<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-48443
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 25, 1998)
TRW LOGO
$1,000,000,000
TRW INC.
MEDIUM-TERM NOTES, SERIES D
------------------------
Due 9 Months or More from Date of Issue
------------------------
TRW Inc. (the "Company") may offer from time to time its Medium-Term Notes,
Series D (the "Notes"), for an aggregate initial public offering price of up to
U.S. $1,000,000,000 (or the equivalent thereof if any of the Notes are
denominated in foreign currencies or currency units), subject to reduction as a
result of the sale of other Debt Securities, shares of Common Stock and/or
Warrants to purchase Debt Securities or shares of Common Stock. The Company may
from time to time authorize an increase in the aggregate principal amount of
Notes to be sold, which Notes will constitute a part of the same series as the
Notes to be offered hereby. See "Description of Notes -- General" and "Plan of
Distribution". Unless otherwise specified in the applicable pricing supplement
(the "Pricing Supplement") to this Prospectus Supplement, the Interest Payment
Dates for Fixed Rate Notes (as defined below) will be April 15 and October 15 of
each year. Each Note will mature on a date 9 months or more from its date of
issue as selected by the initial purchaser and agreed to by the Company and may
be subject to redemption at the option of the Company or repayment at the option
of the Holder prior to its Stated Maturity, as specified in the applicable
Pricing Supplement.
Each Note may be denominated in U.S. dollars or in other currencies,
including composite currencies such as the European Currency Units ("ECU"), as
may be specified in the applicable Pricing Supplement (the "Specified
Currency"). Notes denominated in U.S. dollars will be issued in minimum
denominations of U.S. $1,000 and any integral multiple thereof. The authorized
denominations of Notes not denominated in U.S. dollars ("Foreign Currency
Notes") will be set forth in the applicable Pricing Supplement. See "Special
Provisions Relating to Foreign Currency Notes". The Notes may be issued as
Indexed Notes, the principal amount of which, or interest in respect thereof,
payable at Stated Maturity, or the applicable Interest Payment Date, is
determined with reference to the exchange rate of a Specified Currency relative
to an Indexed Currency (defined herein) or to one or more other indices. See
"Description of Notes -- Indexed Notes".
Each Note will be issued only in fully registered form and will be
represented by either a Global Security registered in the name of a nominee of
The Depository Trust Company, as Depository (a "Book-Entry Note"), or a
certificate issued in definitive form (a "Certificated Note"), as set forth in
the applicable Pricing Supplement. Interests in Book-Entry Notes will be shown
on, and transfers thereof will be effected only through, the records maintained
by the Depository and its participants. The Company currently intends to issue
as Book-Entry Notes all Notes which can be so issued. See "Description of
Notes -- General" and " -- Book-Entry System".
The interest rate or interest rate formula, if any, issue price, any
Interest Payment Dates, redemption or repayment provisions, if any, Stated
Maturity, Specified Currency and certain other terms with respect to each Note
will be established by the Company at the date of issuance of such Note and will
be indicated in the applicable Pricing Supplement. The Notes will bear interest
at a fixed rate (a "Fixed Rate Note"), which may be zero in the case of certain
Notes issued at a price representing a discount from the principal amount
payable at the Stated Maturity thereof (a "Zero-Coupon Note"), or at a floating
rate (a "Floating Rate Note") as set forth in the applicable Pricing Supplement,
as adjusted by a Spread and/or Spread Multiplier, if any, applicable to such
Notes. Holders of Zero-Coupon Notes will not receive periodic payments of
interest on such Notes. See "Description of Notes -- Fixed Rate Notes" and
" -- Floating Rate Notes".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY SUPPLEMENT HERETO OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(2)(3)
--------- ------------------ -------------
<S> <C> <C> <C>
Per Note....................... 100.000% .125% - .750% 99.875% - 99.250%
Total(4)(5).................... $1,000,000,000 $1,250,000 -$7,500,000 $998,750,000 - $992,500,000
</TABLE>
- ---------------
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes will
be issued at 100% of their principal amount.
(2) The Company will pay to one or more of the agents identified below or an
Agent identified in a Pricing Supplement, each as an agent (the "Agents"), a
commission ranging from .125% to .750% of the principal amount of any Note
sold through any such Agent. The commission payable by the Company to the
Agents with respect to Notes with maturities greater than 30 years will be
negotiated at the time the Company issues such Notes. The Company may sell
Notes to any Agent as principal for resale to investors and other purchasers
at varying prices related to prevailing market prices at the time of resale
or at a fixed public offering price, as determined by such Agent. Unless
otherwise indicated in an applicable Pricing Supplement, any Note sold to an
Agent as principal shall be purchased by such Agent at a price equal to 100%
of the principal amount thereof less a percentage equal to the commission
applicable to an agency sale of a Note of identical maturity and may be
resold by such Agent. The Company may also sell Notes directly to investors
on its own behalf, in which case no commission will be payable.
(3) Before deducting expenses payable by the Company estimated at $725,000,
including reimbursement of certain expenses of the Agents.
(4) In U.S. dollars or the equivalent thereof in foreign currencies or currency
units.
(5) Subject to reduction as a result of the sale pursuant to the accompanying
Prospectus of other Debt Securities, shares of Common Stock or Warrants to
purchase Debt Securities or shares of Common Stock of the Company.
------------------------
The Notes are being offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable best efforts to solicit
offers to purchase the Notes. The Company may sell Notes to any Agent acting as
principal for resale to investors and other purchasers. The Company has reserved
the right to sell Notes directly to investors from time to time on its own
behalf. Unless otherwise specified in the applicable Pricing Supplement, the
Notes will not be listed on any securities exchange and there can be no
assurance that the Notes offered by this Prospectus Supplement will be sold or
that there will be a secondary market for the Notes. The Company reserves the
right to withdraw, cancel or modify the offer or solicitations of offers made
hereby without notice. The Company, or any Agent, if it solicits such offer, may
reject any offer to purchase Notes, in whole or in part. See "Plan of
Distribution".
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
April 13, 1998
<PAGE> 2
STATEMENTS IN THIS PROSPECTUS SUPPLEMENT THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT
COULD AFFECT THE COMPANY'S ACTUAL RESULTS. INFORMATION REGARDING THE IMPORTANT
FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS SUPPLEMENT CAN BE
FOUND IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE COMPANY'S FORM 8-K FILED ON MAY 20, 1997.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH ANY OFFERING OF THE
NOTES, AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
NO DEALER, AGENT, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING
PROSPECTUS AND ANY PRICING SUPPLEMENT IN CONNECTION WITH THE OFFER MADE HEREBY
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY AGENT. THIS PROSPECTUS
SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY PRICING SUPPLEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND SUCH PRICING SUPPLEMENT OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING
PROSPECTUS AND ANY PRICING SUPPLEMENT AT ANY TIME NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE
DATES.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Important Currency Exchange Information..................... S-3
Description of Notes........................................ S-3
Special Provisions Relating to Foreign Currency Notes....... S-14
Foreign Currency Risks...................................... S-17
United States Federal Income Tax Considerations............. S-19
Note Warrants............................................... S-27
Plan of Distribution........................................ S-28
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
The Company................................................. 3
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 5
Description of Debt Securities.............................. 5
Description of Capital Stock................................ 9
Description of Securities Warrants.......................... 14
Plan of Distribution........................................ 15
Legal Opinions.............................................. 16
Experts..................................................... 16
</TABLE>
S-2
<PAGE> 3
IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in U.S. dollars, and payments
of principal of, premium, if any, and interest on the Notes will also be made in
U.S. dollars, unless the applicable Pricing Supplement provides that purchasers
are instead required to pay for the Notes in a Specified Currency other than
U.S. dollars and/or that payments of principal of, premium, if any, and interest
on such Notes will be made in a Specified Currency other than U.S. dollars.
Currently, there are limited facilities in the United States for the conversion
of U.S. dollars into foreign currencies and vice versa. In addition, most banks
do not currently offer non-U.S. dollar denominated checking or savings account
facilities in the United States. Accordingly, unless otherwise specified in a
Pricing Supplement or unless alternative arrangements are made (and subject, in
the case of Book-Entry Notes, to any additional procedures that may be
required), payment of principal of, premium, if any, and interest on Notes in a
Specified Currency other than U.S. dollars will be made to an account at a bank
outside the United States. See "Description of Notes" "Special Provisions
Relating to Foreign Currency Notes" and "Foreign Currency Risks."
If the applicable Pricing Supplement provides for payments of principal of,
premium, if any, and interest on a Foreign Currency Note to be made in U.S.
dollars or for payments of principal of, premium, if any, and interest on a U.S.
dollar denominated Note to be made in a Specified Currency other than U.S.
dollars, the conversion of the Specified Currency into U.S. dollars or U.S.
dollars into the Specified Currency, as the case may be, will be handled by the
Exchange Rate Agent identified in the Pricing Supplement. Any Agent may act,
from time to time, as Exchange Rate Agent. The costs of such conversion will be
borne by the holder of the Note through deductions from such payments.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set forth
under the heading "Description of Debt Securities" in the accompanying
Prospectus, to which description reference is hereby made. Capitalized terms not
defined herein have the meanings assigned to such terms in the Prospectus or the
Indenture.
