signature 7/27/2001 - The Huntington National B - Certificate Number 06560 42 THIS PAGE IS TO BE COMPLETED BY ALL BANKS - -------------------------------- OMB No. For OCC: 1557-0081 NAME AND ADDRESS OF BANK OMB NO. FOR FDIC: 3064-0052 OMB No. for Federal Reserve: 7100-0036 - -------------------------------- Expiration Date: 3/31/2004 The Huntington National B - -------------------------------- SPECIAL REPORT 41 South High Street (Dollar Amounts in Thousands) ----------------------------------- - -------------------------------- CLOSE OF BUSINESS DATE Columbus, OH 43215 June 30, 2001 FDIC Certificate Number 0 6 5 6 0 LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date) The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation O) for the definitions of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and principal shareholders who are not executive officers. a. Number of loans made to executive officers since the previous Call Report date.............................................. RCFD 3561 0a. b. Total dollar amount of above loans (in thousands of dollars).. RCFD 3562 0b. c. Range of interest charged on above loans (example: 9 3/4% = 9.75).............. RCFD 7701 0.00% to RCFD 7702 0.00% c. - -------------------------------------------------------- SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT DATE (Month, Day, Year) /s/ John D. Van Fleet July 30, 2001 - -------------------------- -------------------- FDIC 8040/53 (3-01) EX-99.1 6 l91453aex99-1.txt EXHIBIT 99.1 Exhibit 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 11.75% SENIOR SUBORDINATED NOTES DUE 2008 AMERICAN GREETINGS CORPORATION - ------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON DECEMBER 26, 2001 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF INITIAL NOTES MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. - ------------------------------------------------------------------------------- Certified Delivery to: The Huntington National Bank Agent, Escrow Agent By Registered or Certified Mail: By Facsimile: By Overnight Courier or Hand: The Huntington National Bank (for Eligible Institutions only) The Huntington National Bank 917 Euclid Avenue - CM 23 (216) 515-6584 917 Euclid Avenue - CM 23 Cleveland, Ohio 44115 Confirm by Telephone: Cleveland, Ohio 44115 Attn: Corporate Trust Administration (216) 515-6662 Attn: Corporate Trust Administration
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW. The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated November 26, 2001 (the "Prospectus"), of American Greetings Corporation, an Ohio corporation (the "Company"), and this Letter of Transmittal (the "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange $260,000,000 in aggregate principal amount of 11.75% Senior Subordinated Notes due 2008 (the "Exchange Notes"), for a like principal amount of its outstanding 11.75% Senior Subordinated Notes due 2008 (the "Initial Notes") that were issued and sold in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"). For each Initial Note accepted for exchange, the holder of such Initial Note will receive an Exchange Note having a principal amount equal to that of the surrendered Initial Note. This Letter is to be completed by a holder of Initial Notes either if certificates are to be forwarded herewith or if a tender of certificates for Initial Notes, if available, is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Exchange Offer -- Procedures for Tendering Outstanding Notes" section of the Prospectus and an Agent's Message (as defined herein) is not delivered. Delivery of this Letter and any other required documents should be made to the Exchange Agent. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. Holders of Initial Notes whose certificates are not immediately available, or who are unable to deliver their certificates (or cannot obtain a confirmation of the book-entry tender of their Initial Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") on a timely basis) and all other documents required by this Letter to the Exchange Agent on or prior to the Expiration Date, must tender their Initial Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. The undersigned has completed the appropriate boxes below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to exchange their Initial Notes must complete this Letter in its entirety. The instructions included with this Letter must be followed. Questions and requests for assistance or for additional copies of the Prospectus and this Letter may be directed to the Exchange Agent. List below the Initial Notes to which this Letter relates. If the space provided below is inadequate, the certificate numbers and principal amount of Initial Notes should be listed on a separate signed schedule affixed to this Letter. 2