GENERAL
The Notes offered hereby will be issued under the Indenture (the
"Indenture") referred to in the accompanying Prospectus with The Chase Manhattan
Bank, as successor trustee (the "Trustee") to Mellon Bank, N.A. The Notes
offered hereby constitute a single series, or a portion of a single series, of
Debt Securities for purposes of the Indenture, which places no limit on the
aggregate principal amount of Debt Securities that may be issued as part of such
series. The aggregate gross proceeds for which the Notes offered pursuant to
this Prospectus Supplement may be issued is limited to U.S. $1,000,000,000 (or
the equivalent thereof in foreign currencies or currency units). Such amount may
be reduced due to the sale of other Debt Securities (other than the Notes),
shares of Common Stock or Warrants to purchase Debt Securities or shares of
Common Stock pursuant to the Registration Statement to which the accompanying
Prospectus relates. See "Plan of Distribution". In addition, the Company may
from time to time authorize an increase in the aggregate principal amount of
Notes to be sold, which will constitute a part of the same series as the Notes
to be offered hereby. Unless otherwise indicated in the applicable Pricing
Supplement, currency amounts in this Prospectus Supplement, the accompanying
Prospectus and any Pricing Supplement are stated in United States dollars ("$",
"dollars", "U.S. dollars", "United States dollars" or "U.S. $").
Each Note will mature on a date 9 months or more from its date of issue, as
selected by the initial purchaser and agreed to by the Company, and may be
subject to redemption at the option of the Company or repayment at the option of
the Holder prior to its Stated Maturity, as specified in the applicable Pricing
Supplement.
The Notes will be issuable only in fully registered form and, if
denominated in U.S. dollars, in minimum denominations of $1,000 and integral
multiples thereof. Denominations for particular Foreign Currency Notes will be
specified in the applicable Pricing Supplement.
S-3
<PAGE> 4
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note. At the present time, only Notes that are denominated and
payable in U.S. dollars may be issued as Book-Entry Notes. The Company currently
intends to issue as Book-Entry Notes all Notes which can be so issued. See
"Book-Entry System".
A Note, including any Zero-Coupon Note, is an Original Issue Discount Note
if it is issued at a price lower than the principal amount thereof and it
provides that upon redemption or acceleration of the maturity thereof an amount
less than the principal thereof shall become due and payable. In the event of
redemption or acceleration of the maturity of an Original Issue Discount Note,
the amount payable to the Holder upon such redemption or acceleration will be
determined in accordance with the terms of such Note, but will be an amount less
than the amount payable at the Stated Maturity thereof.
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest on Notes (other than interest payable at Stated Maturity) will be
made, except as provided below, by check mailed to the Holders of such Notes
(or, in the case of Global Securities representing Book-Entry Notes, by wire
transfer to the Depository (as defined herein) or its nominee). Notwithstanding
the foregoing, a Holder of $10,000,000 or more in aggregate principal amount of
Certificated Notes of like tenor and terms (or the Holder of the equivalent
thereof in a Specified Currency other than U.S. dollars that is permitted to
elect and has elected to receive payments in U.S. dollars as described under
"Special Provisions Relating to Foreign Currency Notes-Payment of Principal and
Interest") shall be entitled to receive such interest payments by wire transfer
in immediately available funds, but only if appropriate instructions have been
received in writing by the Paying Agent on or prior to the applicable Record
Date for such payment of interest. Unless otherwise indicated in the applicable
Pricing Supplement, payments of principal of, premium, if any, and interest on
any Note payable at Maturity will be made in immediately available funds at the
office of the Paying Agent in the Borough of Manhattan, The City of New York,
provided that payments in such funds will be made only if such Notes are
presented to the Paying Agent in time for the Paying Agent to make such payments
in such funds in accordance with its normal procedures. The Company has
initially designated The Chase Manhattan Bank, acting through its principal
corporate trust office in the Borough of Manhattan, The City of New York, as its
Paying Agent for the Notes. Beneficial owners of Book-Entry Notes are expected
to be paid in accordance with the Depository's and its Participants' (as defined
herein) procedures in effect from time to time. See "-- Book-Entry System".
Payments of interest to a Holder of a Foreign Currency Note that has not elected
to receive payments in U.S. dollars will be made to an account at a bank outside
the United States, unless other arrangements have been made. See "Special
Provisions Relating to Foreign Currency Notes -- Payment of Principal and
Interest".
"Business Day" means any day, other than a Saturday or Sunday, that meets
each of the following applicable requirements: the day is (a) not a day on which
banking institutions are authorized or required by law or regulation to be
closed in The City of New York and (b) if the Note is denominated in a Specified
Currency other than U.S. dollars, (i) not a day on which banking institutions
are authorized or required by law or regulation to close in the major financial
center of the country issuing the Specified Currency (which in the case of ECU
shall be as determined by the ECU Banking Association in Paris) and (ii) a day
on which banking institutions in such financial center are carrying out
transactions in such Specified Currency and (c) with respect to LIBOR Notes, a
London Banking Day. "London Banking Day" means any day on which dealings in
deposits in U.S. dollars are transacted in the London interbank market.
The Notes may be presented for registration of transfer or exchange at the
principal corporate trust office of the Paying Agent in the Borough of
Manhattan, The City of New York.
INTEREST
Each Note will bear interest from the date of issue or from the most recent
Interest Payment Date to which interest on such Note has been paid or duly
provided for at the fixed rate per annum, which may be zero in the case of
Zero-Coupon Notes, or at the rate per annum determined pursuant to the interest
rate formula stated therein and in the applicable Pricing Supplement until the
principal thereof is paid or made available for payment. Interest will be
payable at each Interest Payment Date and at Maturity. Interest will be payable
to the Person in whose name a Note is registered at the close of business on the
Regular Record Date next preceding each Interest Payment Date; provided,
however, that interest payable at Maturity will be payable to the Person to whom
S-4
<PAGE> 5
principal shall be payable. Unless otherwise specified in the applicable Pricing
Supplement, the first payment of interest on any Note originally issued between
a Regular Record Date and an Interest Payment Date will be made on the Interest
Payment Date following the next succeeding Regular Record Date to the Person in
whose name such Note is registered at the close of business on such next
succeeding Regular Record Date. Unless otherwise indicated in the applicable
Pricing Supplement, the Regular Record Dates for any Note shall be the date 15
calendar days prior to each Interest Payment Date for such Note, whether or not
a Business Day. Holders of Zero-Coupon Notes will not receive payments of
interest on such Notes.
Interest rates, or interest rate formulas, are subject to change by the
Company from time to time, but no such change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
FIXED RATE NOTES
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Note. Unless
otherwise indicated in the applicable Pricing Supplement, the Interest Payment
Dates for Fixed Rate Notes will be April 15 and October 15 of each year and at
Maturity, and interest payments for Fixed Rate Notes shall be the amount of
interest accrued to, but excluding, the relevant Interest Payment Date. Unless
otherwise specified in the applicable Pricing Supplement, interest on Fixed Rate
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is a
Business Day, and no interest on such payment shall accrue for the period from
and after the Interest Payment Date. If the Maturity of any Fixed Rate Note
falls on a day that is not a Business Day, the payment of principal, premium, if
any, and interest will be made on the next succeeding Business Day, and no
interest on such payment shall accrue for the period from and after the maturity
date (or date of redemption or repayment) and such Business Day shall be
considered to be the day such payments are due for all purposes of the Notes.
Interest payments for Fixed Rate Notes will include accrued interest from
and including the date of issue or from and including the last date in respect
of which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
FLOATING RATE NOTES
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis for such Floating Rate Note which may be
adjusted by adding or subtracting the Spread and/or multiplying by the Spread
Multiplier specified therein. Such basis may be: (a) the Commercial Paper Rate,
in which case such Note will be a "Commercial Paper Rate Note," (b) LIBOR, in
which case such Note will be a "LIBOR Note," (c) the Federal Funds Rate, in
which case such Note will be a "Federal Funds Rate Note," (d) the Prime Rate, in
which case such Note will be a "Prime Rate Note," (e) the Treasury Rate, in
which case such Note will be a "Treasury Rate Note," (f) the CMT Rate, in which
case such Note will be a "CMT Rate Note," or (g) such other interest rate
formula, index or method of calculation set forth in such Pricing Supplement. In
addition, a Floating Rate Note may also have either or both of the following:
(a) a maximum numerical interest rate limitation, or ceiling, on the rate of
interest which may accrue during any interest period ("Maximum Interest Rate")
and (b) a minimum numerical interest rate limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
The applicable Pricing Supplement for a Floating Rate Note will specify the
Spread and/or Spread Multiplier, if any, and the Maximum or Minimum Interest
Rate, if any, applicable to each Floating Rate Note and, in addition, will
define or particularize for each such Note the following terms, if applicable:
Calculation Date, Initial Interest Rate, Regular Record Dates, Interest Payment
Dates, Index Maturity, Interest Determination Dates and Interest Reset Dates
with respect to such Note. The "Spread" is the number of basis points specified
in the applicable Pricing Supplement as being applicable to the interest rate
for such Note and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement as being applicable
S-5
<PAGE> 6
to the interest rate for such Note. "Index Maturity" means, with respect to a
Floating Rate Note, the period to maturity of the instrument or obligation on
which the interest rate formula is based, as specified in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually (each an "Interest Reset Date"), as
specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, the Interest Reset Date will be, in the case
of Floating Rate Notes which reset daily, each Business Day; in the case of
Floating Rate Notes (other than Treasury Rate Notes) which reset weekly, the
Wednesday of each week; in the case of Treasury Rate Notes which reset weekly,
the Tuesday of each week, except as provided below, when the normally scheduled
Treasury auction is not on a Monday; in the case of Floating Rate Notes which
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes which reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which reset semiannually, the third
Wednesday of two months of each year, as specified in the applicable Pricing
Supplement; and in the case of Floating Rate Notes which reset annually, the
third Wednesday of one month of each year, as specified in the applicable
Pricing Supplement. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day for such Floating Rate Note, the
Interest Reset Date for such Floating Rate Note shall be postponed to the next
day that is a Business Day for such Floating Rate Note, except that in the case
of a LIBOR Note, if such Business Day is in the next succeeding calendar month,
such Interest Reset Date shall be the immediately preceding Business Day.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
which reset daily, weekly or monthly, on the third Wednesday of each month or on
the third Wednesday of March, June, September and December of each year (as
indicated in the applicable Pricing Supplement); in the case of Floating Rate
Notes which reset quarterly, on the third Wednesday of March, June, September
and December of each year; in the case of Floating Rate Notes which reset
semiannually, on the third Wednesday of the two months of each year specified in
the applicable Pricing Supplement; in the case of Floating Rate Notes which
reset annually, on the third Wednesday of the month specified in the applicable
Pricing Supplement; and in each case, at Maturity (each an "Interest Payment
Date"). If an Interest Payment Date with respect to any Floating Rate Note would
otherwise fall on a day that is not a Business Day with respect to such Note,
such Interest Payment Date will be the following day that is a Business Day with
respect to such Note, except that in the case of a LIBOR Note, if such day falls
in the next calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the maturity date or any earlier redemption or
repayment date of a Floating Rate Note would fall on a day that is not a
Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business Day, and no interest on such payment shall
accrue for the period from and after such maturity, redemption or repayment
date, as the case may be.
Unless otherwise indicated in the applicable Pricing Supplement, interest
payments for Floating Rate Notes shall be the amount of interest accrued to, but
excluding, the Interest Payment Date.
With respect to a Floating Rate Note, accrued interest from the date of
issue or from the last date to which interest has been paid is calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factors
calculated for each day from the date of issue, or from the last date to which
interest has been paid, to the date for which accrued interest is being
calculated. Unless otherwise indicated in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate in
effect on such day by 360 or by the actual number of days in the year, in the
case of Treasury Rate Notes and CMT Rate Notes. The interest rate in effect on
each day will be: (a) if such day is an Interest Reset Date, the interest rate
with respect to the Interest Determination Date pertaining to such Interest
Reset Date or (b) if such day is not an Interest Reset Date, the interest rate
with respect to the Interest Determination Date pertaining to the next preceding
Interest Reset Date, subject in either case to any maximum or minimum interest
rate limitation referred to above and to any adjustment by a Spread and/or
Spread Multiplier referred to above; provided, however, that (i) the interest
rate in effect from the date of issue to the first Interest Reset Date with
respect to a Floating Rate Note will be the Initial Interest Rate (as set forth
in the applicable Pricing Supplement) and (ii) the interest rate in effect for
the ten days immediately prior to Maturity
S-6
<PAGE> 7
will be that in effect on the tenth day preceding such Maturity, unless
otherwise specified in the applicable Pricing Supplement.
The "Interest Determination Date" pertaining to an Interest Reset Date for
Commercial Paper Rate Notes, Federal Funds Rate Notes, CMT Rate Notes and Prime
Rate Notes will be the second Business Day next preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
LIBOR Note will be the second London Banking Day preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
Treasury Rate Note will be the day of the week in which such Interest Reset Date
falls on which Treasury bills would normally be auctioned. Treasury bills are
normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
but such auction may be held on the preceding Friday. If, as the result of a
legal holiday, an auction is so held on the preceding Friday, such Friday will
be the Interest Determination Date pertaining to the Interest Reset Date
occurring in the next succeeding week. If an auction falls on a day that is an
Interest Reset Date, such Interest Reset Date will be the next following
Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date", where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or maturity date, as the case may be.
In addition to any Maximum Interest Rate which may be applicable to any
Floating Rate Note pursuant to the above provisions, assuming that a court would
enforce the provisions of the Notes and the Indenture specifying New York law as
the governing law, the interest rate on the Floating Rate Notes will in no event
be higher than the maximum rate permitted by New York law, as the same may be
modified by United States law of general application. Under present New York law
the maximum rate of interest, subject to certain exceptions, for any loan in an
amount less than $250,000 is 16% and for any loan in the amount of $250,000 or
more but less than $2,500,000 is 25% per annum on a simple interest basis. These
limits do not apply to Floating Rate Notes in which an aggregate of $2,500,000
or more has been invested.
Unless otherwise provided in the applicable Pricing Supplement, The Chase
Manhattan Bank will be the calculation agent (the "Calculation Agent"). Upon the
request of the Holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect, and, if different, the interest rate
which will become effective as a result of a determination made on the most
recent Interest Determination Date with respect to such Floating Rate Note.
Unless otherwise indicated in the applicable Pricing Supplement, all percentages
resulting from any calculation relating to the rate of interest on a Note will
be rounded, if necessary, to the nearest one-hundred-thousandth of a percentage
point, with five one-millionths of a percentage point being rounded up, and all
dollar amounts used in or resulting from such calculation on Floating Rate Notes
will be rounded to the nearest cent, with one-half cent rounded up.
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any), and will be payable on the dates, specified on
the face of the Commercial Paper Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity designated in the applicable Pricing
Supplement as published by the Board of Governors of the Federal Reserve System
in "Statistical Release H.15(519), Selected Interest Rates" or any successor
publication of the Board of Governors of the Federal Reserve System under the
heading "Commercial Paper-Nonfinancial". In the event that such rate is not
published by 9:00 a.m., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, then the Commercial Paper Rate will be the
Money Market Yield of the rate on such Interest Determination Date for
commercial paper having the Index Maturity designated in the applicable Pricing
Supplement as published in Composite Quotations under the heading "Commercial
Paper". If such rate is not yet published in either H.15(519) or the Composite
Quotations
S-7
<PAGE> 8
by 3:00 p.m., New York City time, on the Calculation Date pertaining to such
Interest Determination Date, then the Commercial Paper Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
Money Market Yield of the arithmetic mean of the offered rates of three leading
dealers of commercial paper in New York City selected by the Calculation Agent
as of 11:00 a.m., New York City time, on such Interest Determination Date for
commercial paper having the Index Maturity designated in the applicable Pricing
Supplement placed for an industrial issuer whose bond rating is "AA", or the
equivalent, from a nationally recognized statistical rating agency; provided,
however, that if the dealers selected as aforesaid by the Calculation Agent are
not quoting as mentioned in this sentence, the Commercial Paper Rate will be the
Commercial Paper Rate then in effect on such Interest Determination Date.
"Money Market Yield", expressed as a percentage, means a yield calculated
in accordance with the following formula:
<TABLE>
<S> <C> <C> <C> <C>
D X 360
Money Market Yield = ------------------ X 100
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for the commercial paper,
quoted on a bank-discount basis and expressed as a decimal; and "M" refers to
the actual number of days in the interest period for which interest is being
calculated.
LIBOR Notes
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any), and will be
payable on the dates, specified on the face of such LIBOR Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR will
be determined by the Calculation Agent in accordance with the following
provisions:
(i) On each Interest Determination Date, LIBOR will be either: (a) if
"LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the specified Designated LIBOR
Page (as defined below) by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, that appear on the Designated
LIBOR Page as of 11:00 a.m., London time, on that Interest Determination
Date, if at least two such offered rates appear (unless, as aforesaid, only
a single rate is required) on such Designated LIBOR Page, or (b) if "LIBOR
Telerate" is specified in the applicable Pricing Supplement, the rate for
deposits in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, that appears on the
Designated LIBOR Page as of 11:00 a.m., London time, on that Interest
Determination Date. If fewer than two offered rates appear (if "LIBOR
Reuters" is specified in the applicable Pricing Supplement) or no rate
appears (if "LIBOR Telerate" is specified in the applicable Pricing
Supplement), LIBOR in respect of the related Interest Determination Date
will be determined as if the parties had specified the rate described in
clause (ii) below.