- ------------------------------------------------------------- ------------------- ------------------------- ----------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) EXACTLY AS CERTIFICATE AGGREGATE PRINCIPAL PRINCIPAL AMOUNT NAME(S) APPEAR(S) ON INITIAL NOTES NUMBER(S)* AMOUNT REPRESENTED BY TENDERED (IF LESS THAN (PLEASE FILL IN, IF BLANK) CERTIFICATE ALL)** - ------------------------------------------------------------- ------------------- ------------------------- ----------------------- ------------------- ------------------------- ----------------------- ------------------- ------------------------- ----------------------- ------------------- ------------------------- ----------------------- ------------------- ------------------------- ----------------------- ------------------- ------------------------- ----------------------- ------------------- ------------------------- ----------------------- Total - ----------------------------------------------------------------------------------------------------------------------------------- * Need not be completed if Initial Notes are being tendered by book-entry transfer. ** Unless otherwise indicated in this column, the holder will be deemed to have tendered the full aggregate principal amount represented by such Initial Notes. See Instruction 2. Initial Notes tendered hereby must be in integral multiples of $1,000. See Instruction 1. - -----------------------------------------------------------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: -------------------------------------------- Account Number: Transaction Code Number: --------------------- ------------ By crediting Initial Notes to the Exchange Agent's Account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP procedures with respect to the Exchange Offer, including transmitting an Agent's Message to the Exchange Agent in which the holder of Initial Notes acknowledges and agrees to be bound by the terms of this Letter, the participant in ATOP confirms on behalf of itself and the beneficial owners of such Initial Notes all provisions of this Letter applicable to it and such beneficial owners as if it had completed the information required herein and executed and transmitted this Letter to the Exchange Agent. [ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): ------------------------------------------ Window Ticket Number (if any): -------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ----------------------- Name of Eligible Institution that Guaranteed Delivery: ------------------- IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Account Number: Transaction Code Number: ------------------------- ---------- [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: --------------------------------------------------------------------- Address: ------------------------------------------------------------------ PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company for exchange the aggregate principal amount of Initial Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Initial Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Initial Notes as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of the Company in connection with the Exchange Offer) with respect to the tendered Initial Notes with full power of substitution to (i) deliver such Initial Notes, or transfer ownership of such Initial Notes on the account books maintained by the Book-Entry Transfer Facility, to the Company and deliver all accompanying evidences of transfer and authenticity, and (ii) present such Initial Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Initial Notes, including rating rights, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Initial Notes tendered hereby and to acquire Exchange Notes issuable upon the exchange of such tendered Initial Notes, and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "SEC"), as set forth in no-action letters issued to third parties, that the Exchange Notes issued in exchange for the Initial Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases Initial Notes from the Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other available exemption), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes and are not participating in, and do not intend to participate in, the distribution of the Exchange Notes. The undersigned acknowledges that the Company does not intend to request the SEC to consider, and the SEC has not considered the Exchange Offer in the context of a no-action letter, and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. The undersigned acknowledges that any holder that is an affiliate of the Company, or is participating in or intends to participate in or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, (i) cannot rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. The undersigned hereby further represents that (i) any Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder; (ii) such holder or other person has no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes within the meaning of the Securities Act and is not participating in, and does not intend to participate in, the distribution of such Exchange Notes within the meaning of the Securities Act and (iii) such holder or such other person is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or, if such holder or such other person is an affiliate, such holder or such other person will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaging in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Initial Notes, it represents that the Initial Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale, offer to resell or other transfer of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned also warrants that acceptance of any tendered Initial Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of certain of their obligations under the Registration Rights Agreement that it entered into in connection with the sale of the Initial Notes. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Initial Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in this Letter. The undersigned understands that tenders of the Initial Notes pursuant to any one of the procedures described under "The Exchange Offer -- Procedures for Tendering Outstanding Notes" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus under "The Exchange Offer -- Termination of the Exchange Offer" the Company may not be required to accept for exchange any of the Initial Notes tendered. Initial Notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please deliver the Exchange Notes (and, if applicable, substitute certificates representing Initial Notes for any Initial Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Initial Notes, please credit the account indicated above maintained at the Book Entry Transfer Facility. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the Exchange Notes (and, if applicable, substitute certificates representing Initial Notes for any Initial Notes not exchanged) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Issuance Instructions" and "Special Delivery Instructions" are completed, please issue the Exchange Notes issued in exchange for the Initial Notes accepted for exchange (and, if applicable, substitute certificates representing Initial Notes for any Initial Notes not 5 exchanged) in the names of the person(s) so indicated. The undersigned recognizes that the Company have no obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any Initial Notes from the name of the registered holder(s) thereof if the Company do not accept for exchange any of the Initial Notes so tendered for exchange. THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN INITIAL NOTES, HAS GRANTED AUTHORITY TO THE BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS WHOSE NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO SUCH INITIAL NOTES AS OF THE DATE OF TENDER OF SUCH INITIAL NOTES TO EXECUTE AND DELIVER THIS LETTER AS IF THEY WERE THE HOLDERS OF RECORD. ACCORDINGLY, FOR PURPOSES OF THIS LETTER, THE TERM "HOLDER" SHALL BE DEEMED TO INCLUDE SUCH BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF INITIAL NOTES" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES AS SET FORTH IN SUCH BOX ABOVE. 6
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3, 4 AND 5) (SEE INSTRUCTIONS 3, 4 AND 5) To be completed ONLY if certificates for Initial Notes To be completed ONLY if certificates for Initial not tendered or not accepted for exchange, or Exchange Notes not tendered or not accepted for exchange, or Notes issued in exchange for Initial Notes accepted for Exchange Notes issued in exchange for Initial Notes exchange, are to be issued in the name of and sent to accepted for exchange, are to be sent to someone other someone other than the undersigned, or if Initial Notes than the undersigned or to the undersigned at an delivered by book-entry transfer which are not accepted for address other than shown in the box entitled exchange are to be returned by credit to an account "Description of Initial Notes" above. maintained at the Book-Entry Transfer Facility other than the account indicated above. Mail to: Issue (certificates) to: Name(s): _________________________________ (PLEASE TYPE OR PRINT) Name(s): __________________________________________ (PLEASE TYPE OR PRINT) __________________________________________ (PLEASE TYPE OR PRINT) ___________________________________________________ (PLEASE TYPE OR PRINT) Address:__________________________________ Address:___________________________________________ __________________________________________ (INCLUDE ZIP CODE) ___________________________________________________ (INCLUDE ZIP CODE) __________________________________________ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) ___________________________________________ (COMPLETE SUBSTITUTE FORM W-9) (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (COMPLETE SUBSTITUTE FORM W-9) ( ) Credit unexchanged Initial Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below. - ------------------------------------------- (Book-Entry Transfer Facility Account Number, if applicable)
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU HEREOF (IN EACH CASE, TOGETHER WITH THE CERTIFICATE(S) FOR INITIAL NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE. PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS WHETHER OR NOT INITIAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY) (PLEASE ALSO COMPLETE AND RETURN THE ACCOMPANYING SUBSTITUTE FORM W-9) x ----------------------------------------- -------------------------------- x ---------------------------------------- -------------------------------- Signature(s) of Owner(s) Date Area Code and Telephone Number: --------------------------------------- If a holder is tendering any Initial Notes, this Letter must be signed by the registered holder(s) exactly as the name(s) appear(s) on the certificate(s) for the Initial Notes or on a security position listing as the owner of Initial Notes by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter. If Initial Notes to which this Letter relates are held of record by two or more joint holders, then all such holders must sign this Letter. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority to so act. See Instruction 3. Name(s): ---------------------------------------------------------------------- (PLEASE TYPE OR PRINT) - ------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Capacity: -------------------------------------------------------------------- Address: ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- (INCLUDING ZIP CODE) SIGNATURE GUARANTEE BY AN ELIGIBLE INSTITUTION (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution: --------------------------- (AUTHORIZED SIGNATURE) - ------------------------------------------------------------------------------- (TITLE) - ------------------------------------------------------------------------------- (NAME OF FIRM) - ------------------------------------------------------------------------------- (ADDRESS, INCLUDE ZIP CODE) - ------------------------------------------------------------------------------- (AREA CODE AND TELEPHONE NUMBER) Dated: -------------------------------------- 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND INITIAL NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter is to be completed by noteholders either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer - -- Procedures for Tendering Outstanding Notes" section of the Prospectus and an Agent's Message is not delivered. Certificates for all physically tendered Initial Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof) and any other documents required by this Letter, must be received by the Exchange Agent at the address set forth herein on or prior to 5:00 p.m., New York City time, on the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Initial Notes tendered hereby must be in denominations of principal amount that are integral multiples of $1,000. The term "Agent's Message" means a message, transmitted by The Depository Trust Company and received by the Exchange Agent and forming a part of the Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Initial Notes which are subject to the Book-Entry Confirmation and that such participant has received and agrees to be bound by this Letter and that the Company may enforce this Letter against such participant. Noteholders who wish to tender their Initial Notes and (a) whose certificates for Initial Notes are not immediately available, or (b) who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or (c) who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Initial Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures for Tendering Outstanding Notes" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution (as defined in Instruction 3 below), (ii) on or prior to the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter (or a facsimile thereof or an Agent's Message in lieu hereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Initial Notes and the amount of Initial Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Initial Notes, or a Book-Entry Confirmation, and any other documents required by the Letter will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Initial Notes, in proper form for transfer, or Book-Entry Confirmation, as the case may be, and all other documents required by this Letter, are received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The method of delivery of this Letter, the Initial Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Initial Notes are sent by mail, it is suggested that the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer" section of the Prospectus. 9 2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). Tenders of Initial Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Initial Notes is tendered, the tendering holder(s) should fill in the principal amount of Initial Notes to be tendered in the box above entitled "Description of Initial Notes." The entire principal amount of the Initial Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of Initial Notes is not tendered, then Initial Notes for the principal amount of that Initial Notes not tendered and Exchange Notes issued in exchange for any such Initial Notes accepted will be sent to the holder at his or her registered address, unless otherwise provided in the appropriate box on this Letter, promptly after the Initial Notes are accepted for exchange. 3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of the Initial Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificates representing such Initial Notes without alteration, enlargement or any change whatsoever. If this Letter is signed by a participant in the Book-Entry Transfer Facility, the signature must correspond with the name as it appears on the security position listing as the holder of the Initial Notes. If any tendered Initial Notes are owned of record by two or more joint owners, all of such owners must sign this Letter. If any tendered Initial Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations of certificates. When this Letter is signed by the registered holder or holders of the Initial Notes specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required. If, however, the Exchange Notes are to be issued, or any untendered Initial Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the certificate(s) and signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter. Endorsements on certificates for Initial Notes or signatures on bond powers required by this Instruction 3 must be guaranteed by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or a commercial bank, a clearing agency, insured credit union, a savings association or trust company having an office or correspondent in the United States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each an "Eligible Institution"). Signatures on this Letter need not be guaranteed by an Eligible Institution if the Initial Notes are tendered: (i) by a registered holder of Initial Notes (which term, for purposes of the Exchange Offer, includes any participant in the Book-Entry Transfer Facility system whose name appears