(ii) With respect to an Interest Determination Date on which fewer
than two offered rates appear (if "LIBOR Reuters" is specified in the
applicable Pricing Supplement) or no rate appears (if "LIBOR Telerate" is
specified in the applicable Pricing Supplement), the Calculation Agent will
request the principal London offices of each of four major reference banks
in the London interbank market, as selected by the Calculation Agent, to
provide the Calculation Agent with its offered quotation for deposits in
the Index Currency for the period of the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, to prime banks in
the London interbank market at approximately 11:00 a.m., London time, on
such Interest Determination Date and in a principal amount of not less than
$1,000,000 (or the equivalent in the Index Currency, if the Index Currency
is not the U.S. dollar) that is representative for a single transaction in
such
S-8
<PAGE> 9
Index Currency in such market at such time. If at least two such quotations
are provided, LIBOR determined on such Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR determined on such Interest Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00 a.m. (or such
other time specified in the applicable Pricing Supplement), in the
applicable principal financial center for the country of the Index Currency
on such Interest Determination Date, by three major banks in such principal
financial center selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity designated in
the applicable Pricing Supplement and in a principal amount of not less
than $1,000,000 commencing on the second London Banking Day immediately
following such Interest Determination Date (or the equivalent in the Index
Currency, if the Index Currency is not the U.S. dollar) that is
representative for a single transaction in such Index Currency in such
market at such time; provided, however, that if the banks so selected by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
in effect for the applicable period will be the same as LIBOR for the
immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the LIBOR Notes for
which LIBOR is being determined shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated
in the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency. If neither LIBOR Reuters nor
LIBOR Telerate is specified in the applicable Pricing Supplement. LIBOR for the
applicable Index Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Index Currency, Page 3750) had been specified.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds, as published in H.15(519) under the heading
"Federal Funds (Effective)" or if not so published by 9:00 a.m., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate". If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 p.m., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, as of 9:00 a.m., New York City time, on such Interest Determination Date,
arranged by three leading brokers of Federal funds transactions in The City of
New York selected by the Calculation Agent; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the Federal Funds Rate in effect for the applicable period will be
the same as the Federal Funds Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of interest
payable on the Federal Funds Rate Notes for which such Federal Funds Rate is
being determined shall be the Initial Interest Rate).
S-9
<PAGE> 10
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 a.m., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 Page (as defined
below) as such bank's prime rate or base lending rate as in effect for such
Interest Determination Date as quoted on the Reuters Screen USPRIME1 Page on
such Interest Determination Date, or, if fewer than four such rates appear on
the Reuters Screen USPRIME1 Page for such Interest Determination Date, the rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Interest Determination Date by at least two of the three major money center
banks in the City of New York selected by the Calculation Agent from which
quotations are requested. If fewer than two quotations are provided, the Prime
Rate shall be calculated by the Calculation Agent and shall be determined as the
arithmetic mean on the basis of the prime rates in the City of New York by the
appropriate number of substitute banks or trust companies organized and doing
business under the laws of the United States, or any State thereof, in each case
having total equity capital of at least U.S. $500 million and being subject to
supervision or examination by federal or state authority, selected by the
Calculation Agent to quote such rate or rates; provided, however, that if the
banks or trust companies selected as aforesaid by the Calculation Agent are not
quoting as set forth above, the "Prime Rate" in effect for the applicable period
will be the same as the Prime Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of interest
payable on the Prime Rate Notes for which such Prime Rate is being determined
shall be the Initial Interest Rate). "Reuters Screen USPRIME1 Page" means the
display designated as Page "USPRIME1" on the Reuters Monitor Money Rates
Services (or such other page as may replace the USPRIME1 Page on that service
for the purpose of displaying prime rates or base lending rates of major United
States banks).
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills -- auction average (investment)" or, if not so published by 9:00 a.m., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not published or reported as provided above by 3:00 p.m., New
York City time, on such Calculation Date or if no such auction is held on such
Interest Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) calculated using the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 p.m., New York City time, on such
Interest Determination Date, of three leading primary United States government
securities dealers selected by the Calculation Agent for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in the
applicable Pricing Supplement; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, the Treasury Rate for such Interest Reset Date will be the same
as the Treasury Rate for the immediately
S-10
<PAGE> 11
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the rate of interest payable on the Treasury Rate Notes for which the Treasury
Rate is being determined shall be the Initial Interest Rate).
CMT Rate Notes
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date, the rate displayed on
the Designated CMT Telerate Page (as defined below) under the caption ". . .
Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . .
Mondays Approximately 3:45 p.m.", under the column for the Designated CMT
Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is
7055, the rate on such Interest Determination Date and (ii) if the Designated
CMT Telerate Page is 7052, the week or the month, as applicable, ended
immediately preceding the week in which the related Interest Determination Date
occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published, or, if not published by
3:00 p.m., New York City time, on the related Calculation Date, then the CMT
Rate for such Interest Determination Date will be such Treasury Constant
Maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the Interest
Determination Date with respect to such Interest Reset Date as may then be
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in the relevant H.15(519). If such information is not
provided by 3:00 p.m., New York City time, on the related Calculation Date, then
the CMT Rate for the Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30 p.m.,
New York City time, on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in The City of New York (which
may include the Agents or their affiliates) selected by the Calculation Agent
(from five such Reference Dealers selected by the Calculation Agent, after
consultation with the Company, and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest), for the most recently issued direct
noncallable fixed rate obligations of the United States ("Treasury Notes") with
an original maturity of approximately the Designated CMT Maturity Index and
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury Note
quotations, the CMT Rate for such Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 p.m.,
New York City time, on the Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least $100,000,000. If three or four (and not five)
of such Reference Dealers are quoting as described above, then the CMT Rate will
be based on the arithmetic mean of the offer prices obtained and neither the
highest nor the lowest of such quotes will be eliminated; provided, however,
that if fewer than three Reference Dealers selected by the Calculation Agent are
quoting as described herein, the CMT Rate for such Interest Reset Date will be
the same as the CMT Rate for the immediately preceding Interest Reset Period
(or, if there was no such Interest Reset Period, the rate of interest payable on
the CMT Rate Notes for which the CMT Rate is being determined shall be the
Initial Interest Rate). If two Treasury Notes with an original maturity as
described in the third preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, the quotes for the Treasury
Note with the shorter remaining term to maturity will be used.
S-11
<PAGE> 12
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in an applicable Pricing Supplement (or any other
page as may replace such page on that service), for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519). If no such page is
specified in the applicable Pricing Supplement, the Designated CMT Telerate Page
shall be 7052, for the most recent week.
"Designated CMT Maturity Index" shall be the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in an applicable Pricing Supplement with respect to which the CMT Rate
will be calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be two years.
BOOK-ENTRY SYSTEM
Upon issuance, all Book-Entry Notes having the same original issuance date,
Regular Record Dates, Interest Payment Dates, redemption or repayment
provisions, if any, Stated Maturity and, in the case of Fixed Rate Notes,
interest rate, or, in the case of Floating Rate Notes, initial interest rate,
interest rate formula, Index Maturity, Spread and/or Spread Multiplier (if any),
Minimum Interest Rate (if any), Maximum Interest Rate (if any) and Interest
Reset Dates, will be represented by a single Global Security. Each Global
Security representing Book-Entry Notes will be deposited with, or on behalf of,
The Depository Trust Company, as depository (the "Depository"), or such other
depository as is specified in the applicable Pricing Supplement, and registered
in the name of the Depository or its nominee. Book-Entry Notes will not be
exchangeable for Certificated Notes, provided that if the Depository is at any
time unwilling or unable to continue as depository and a successor depository is
not appointed by the Company within 90 days, the Company will issue Certificated
Notes in exchange for the Global Security or Securities representing Book-Entry
Notes. In addition, the Company may at any time and in its sole discretion
determine not to have Book-Entry Notes represented by Global Securities, and, in
such event, will issue Certificated Notes in exchange for all Global Securities
representing such Book-Entry Notes.
The Depository has advised the Company and the Agents as follows: the
Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. The Depository was created to hold securities
for its participating organizations ("Participants") and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (including the Agents), banks, trust companies
and clearing corporations and may include certain other organizations, some of
which (or their representatives) own the Depository. Indirect access to the
Depository's system also is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly.
Upon the issuance by the Company of Book-Entry Notes represented by a
Global Security, the Depository will credit, on its book-entry registration and
transfer system, the respective principal amounts of the Book-Entry Notes
represented by such Global Security to the accounts of Participants. The
accounts to be credited shall be designated by the Agents with respect to such
Book-Entry Notes or by the Company if such Book-Entry Notes are offered and sold
directly by the Company. Ownership of beneficial interests in a Global Security
will be limited to Participants or persons that hold interests through
Participants. Ownership of beneficial interests in Book-Entry Notes represented
by a Global Security will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the Depository (with respect to
interests of Participants in the Depository), or by Participants in the
Depository or persons that may hold interests through such Participants (with
respect to persons other than Participants in the Depository). The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such limits and such laws may impair the
ability to transfer or pledge beneficial interests in a Global Security.
So long as the Depository or its nominee is the registered owner of a
Global Security, the Depository or its nominee, as the case may be, will be
considered the sole owner or Holder of the Book-Entry Notes represented by such
Global Security for all purposes under the Indenture. Except as provided below,
owners of beneficial
S-12
<PAGE> 13
interests in Book-Entry Notes represented by a Global Security will not be
entitled to have such Book-Entry Notes registered in their names, will not
receive or be entitled to receive physical delivery of Book-Entry Notes in
definitive form and will not be considered the owners or Holders thereof under
the Indenture. Unless and until it is exchanged in whole or in part for
Certificated Notes evidencing the Book-Entry Notes represented thereby, a Global
Security may not be transferred except as a whole by or to the Depository for
such Global Security or its successor, or any nominee of such Depository or
successor Depository.
Payments of principal of, premium, if any, and interest on the Book-Entry
Notes represented by a Global Security registered in the name of the Depository
or its nominee will be made by the Company through the Paying Agent to the
Depository or its nominee, as the case may be, as the registered owner of a
Global Security.
The Company has been advised that the Depository, upon receipt of any
payment of principal, premium or interest in respect of a Global Security, will
credit immediately the accounts of the related Participants with payments in
amounts proportionate to their respective holdings in principal amount of
beneficial interests in such Global Security as shown on the records of the
Depository. The Company expects that payments by Participants to owners of
beneficial interests in a Global Security will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name".
Such payments will be the responsibility of such Participants.
Neither the Company, the Trustee, any Paying Agent nor the Registrar for
the Notes will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
REDEMPTION AND REPURCHASE
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be redeemed prior to its Stated Maturity or that such Note will be
redeemable at the option of the Company on a date or dates specified prior to
such Stated Maturity at a price or prices set forth in the applicable Pricing
Supplement, together with accrued interest to the date of redemption. The
Company may redeem any of the Notes that are redeemable and remain outstanding
either in whole or from time to time in part, upon not less than 30 nor more
than 60 days' notice. If less than all Notes with like tenor and terms are to be
redeemed, the Notes to be redeemed shall be selected by the Trustee or the
Registrar, if other than the Trustee, by such method as the Trustee or the
Registrar shall deem fair and appropriate. Unless otherwise provided in the
applicable Pricing Supplement, the Notes will not have a sinking fund and will
be subject to the provisions of the Indenture described in the Prospectus under
"Description of Debt Securities -- Defeasance".
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes so purchased by the Company may, at its discretion, be held,
resold or surrendered to the Trustee for cancellation.
REPAYMENT
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be repaid prior to its Stated Maturity or that the Note will be
repayable at the option of the Holder on a date or dates specified prior to its
Stated Maturity at a price or prices set forth in the applicable Pricing
Supplement, together with accrued interest to the date of repayment.
In order for a Note to be repaid at other than its Stated Maturity, the
Paying Agent must receive at least 30 days but no more than 45 days prior to the
repayment date (i) the Note with the form entitled "Option to Elect Repayment"
on the reverse of the Note duly completed or (ii) a telegram, telex, facsimile
transmission or a letter from a member of a national securities exchange, the
National Association of Securities Dealers, Inc., the Depository (in accordance
with its normal procedures), or a commercial bank or trust company in the United
States setting forth the name of the holder of the Note, the principal amount of
the Note, the principal amount of the Note to be repaid, the certificate number
or a description of the tenor and terms of the Note, a statement that the option
to elect repayment is being exercised thereby and a guarantee that the Note to
be repaid with the form
S-13
<PAGE> 14
entitled "Option to Elect Repayment" on the attachment to the Note duly
completed will be received by the Paying Agent not later than five Business Days
after the date of such telegram, telex, facsimile transmission or letter and
such Note and form duly completed are received by the Paying Agent by such fifth
Business Day. Exercise of the repayment option may not be revoked. The repayment
option may be exercised by the Holder of a Note for less than the entire
principal amount of the Note, provided that the principal amount of the Note
remaining outstanding after repayment is an authorized denomination.
INDEXED NOTES
The Notes may be issued with the principal amount payable at maturity to be
determined with reference to the exchange rate of the Specified Currency set
forth in the applicable Pricing Supplement relative to the indexed currency (the
"Indexed Currency") set forth in the applicable Pricing Supplement ("Dual
Currency Notes"). Holders of such Notes may receive a principal amount at
maturity that is greater than or less than the face amount of the Note depending
upon the relative value at maturity of the Specified Currency compared to the
Indexed Currency. In addition, Notes may be issued from time to time with the
principal amount payable at Stated Maturity and/or the amount of interest
payable on any Interest Payment Date to be determined by reference to one or
more commodity prices, equity indices or other financial or non-financial
indices and on such other terms as may be set forth in the relevant Pricing
Supplement (together with the Dual Currency Notes, the "Indexed Notes").
Information as to the method for determining the principal amount payable at
maturity and/or the amount of interest payable, the relative value of the
Specified Currency compared to the applicable Indexed Currency, any exchange
controls applicable to the Specified Currency or Indexed Currency and certain
additional tax considerations will be set forth in the applicable Pricing
Supplement.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS
AS TO THE RISKS ENTAILED BY AN INVESTMENT IN SUCH INDEXED NOTES AND THE
SUITABILITY OF SUCH INDEXED NOTES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
SUCH INDEXED NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS, COMMODITY PRICES,
EQUITY INDICES AND OTHER FINANCIAL OR NON-FINANCIAL INDICES.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal of, premium, if
any, and interest on the Notes will be made in U.S. dollars. If any of the Notes
are to be denominated in a currency or currency unit other than U.S. dollars,
the following provisions shall apply, which are in addition to, and to the
extent inconsistent therewith replace, the description of general terms and
provisions of Notes set forth in the accompanying Prospectus and elsewhere in
this Prospectus Supplement.
Foreign Currency Notes are issuable in registered form only, without
coupons. The denominations for particular Foreign Currency Notes will be
specified in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of Foreign Currency Notes will be made in immediately
available funds.
Unless otherwise provided in the applicable Pricing Supplement, all
currency and currency unit amounts used and resulting from calculations relating
to currencies for a Foreign Currency Note will be rounded to the nearest
one-hundredth of a unit (with five one-thousandths of a unit being rounded up).
PAYMENT OF PRINCIPAL AND INTEREST
The principal of, premium, if any, and interest on Foreign Currency Notes
are payable by the Company in the Specified Currency. Unless otherwise specified
in the applicable Pricing Supplement, a Holder of Foreign
S-14
<PAGE> 15
Currency Notes may elect to receive payment of the principal of, premium, if
any, and interest on a Foreign Currency Note in U.S. dollars by transmitting a
written request for such payment to the principal office of the Paying Agent in
the Borough of Manhattan, The City of New York on or prior to the Regular Record
Date or at least 15 days prior to Maturity, as the case may be. Such request may
be in writing (mailed or hand delivered) or by cable, telex or other form of
facsimile transmission. A Holder of a Foreign Currency Note may elect to receive
payment in U.S. dollars for all principal, premium, if any, and interest
payments and need not file a separate election for each payment. Such election
will remain in effect until revoked by written notice to the Paying Agent in the
Borough of Manhattan, The City of New York, but written notice of any such
revocation must be received by the Paying Agent in the Borough of Manhattan, The
City of New York on or prior to the Regular Record Date or at least 15 days
prior to Maturity, as the case may be. Holders of Foreign Currency Notes whose
Foreign Currency Notes are to be held in the name of a broker or nominee should
contact such broker or nominee to determine whether and how an election to
receive payments in U.S. dollars may be made See "--Payment Currency."
Interest on Foreign Currency Notes paid in U.S. dollars will be paid in the
manner specified in this Prospectus Supplement for interest on Notes denominated
in U.S. dollars. Interest on Foreign Currency Notes paid in the Specified
Currency will be made to an account at a bank outside the United States, unless
other arrangements have been made. The principal and premium, if any, of Foreign
Currency Notes, together with interest accrued and unpaid thereon, due at
Maturity will be paid in immediately available funds against presentation of
such Foreign Currency Notes at the principal offices of The Chase Manhattan Bank
in the Borough of Manhattan, The City of New York. Any payment of principal,
premium, if any, or interest required to be made on an Interest Payment Date or
at Maturity of a Foreign Currency Note which is not a Business Day need not be
made on such day, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date or at Maturity, as
the case may be, and no interest shall accrue for the period from and after such
Interest Payment Date or Maturity.
PAYMENT CURRENCY
If the Holder of a Foreign Currency Note is permitted to elect, and has
elected, to receive payments of principal of, premium, if any, and interest on a
Foreign Currency Note in U.S. dollars, the Specified Currency will be converted
into U.S. dollars based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 a.m., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of which may be the Exchange Rate
Agent) for the purchase by the quoting dealer of the Specified Currency for U.S.
dollars for settlement on the payment date in the aggregate amount of the
Specified Currency payable to the holders of Notes and at which the applicable
dealer commits to execute a contract. If such bid quotations are not available,
payments will be made in the Specified Currency unless such Specified Currency
is not available due to the imposition of exchange controls or to other
circumstances beyond the Company's control, in which case the Company will be
entitled or obligated to make payments in other currencies as described below.
All currency exchange costs will be borne by the holders of Notes by deductions
from such payments.
Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances beyond
the control of the Company or is no longer used by the government of the country
issuing the currency or for the settlement of transactions by public
institutions within the international banking community, then the Company will
be entitled to satisfy its obligations to holders of the Notes by making the
payments in U.S. dollars on the basis of the Market Exchange Rate on the date of
the payment or, if the Market Exchange Rate is not available on such date, as of
the most recent practicable date; provided, however, that if such Specified
Currency is replaced by the Euro (as described under "Special Provisions
Relating to Notes Denominated in ECU" below), the payment of principal of,
premium, if any, or interest on any Note denominated in such currency shall be
effected in Euro in conformity with legally applicable measures taken pursuant
to, or by virtue of, the treaty establishing the European Community (the "EC"),
as amended by the treaty on European Union (as so amended, the "Treaty"). Any
payment made under such circumstances in U.S. dollars (or, if applicable, in
Euro) where the required
S-15
<PAGE> 16
payment is in a Specified Currency other than U.S. dollars will not constitute
an Event of Default. As used herein the term "Market Exchange Rate" means the
noon dollar buying rate in New York City for cable transfers of the Specified
Currency published by the Federal Reserve Bank of New York.
SPECIAL PROVISIONS RELATING TO NOTES DENOMINATED IN ECU
Valuation of the ECU
Subject to the provisions under "Payment in a Component Currency" below,
the value of the ECU, in which the Notes may be denominated or may be payable,
is equal to the value of the ECU that is from time to time used as the unit of
account of the EC and which is at the date hereof valued on the basis of
specified amounts of the currencies of 12 of the 15 member states of the EC.
Under Article 109G of the Treaty, the currency composition of the ECU may not be
changed. Other changes to the ECU may be made by the EC in conformity with EC
law, in which event the ECU will change accordingly. The Treaty contemplates
that European economic and monetary union ("EMU") will occur in three stages.
The Treaty provides that the third stage of EMU will start on January 1, 1999,
and on that date the value of the ECU as against the currencies of member states
participating in the third stage will be irrevocably fixed and the ECU will
become a currency in its own right, replacing all or some of the currencies of
the 15 member states of the EC (as of the date of this Prospectus Supplement,
such currencies include the Austrian shilling, Belgian franc, Danish krone,
Dutch guilder, Finnish markka, French franc, German mark, Greek drachma, Irish
pound, Italian lira, Luxembourg franc, Portuguese escudo, Spanish peseta,
Swedish krona and pound sterling). On June 17, 1997, the Council of the European
Union adopted Council Regulation (EC) No. 1103/97, which recites that the name
of that currency will be the Euro and provides that, in accordance with the
Treaty, references to the ECU will be replaced by references to the Euro at the
rate of one Euro for one ECU. References in this Prospectus Supplement to the
"Euro" are to such new currency adopted pursuant to the Treaty. From the start
of the third stage of EMU, all payments in respect of the Notes denominated or
payable in ECU will be payable in Euro at the rate of one Euro for one ECU.
Payment in a Component Currency
With respect to each due date for the payment of principal of, premium, if
any, or interest on, the Notes on or after the first business day in Brussels on
which the ECU ceases to be used as the unit of account of the EC and has not
become a currency in its own right replacing all or some of the currencies of
the member states of the EC, the Company shall choose a substitute currency (the
"Chosen Currency"), which may be any currency which was, on the last day on
which the ECU was used as the unit of account of the EC, a component currency of
the ECU or U.S. dollars, in which all payments due on or after the date with
respect to the Notes, shall be made. The amount of each payment in such Chosen
Currency shall be computed on the basis of the equivalent of the ECU in that
currency determined as described below, as of the fourth business day in
Brussels prior to the date on which such payment is due.
On the first business day in Brussels on which the ECU ceases to be used as
the unit of account of the EC and has not become a currency in its own right
replacing all or some of the currencies of the member states of the EC, the
Company shall select a Chosen Currency in which all payments with respect to
Notes having a due date prior thereto but not yet presented for payment are to
be made. The amount of each payment in such Chosen Currency shall be computed on
the basis of the equivalent of the ECU in that currency, determined as described
below, as of such first business day.
The equivalent of the ECU in the relevant Chosen Currency as of any date
(the "Day of Valuation") shall be determined by, or on behalf of, the Exchange
Rate Agent on the following basis. The amounts and components composing the ECU
for this purpose (the "Components") shall be the amounts and components that
composed the ECU as of the last date on which the ECU was used as the unit of
account of the EC. The equivalent of the ECU in the Chosen Currency shall be
calculated by, first, aggregating the U.S. dollar equivalents of the Components;
and then, in the case of a Chosen Currency other than U.S. dollars, using the
rate used for determining the U.S. dollar equivalent of the Components in the
Chosen Currency as set forth below, calculating the equivalent in the Chosen
Currency of such aggregate amount in U.S. dollars.
S-16
<PAGE> 17
The U.S. dollar equivalent of each of the Components shall be determined
by, or on behalf of, the Exchange Rate Agent on the basis of the middle spot
delivery quotations prevailing at 2:30 p.m., Brussels time, on the Day of
Valuation, as obtained by, or on behalf of, the Exchange Rate Agent from one or
more major banks, as selected by the Company, in the country of issue of the
component currency question.
If for any reason no direct quotations are available for a Component as of
a Day of Valuation from any of the banks selected for this purpose, in computing
the U.S. dollar equivalent of such Component, the Exchange Rate Agent shall
(except as provided below) use the most recent direct quotations for such
Component obtained by it or on its behalf, provided that such quotations were
prevailing in the country of issue not more than two Business Days before such
Day of Valuation. If such most recent quotations were so prevailing in the
country of issue more than two Business Days before such Day of Valuation, the
Exchange Rate Agent shall determine the U.S. dollar equivalent of such Component
on the basis of cross rates derived from the middle spot delivery quotations for
such component currency and for the U.S. dollar prevailing at 2:30 p.m.,
Brussels time, on such Day of Valuation, as obtained by, or on behalf of, the
Exchange Rate Agent from one or more major banks, as selected by the Company, in
a country other than the country of issue of such component currency.
Notwithstanding the foregoing, the Exchange Rate Agent shall determine the U.S.
dollar equivalent of such Component on the basis of such cross rates if the
Company judges that the equivalent so calculated is more representative than the
U.S. dollar equivalent calculated as provided in the first sentence of this
paragraph. Unless otherwise specified by the Company, if there is more than one
market for dealing in any Component currency by reason of foreign exchange
regulations or for any other reason, the market to be referred to in respect of
such currency shall be that upon which a nonresident issuer of securities
denominated in such currency would purchase such currency in order to make
payments in respect of such securities.
Payments in the Chosen Currency will be made at the specified office of a
paying agent in the country of the Chosen Currency, or, if none, or at the
option of the Holder, at the specified office of any Paying Agent either by a
check drawn on, or by transfer to an account maintained by the Holder with, a
bank in the principal financial center of the country of the Chosen Currency.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as Components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that currency as a Component shall be replaced
by amounts of such two or more currencies, each of which shall have a value on
the date of division equal to the amount of the former component currency
divided by the number of currencies into which that currency was divided.
All determinations referred to above made by, or on behalf of, the Company
or by, or on behalf of, the Exchange Rate Agent shall be at such entity's sole
discretion and shall, in the absence of manifest error, be conclusive for all
purposes and binding on holders of Notes and coupons.
Notes Denominated in the Currencies of EC Member States
If, pursuant to the Treaty, all or some of the currencies of the member
countries of the EC are replaced by the Euro, the payment of principal of,
premium, if any, or interest on the Notes denominated in such currencies shall
be effected in Euro in conformity with legally applicable measures taken
pursuant to, or by virtue of, the Treaty.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in, or the payment of which is
related to the value of, a Specified Currency other than U.S. dollars entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. The risks include, without limitation, the
possibility of
S-17
<PAGE> 18
significant changes in rates of exchange between the U.S. dollar and various
foreign currencies (or composite currencies) and the possibility of the
imposition or modification of exchange controls by either the U.S. or foreign
governments. Such risks generally depend on economic and political events over
which the Company has no control. In recent years, rates of exchange between
U.S. dollars and certain foreign currencies have been highly volatile and such
volatility may be expected to continue in the future. Fluctuations in any
particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations in such rates that may occur during the
term of any Note. Depreciation against the U.S. dollar of the currency in which
a Note is payable would result in a decrease in the effective yield of such Note
below its coupon rate and, in certain circumstances, could result in a loss to
the investor on a U.S. dollar basis. In addition, depending on the specific
terms of a currency linked Note, changes in exchange rates relating to any of
the currencies involved may result in a decrease in its effective yield and, in
certain circumstances, could result in a loss of all or a substantial portion of
the principal of a Note to the investor.
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT DESCRIBE ALL OF THE RISKS OF AN INVESTMENT IN NOTES
DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, A FOREIGN
CURRENCY OR A COMPOSITE CURRENCY AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO
ADVISE PROSPECTIVE PURCHASERS OF THE RISKS AS THEY EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. EACH
PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN FINANCIAL AND LEGAL ADVISORS AS TO
ANY SPECIFIC RISKS ENTAILED BY AN INVESTMENT BY SUCH INVESTOR IN NOTES THAT ARE
DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF FOREIGN
CURRENCY. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium, if
any, and interest on the Notes. Such persons should consult their own counsel
with regard to such matters.