on a security position listing as the holder of such Initial Notes) who has not completed the box entitled "Special 10 Issuance Instructions" or "Special Delivery Instructions" on this Letter, or (ii) for the account of an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Initial Notes should indicate, in the applicable box or boxes, the name and address (or account at the Book-Entry Transfer Facility) to which Exchange Notes issued pursuant to the Exchange Offer, or substitute Initial Notes not tendered or accepted for exchange, are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Holders tendering Initial Notes by book-entry transfer may request that Initial Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such noteholder may designate hereon. If no such instructions are given, such Initial Notes not exchanged will be returned to the name or address of the person signing this Letter. 5. IMPORTANT TAX INFORMATION. THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH HOLDER IS URGED TO CONSULT A TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO IT (INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL TAX LAWS) OF THE OFFER. CERTAIN HOLDERS (INCLUDING INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS) MAY BE SUBJECT TO SPECIAL RULES NOT DISCUSSED BELOW. THE DISCUSSION DOES NOT CONSIDER THE EFFECT OF ANY APPLICABLE FOREIGN, STATE AND LOCAL TAXES. Under the U.S. federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 30.5%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9, and sign the Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) shall retain 30.5% of payments made to the tendering holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with his or her TIN within sixty (60) days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty (60) day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with his or her TIN within such sixty (60) day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent or the Issuer is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8BEN), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification 11 number if you do not have one and how to complete the Substitute Form W-9 if Initial Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines"). Failure to complete the Substitute Form W-9 will not, by itself, cause Initial Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 30.5% of the amount of any payments made on account of the Exchange Notes. Backup withholding is not an additional U.S. federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Initial Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes or substitute Initial Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Initial Notes tendered hereby, or if tendered Initial Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Initial Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Initial Notes specified in this Letter. 7. WAIVER OF CONDITIONS. The Company reserve the absolute right to amend, waive or modify, in whole or in part, any or all conditions to the Exchange Offer. 8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Initial Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Initial Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Initial Notes nor shall any of them incur any liability for failure to give any such notice. 9. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES. Any holder whose Initial Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. This Letter and related documents cannot be processed until the Initial Notes have been replaced. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus, this Letter and the Notice of Guaranteed Delivery, may be directed to the Exchange Agent, at the address and telephone number indicated above. 12 11. INCORPORATION OF LETTER OF TRANSMITTAL. This Letter shall be deemed to be incorporated in and acknowledged and accepted by any tender through the Book-Entry Transfer Facility's ATOP procedures by any participant on behalf of itself and the beneficial owners of any Initial Notes so tendered. 12. WITHDRAWALS. Tenders of Initial Notes may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal Rights" in the Prospectus. 13 EX-99.2 7 l91453aex99-2.txt EXHIBIT 99.2 Exhibit 99.2 AMERICAN GREETINGS CORPORATION NOTICE OF GUARANTEED DELIVERY A holder of 11.75% Senior Subordinated Notes due 2008 (the "Initial Notes") of American Greetings Corporation who wishes to tender such Initial Notes pursuant to the exchange offer (the "Exchange Offer") extended by the Prospectus dated November 26, 2001 (the "Prospectus") and the Letter of Transmittal accompanying this Notice of Guaranteed Delivery (the "Letter of Transmittal") must complete and deliver this form or one substantially equivalent to it under the following circumstances: (i) certificates representing the Initial Notes are not immediately available, (ii) the Initial Notes or other required documents will not reach the Exchange Agent prior to the Expiration Date (as defined in the Letter of Transmittal and the Prospectus), or (iii) the appropriate procedures for book-entry transfer will not be completed prior to the Expiration Date . This requirement is set forth in the Prospectus in the section entitled "The Exchange Offer -- Procedures for Tendering Outstanding Notes" and in the Letter of Transmittal in Instruction 2. This form may be delivered by hand or sent by overnight courier, facsimile transmission or registered or certified mail to the Exchange Agent. The Exchange Agent must receive this form prior to 5:00 p.m., New York City time, on December 26, 2001. To The Huntington National Bank (the "EXCHANGE AGENT") BY HAND DELIVERY: BY OVERNIGHT COURIER: The Huntington National Bank The Huntington National Bank Corporate Trust Administration Corporate Trust Administration 917 Euclid Avenue - CM 23 917 Euclid Avenue - CM 23 Cleveland, Ohio 44115 Cleveland, Ohio 44115 BY REGISTERED OR CERTIFIED MAIL: BY FACSIMILE TRANSMISSION: The Huntington National Bank (FOR ELIGIBLE INSTITUTIONS ONLY): Corporate Trust Administration The Huntington National Bank 917 Euclid Avenue - CM 23 (216) 515-6584 Cleveland, Ohio 44115 Confirm: (216) 515-6662 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE BOX ON THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES. Ladies and Gentlemen: I, the undersigned, hereby tender to American Greetings Corporation, the principal amount of the Initial Notes listed below, upon the terms of and subject to the conditions set forth in the Prospectus and the Letter of Transmittal and the instructions thereto, which I have received, pursuant to the guaranteed delivery procedures set forth in such Prospectus, as follows:
- ------------------------------------------------------------------------------------------------------------ Certificate or Aggregate Principal Principal Amount Registration Nos. Amount Represented Tendered (must be in By Initial Note(s) integral multiples of $1,0000 - ------------------------------------------------------------------------------------------------------------ - ---------------------------------- ------------------------ ------------------------------ - ---------------------------------- ------------------------ ------------------------------ - ---------------------------------- ------------------------ ------------------------------ - ---------------------------------- ------------------------ ------------------------------ - ------------------------------------------------------------------------------------------------------------
If Initial Notes will be tendered by book-entry transfer, provide the following information: DTC Account Number: ---------------------------------------------------------- Date: ------------------------------ All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. 2 PLEASE SIGN HERE X - ------------------------------------------------------------------------------- X - ------------------------------------------------------------------------------ SIGNATURE(S) OF OWNER(S) OR AUTHORIZED SIGNATORY Date: ------------------------------- Area Code and Telephone Number: ------------------------------------------------- Must be signed by the holder(s) of the Initial Notes as their name(s) appear(s) on certificates for Initial Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. PLEASE PRINT NAME(S) AND ADDRESS(ES) NAME(S): ---------------------------------------------------------------------- CAPACITY: --------------------------------------------------------------------- ADDRESS(ES): ------------------------------------------------------------------ THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED. 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) I, the undersigned, a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office in the United States, guarantee (a) that the above named person(s) own(s) the principal amount of 11.75% Senior Subordinated Notes due 2008 of American Greetings Corporation (the "Initial Notes") tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) that such tender of such Initial Notes complies with Rule 14e-4, and (c) that I will deliver to the Exchange Agent the certificates representing the Initial Notes tendered hereby or confirmation of book-entry transfer of such Initial Notes into the Exchange Agent's account at The Depository Trust Company, in proper form for transfer, together with the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other required documents, within five (5) business days after the Expiration Date. _________________________________ __________________________________ Name of Firm Authorized Signature ________________________________ __________________________________ Address Title ________________________________ Name:_______________________________ Zip Code (PLEASE TYPE OR PRINT) _______________________________ Dated:____________________________ Area Code and Telephone No. NOTE: DO NOT SEND CERTIFICATES REPRESENTING INITIAL NOTES WITH THIS FORM. CERTIFICATES REPRESENTING INITIAL NOTES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL. 4 EX-99.3 8 l91453aex99-3.txt EXHIBIT 99.3 EXHIBIT 99.3 LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS REGARDING THE OFFER TO EXCHANGE $260,000,000 PRINCIPAL AMOUNT OF 11.75% SENIOR SUBORDINATED NOTES DUE 2008 OF AMERICAN GREETINGS CORPORATION TO REGISTERED HOLDERS AND THE DEPOSITORY TRUST COMPANY PARTICIPANTS: We are enclosing herewith the materials listed below relating to the offer by American Greetings Corporation (the "Company") to exchange the Company's new 11.75% Senior Subordinated Notes due 2008 (the "Exchange Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the Company's issued and outstanding 11.75% Senior Subordinated Notes due 2008 (the "Initial Notes") upon the terms and subject to the conditions set forth in the Company's Prospectus, dated November 26, 2001, and the related Letter of Transmittal (which together constitute the "Exchange Offer"). Enclosed herewith are copies of the following documents: 1. Prospectus dated November 26, 2001; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; 4. Instructions to Registered Holder or DTC Participant from Beneficial Owner; and 5. Letter which may be sent to your clients for whose account you hold definitive registered notes or book-entry interests representing Initial Notes in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client's instruction with regard to the Exchange Offer. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 26, 2001, UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Initial Notes being tendered. To participate in the Exchange Offer, a beneficial holder must either (i) cause to be delivered to THE HUNTINGTON NATIONAL BANK (the "Exchange Agent"), at the address set forth in the Letter of Transmittal, definitive registered notes representing Initial Notes in proper form for transfer together with a properly executed Letter of Transmittal or (ii) cause a DTC Participant to tender such holder's Initial Notes to the Exchange Agent's account maintained at The Depository Trust Company ("DTC") for the benefit of the Exchange Agent through DTC's Automated Tender Offer Program ("ATOP"), including transmission of a computer-generated message that acknowledges and agrees to be bound by the terms of the Letter of Transmittal. By complying with DTC's ATOP procedures with respect to the Exchange Offer, the DTC Participant confirms on behalf of itself and the beneficial owners of tendered Initial Notes all provisions of the Letter of Transmittal applicable to it and such beneficial owners as fully as if it completed, executed and returned the Letter of Transmittal to the Exchange Agent. You will need to contact those of your clients for whose account you hold definitive registered notes or book-entry interests representing Initial Notes and seek their instructions regarding the Exchange Offer. Pursuant to the Letter of Transmittal, each holder of Initial Notes will represent to the Company and the Guarantors (as defined in the Prospectus) that: (i) the Exchange Notes or book-entry interests therein to be acquired by such holder and any beneficial owner(s) of such Initial Notes or interests therein ("Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by such holder and any Beneficial Owner(s) in the ordinary course of business of the holder and any Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) if the holder or Beneficial Owner is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if the holder or Beneficial Owner is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) the holder and each Beneficial Owner acknowledge and agree that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission (the "Commission") set forth in certain no-action letters, (vi) the holder and each Beneficial Owner understand that a secondary resale transaction described in clause (v) above and any resales of Exchange Notes or interests therein obtained by such holder in exchange for Initial Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii) neither the holder nor any Beneficial Owner(s) is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or beneficial owner will deliver to the Company a legal opinion confirming its representation made in clause (vii) above. If the tendering holder of Initial Notes is a broker-dealer (whether or not it is also an "affiliate") or any Beneficial Owner(s) that will receive Exchange Notes for its own or their account pursuant to the Exchange Offer, the tendering holder will represent on behalf of itself and the Beneficial Owner(s) that the Initial Notes to be exchanged for the Exchange Notes were acquired as a result of market-making activities or other trading activities, and acknowledge on its own behalf and on the behalf of such Beneficial Owner(s) that it or they will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; provided, however, by so acknowledging and by delivering a prospectus, such tendering holder will not be deemed to admit that it or any Beneficial Owner is an "underwriter" within the meaning of the Securities Act. 2 The enclosed "Instructions to Registered Holder or DTC Participant from Beneficial Owner" form contains an authorization by the beneficial owners of Initial Notes for you to make the foregoing representations. You should forward this form to your clients and ask them to complete it and return it to you. You will then need to tender Initial Notes on behalf of those of your clients who ask you to do so. The Company will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Initial Notes pursuant to the Exchange Offer. The Company will pay or cause to be paid any transfer taxes payable on the transfer of Initial Notes to it. Additional copies of the enclosed materials may be obtained from the Exchange Agent. Very truly yours, AMERICAN GREETINGS CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.4 9 l91453aex99-4.txt EXHIBIT 99.4 EXHIBIT 99.4 INSTRUCTIONS TO REGISTERED HOLDER OR DTC PARTICIPANT FROM BENEFICIAL OWNER FOR 11.75% SENIOR SUBORDINATED NOTES DUE 2011 OF AMERICAN GREETINGS CORPORATION The undersigned hereby acknowledges receipt of the Prospectus dated November 26, 2001 (the "Prospectus"), of American Greetings Corporation, an Ohio corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal") that together constitute the Company's offer (the "Exchange Offer") to exchange $260,000,000 of its 11.75% Senior Subordinated Notes due 2008 ("Exchange Notes") registered under the Securities Act of 1933 (the "Securities Act") for an identical principal amount of its 11.75% Senior Subordinated Notes due 2008 (the "Initial Notes"). Capitalized terms used but not defined herein have the meanings assigned to them in the Prospectus and the Letter of Transmittal. This will instruct you as to the action to be taken by you relating to the Exchange Offer with respect to the Initial Notes held by you for the account of the undersigned. The principal amount of the Initial Notes held by you for the account of the undersigned is (fill in amount): $ ________________ principal amount of Initial Notes. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [ ] To TENDER the following principal amount of Initial Notes held by you for the account of the undersigned (insert amount of Initial Notes to be tendered, if any, in integral multiples of $1,000): $_________________ principal amount of Initial Notes. [ ] NOT to TENDER any Initial Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Initial Notes held by you for the account of the undersigned, it is understood that you are authorized: (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the Exchange Notes or book-entry interests therein to be acquired by the undersigned (the "Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by the undersigned in the ordinary course of business of the undersigned, (ii) the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) if the undersigned is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if the undersigned is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and 102(k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) the undersigned acknowledges and agrees that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission (the "Commission") set forth in certain no-action letters, (vi) the undersigned understands that a secondary resale transaction described in clause (v) above and any resales of Exchange Notes or interests therein obtained by such holder in exchange for Initial Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii) the undersigned is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or beneficial owner will deliver to the Company a legal opinion confirming its representation made in clause (vii) above. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive Exchange Notes for its own account pursuant to the Exchange Offer, the undersigned represents that the Initial Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; provided, however, by so acknowledging and by delivering a prospectus, the undersigned does not and will not be deemed to admit that is an "underwriter" within the meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and 2 (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Initial Notes. SIGN HERE NAME OF BENEFICIAL OWNER(S): ------------------------------------------------ By: ----------------------------------------------- Name(s): ------------------------------------------- Title(s): ------------------------------------------ (PLEASE PRINT): Address: ------------------------------------------- Telephone Number: ---------------------------------- Taxpayer Identification or Social Security Number: Date: --------------------------- 3 EX-99.5 10 l91453aex99-5.txt EXHIBIT 99.5 EXHIBIT 99.5 LETTER TO CLIENTS REGARDING THE OFFER TO EXCHANGE $260,000,000 PRINCIPAL AMOUNT OF 11.75% SENIOR SUBORDINATED NOTES DUE 2008 OF AMERICAN GREETINGS CORPORATION TO OUR CLIENTS: We are enclosing herewith a Prospectus, dated November 26, 2001, of American Greetings Corporation (the "Company") and a related Letter of Transmittal (which together constitute the "Exchange Offer") relating to the offer by the Company to exchange the Company's new 11.75% Senior Subordinated Notes due 2008 (the "Exchange Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the Company's issued and outstanding 11.75% Senior Subordinated Notes due 2008 (the "Initial Notes") upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 26, 2001, UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Initial Notes being tendered. We are the Registered Holder or DTC participant through which you hold an interest in the Initial Notes. A tender of such Initial Notes can be made only by us pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender your beneficial ownership of Initial Notes held by us for your account. Pursuant to the Letter of Transmittal, each holder of Initial Notes must make certain representations and warranties that are set forth in the Letter of Transmittal and in the attached form that we have provided to you for your instructions regarding what action we should take in the Exchange Offer with respect to your interest in the Initial Notes. We request instructions as to whether you wish to tender any or all of your Initial Notes held by us for your account pursuant to the terms and subject to the conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal that are to be made with respect to you as beneficial owner. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender Initial Notes on your behalf in accordance with the provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 26, 2001. Initial Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to such Expiration Date. If you wish to have us tender any or all of your Initial Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the attached instruction form. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Initial Notes held by us and registered in our name for your account or benefit. -----END PRIVACY-ENHANCED MESSAGE-----