Foreign exchange rates can either float or be fixed by sovereign
governments. Exchange rates of most economically developed nations are permitted
to fluctuate in value relative to the U.S. dollar. National governments,
however, rarely voluntarily allow their currencies to float freely in response
to economic forces. From time to time governments use a variety of techniques,
such as intervention by a country's central bank or imposition of regulatory
controls or taxes, to affect the exchange rate of their currencies. Governments
may also issue a new currency to replace an existing currency or alter the
exchange rate or relative exchange characteristics by devaluation or revaluation
of a currency. Thus, a special risk in purchasing Foreign Currency Notes or
currency linked Notes is that their U.S. dollar-equivalent yields or payout
could be affected by governmental actions, which could change or interfere with
theretofore freely determined currency valuation, fluctuations in response to
other market forces, and the movement of currencies across borders. There will
be no adjustment or change in the terms of such Notes in the event that exchange
rates should become fixed, or in the event of any devaluation or revaluation or
imposition of exchange or other regulatory controls or taxes, or in the event of
other developments affecting the U.S. dollar or any applicable Specified
Currency.
Governments have imposed from time to time, and may in the future impose,
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency (or of securities denominated in such currency)
at the time of payment of principal of, premium, if any, or interest on a Note.
Even if there are no actual exchange controls, it is possible that the Specified
Currency for any particular Foreign Currency Note would not be available when
payments on such Note are due including as a result of the replacement of such
Specified Currency by a single European currency (expected to be named the
Euro). In that event, the Company would make required payments in U.S. dollars
on the basis of the Market Exchange Rate on the date of such payment, or if such
rate of exchange is not then available, on the basis of the Market Exchange Rate
as of the most recent practicable date provided, however, that, if the Specified
Currency for any Note is not available
S-18
<PAGE> 19
because it has been replaced by the Euro, the Company would make such payments
in Euro in conformity with legally applicable measures taken pursuant to, or by
virtue of, the Treaty. See "Special Provisions Relating to Foreign Currency
Notes--Payment Currency."
With respect to any Note denominated in, or the payment of which is related
to the value of, a foreign currency or currency unit, the applicable Pricing
Supplement will include information with respect to applicable current exchange
controls, if any, and historic exchange rate information on such currency or
currency unit. The information contained therein shall constitute a part of this
Prospectus Supplement and is furnished as a matter of information only and
should not be regarded as indicative of the range of or trends in fluctuations
in currency exchange rates that may occur in the future.
GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If a court in the United States were to grant a judgement
in an action based on Foreign Currency Notes, it is likely that such court would
grant judgment only in U.S. dollars. If the court were a New York court,
however, such court would grant a judgment in the Specified Currency or currency
in respect of which any payment on a Note was due. Such judgment would then be
converted into U.S. dollars at the rate of exchange prevailing on the date of
entry of the judgment.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
consequences of the ownership of a Note is based on the United States federal
income tax laws and regulations in effect as of the date of this Prospectus
Supplement and as currently interpreted. It deals only with Notes held as
capital assets and does not deal with Note Warrants (as defined below) or with
special classes of Holders, such as dealers in securities or currencies, life
insurance companies, financial institutions, regulated investment companies,
persons holding Notes as a hedge or hedged against currency risks, or as part of
a straddle with other investments, or as part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprised of a Note
and one or more other investments, or United States Holders whose functional
currency is other than U.S. dollars. It does not deal with Indexed Notes. The
federal income tax consequences of holding a particular Note will depend, in
part, on the particular terms of such Note as set forth in the applicable
Pricing Supplement.
Authoritative interpretations of some of the United States federal income
tax laws have not yet been issued by the United States Department of Treasury
("Treasury"), the United States Internal Revenue Service ("IRS") or the courts.
Such interpretations, when and as issued, may affect the United States federal
income tax consequences of an investment in the Notes, and any such
interpretations may be applied retroactively. Moreover, the tax treatment of an
investment in the Notes may also be affected by future legislation and IRS or
judicial interpretations thereof.
THE FEDERAL INCOME TAX SUMMARY SET FORTH HEREIN IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE, DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS (INCLUDING CHANGES IN
APPLICABLE REGULATIONS AND INTERPRETATIONS OF FEDERAL OR OTHER TAX LAWS).
UNITED STATES PERSONS
For purposes of the following discussion, "United States person" means (i)
an individual who is a citizen or resident of the United States for United
States federal income tax purposes; (ii) an estate the income of which is
subject to United States federal income taxation without regard to its source;
(iii) a corporation created under the laws of the United States or any State;
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions of the
trust; (v) a partnership or other entity that is created or organized in or
under the laws
S-19
<PAGE> 20
of the United States or of any political subdivision thereof; or (vi) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. The following discussion
pertains only to a Holder of a Note who is a United States person.
Payments of Interest on Notes
In general, interest on a Note, whether in U.S. dollars or in currency
other than U.S. dollars ("Foreign Currency"), other than certain payments on a
Discount Note (as defined and described below under "Original Issue Discount
Notes"), will be taxable to a Holder as ordinary interest income at the time it
is accrued or paid, in accordance with the Holder's method of accounting for tax
purposes.
Purchase, Sale and Retirement of the Notes
A Holder's tax basis in a Note generally will be the U.S. dollar cost of
the Note to such Holder (which, in the case of a Note purchased with a foreign
currency will be the U.S. dollar value of the purchase price on the date of
purchase) increased by any amounts (such as original issue discount, market
discount, or acquisition discount) includable in income by the Holder with
respect to such Note (other than interest) and the amount, if any, of income
attributable to de minimus original issue discount includable in the Holder's
income with respect to the Note, and reduced by (i) any payments which are not
"qualified stated interest" payments (as defined below under "Original Issue
Discount Notes"), (ii) any amortized premium with respect to such Note, and
(iii) any principal payments received by the Holder.
Upon the sale, exchange, redemption or retirement of a Note, a Holder
generally will recognize gain or loss equal to the difference between the amount
realized on such sale, exchange, redemption or retirement (or the U.S. dollar
value of such amount on the date of disposition if it is realized in Foreign
Currency) and the Holder's tax basis in the Note. Except to the extent described
below under "Short-Term Notes", "Market Discount", or "Foreign Currency Notes",
and except to the extent attributable to accrued but unpaid interest, gain or
loss so recognized will be capital gain or loss.
The Taxpayer Relief Act of 1997 (the "1997 Act") has modified the tax
treatment of capital gains in several key respects. First, the maximum capital
gains rate applicable to sales of capital assets held by individuals for more
than 18 months is now 20 percent (10 percent for individuals in the 15 percent
tax bracket). Second, the maximum rate applicable to sales of capital assets
held by individuals for more than 12 months but not more than 18 months is now
28 percent (15 percent for individuals in the 15 percent tax bracket). As under
prior law, gain on capital assets held by individuals for 12 months or less will
continue to be taxed as ordinary income at rates as high as 39.6 percent.
Capital gains recognized by corporations will continue to be taxed at the same
rates applicable to ordinary income, although the distinction between capital
gain or loss and ordinary income or loss is relevant for purposes of, among
other things, limitations on the deductibility of capital losses. In addition,
the 1997 Act introduces certain technical problems, particularly in the area of
offsetting categories of gains and losses, which have yet to be resolved through
legislation. Holders are urged to consult their own tax advisors regarding the
impact of the 1997 Act on the proper treatment of any gain or loss recognized
with respect to a Note.
Amortizable Bond Premium
If a Holder purchases a Note for an amount that is greater than its stated
redemption price at maturity, such Holder will be considered to have purchased
the Note with "amortizable bond premium" equal in amount to such excess. A
Holder may elect to amortize such premium using a constant-yield method over the
remaining term of the Note. If the Note may be optionally redeemed after the
Holder acquires it at a price in excess of its stated redemption price at
maturity, the amount of premium on the Note would be calculated by reference to
the earlier redemption price rather than the redemption price at maturity and
special rules would apply which could result in a deferral of the amortization
of some bond premium until later in the term of the Note. Any election to
amortize bond premium is applicable to all bonds (other than bonds the interest
on which is excludable from gross income) held by the Holder at the beginning of
the first taxable year to which the election applies or thereafter acquired by
the Holder, and may not be revoked without the consent of the IRS. A Holder that
does not elect to amortize bond
S-20
<PAGE> 21
premium will generally be entitled to treat the premium as capital loss when the
Note matures. See also "Election to Treat All Interest as Original Issue
Discount" below.
ORIGINAL ISSUE DISCOUNT NOTES
The following summary is a general discussion of the United States federal
income tax consequences to Holders of Notes issued with original issue discount
("Discount Notes") that are United States persons.
For United States federal income tax purposes, a Note is issued with
original issue discount if the excess of the stated redemption price at maturity
of a Note over its issue price equals or exceeds a de minimis amount (generally
1/4 of 1% of the Note's stated redemption price at maturity multiplied by the
number of complete years to its maturity from its issue date). The "issue price"
of an issue of Discount Notes equals the first price to the public at which a
substantial amount of such Notes has been sold (ignoring sales to bond houses,
brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers). The "stated redemption price at
maturity" of a Discount Note is the sum of all payments provided by the Note
other than "qualified stated interest" payments.
The term "qualified stated interest" generally means stated interest that
is unconditionally payable in cash or property (other than debt instruments of
the Company) at least annually at a single fixed rate (or at certain floating
rates) that appropriately takes into account the length of the interval between
stated interest payments.
The applicable Pricing Supplement will state whether a particular issue of
Notes will constitute an issue of Discount Notes.
Unless the election described below in "Election to Treat All Interest as
Original Issue Discount" is made, a Discount Note with only a de minimis amount
of original issue discount will not be considered to have original issue
discount. The Holders of such Notes will include such de minimis original issue
discount in income, as capital gain, on a pro rata basis as principal payments
are made on the Note.
A Holder of a Discount Note must include original issue discount in income
as ordinary interest for United States federal income tax purposes as it accrues
under a constant yield method before the receipt of the cash payments
attributable to such income, regardless of such Holder's regular method of tax
accounting. In general, the amount of original issue discount included in income
by the initial Holder of a Discount Note is the sum of the daily portions of
original issue discount with respect to such Note for each day during the
taxable year (or portion of the taxable year) on which such Holder held such
Note. The "daily portion" of original issue discount on any Discount Note is
determined by allocating to each day in any accrual period a ratable portion of
the original issue discount allocable to that accrual period. An "accrual
period" may be of any length and the accrual periods may vary in length over the
term of the Discount Note, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs either on
the final day of an accrual period or on the first day of an accrual period.
In certain cases, Notes that bear stated interest and are issued at par
(including especially Floating Rate Notes) may be deemed to bear original issue
discount for federal income tax purposes, with the result that the inclusion of
interest in income for federal income tax purposes may vary from the actual cash
payments of interest made on such Notes, generally accelerating income for cash
method taxpayers. Notice will be given in the applicable Pricing Supplement when
the Company determines that a particular Note will be a, or will be deemed to be
a, Discount Note. Unless specified in the applicable Pricing Supplement,
Floating Rate Notes will not be Discount Notes.
The amount of original issue discount allocable to each accrual period is
generally equal to the difference between (i) the product of the Discount Note's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and appropriately adjusted to take into account the length of the
particular accrual period), and (ii) the amount of qualified stated interest
payments, if any, allocable to such accrual period. The "adjusted issue price"
of a Discount Note at the beginning of any accrual period is the sum of the
issue price of the Discount Note, plus the amount of original issue discount
allocable to all prior accrual periods, plus the amount of any qualified stated
interest on the Note that has accrued prior to the beginning of the accrual
period but is not payable until a later date, minus the amount
S-21
<PAGE> 22
of any prior payments on the Discount Note that were not qualified stated
interest payments. If a payment (other than a payment of qualified stated
interest) is made on the first day of an accrual period, then the adjusted issue
price at the beginning of such accrual period is reduced by the amount of the
payment. If a portion of the initial purchase price of a Note is attributable to
interest that accrued prior to the Note's issue date, the first stated interest
payment on the Note is to be made within one year of the Note's issue date and
such payment will equal or exceed the amount of pre-issuance accrued interest,
then the Holder may elect to decrease the issue price of the Note by the amount
of pre-issuance accrued interest, in which case a portion of the first stated
interest payment will be treated as a return of the excluded pre-issuance
accrued interest and not as an amount payable on the Note.
The original issue discount regulations contain certain special rules that
generally allow any reasonable method to be used in determining the amount of
original issue discount allocable to a short initial accrual period (if all
other accrual periods are of equal length) and require that the amount of
original issue discount allocable to the final accrual period equal the excess
of the amount payable at the maturity of the Note (other than any payment of
qualified stated interest) over the Note's adjusted issue price as of the
beginning of such final accrual period. In addition, if an interval between
payments of qualified stated interest on a Note contains more than one accrual
period, then the amount of qualified stated interest payable at the end of such
interval is allocated pro rata (on the basis of their relative lengths) between
the accrual periods contained in the interval.
Under these rules, Holders generally will have to include in income
increasingly greater amounts of original issue discount in successive accrual
periods.
Acquisition Premium
In the event that a Holder purchases a Discount Note for an amount (the
"acquisition premium") in excess of its adjusted issue price as of the purchase
date and less than its stated redemption price at maturity and does not make the
election described below under "Election to Treat All Interest as Original Issue
Discount", the amount of original issue discount which such Holder must include
in its gross income with respect to such Discount Note for any taxable year (or
portion thereof in which the Holder holds the Discount Note) will be reduced
(but not below zero) by the portion of the acquisition premium properly
allocable to the period. Alternatively, a Holder may elect to compute original
issue discount accruals as described above, treating the Holder's purchase price
as the issue price.
Floating Rate Notes
A Floating Rate Note will bear qualified stated interest if the Floating
Rate Note provides for stated interest at (i) one or more qualified floating
rates, (ii) a single fixed rate and one or more qualified floating rates, (iii)
a single objective rate, or (iv) a single fixed rate and a single objective rate
that is a qualified inverse floating rate.
For this purpose, a variable interest rate is a "qualified floating rate"
if variations in the value of the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the currency
in which the debt instrument is denominated. A variable rate is not considered
to generate qualified stated interest if, among other things, the terms of the
Note provide for a maximum interest rate or a minimum interest rate that is
reasonably expected as of the issue date to cause the yield on the debt
instrument to be significantly less, in the case of a maximum rate, or
significantly more, in the case of a minimum rate, than the expected yield
determined without the maximum or minimum rate, as the case may be.
An "objective rate" is a rate that is determined using a single fixed
formula that is based upon objective financial or economic information that is
not within the control of the Company. A variable rate of interest on a debt
instrument is not an objective rate if it is reasonably expected that the
average value of the rate during the first half of the instrument's term will be
either significantly less than or significantly greater than the average value
of the rate during the final half of the debt instrument's term.
A "qualified inverse floating rate" is an objective rate where such rate is
equal to a fixed rate minus a qualified floating rate, as long as variations in
the rate can reasonably be expected to inversely reflect contemporaneous
variations in the cost of newly borrowed funds.
S-22
<PAGE> 23
The applicable Pricing Supplement will specify if the stated interest on a
Floating Rate Note is not qualified stated interest and, if necessary, such
Pricing Supplement will contain a description of the rules regarding taxation of
such Notes.
Optional Redemption
If the Company has an option to redeem a Discount Note, or the Holder has
an option to cause a Discount Note to be repurchased, prior to the Discount
Note's stated maturity, such option will be presumed to be exercised if, by
utilizing any date on which such Discount Note may be redeemed or repurchased as
the maturity date and the amount payable on such date in accordance with the
terms of such Discount Note (the "redemption price") as the stated redemption
price at maturity, the yield on the Discount Note would be (i) in the case of an
option of the Company, lower than its yield to stated maturity, or (ii) in the
case of an option of the Holder, higher than its yield to stated maturity. If
such option is not in fact exercised when presumed to be exercised, the Note
would be treated solely for original issue discount purposes as if it were
redeemed or repurchased, and a new Note were issued, on the presumed exercise
date for an amount equal to the Discount Note's adjusted issue price on that
date.
Election to Treat All Interest as Original Issue Discount
Holders generally may make an election under the Internal Revenue Code of
1986, as amended (the "Code"), to include in income all interest (including
stated interest, acquisition discount, original issue discount, de minimis
original issue discount, market discount, de minimis market discount, and
unstated interest, as adjusted by any amortizable bond premium or acquisition
premium) that accrues on a debt instrument by using the constant yield method
applicable to original issue discount, subject to certain limitations and
exceptions. This election is applicable to a specific debt instrument, or may be
made for a class or group of debt instruments. Such election may not be revoked
without the consent of the IRS.
In applying the constant yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
Holder's adjusted tax basis in the Note immediately after its acquisition, the
issue date of the Note will be the date of its acquisition by the electing
Holder, and no payments on the Note will be treated as payments of qualified
stated interest. If this election is made with respect to a Note with
amortizable bond premium, the electing Holder will be deemed to have elected to
apply amortizable bond premium against interest with respect to all debt
instruments with amortizable bond premium (other than debt instruments the
interest on which is excludable from gross income) held by such electing Holder
as of the beginning of the taxable year in which the Note with respect to which
the election is made is acquired or thereafter acquired. The deemed election
with respect to amortizable bond premium may not be revoked without the consent
of the IRS.
If the election described above to apply the constant yield method to all
interest on a Note is made with respect to a Market Discount Note, as defined
below, then the electing Holder will be treated as having made the election
discussed below under "Market Discount" to include market discount in income
currently over the life of all debt instruments held or thereafter acquired by
such Holder.
Short-Term Notes
Different rules apply to Discount Notes having maturities of not more than
one year ("Short-Term Notes"). A Holder of a Short-Term Note who uses the cash
method of accounting is generally not required to accrue original issue discount
for United States federal income tax purposes. Such a Holder of a Short-Term
Note will be required to defer deductions for interest on borrowings allocable
to these Short-Term Notes in an amount not exceeding the original issue discount
until the Short-Term Note is sold, exchanged, redeemed or retired, unless such
Holder makes an election to include original issue discount in income as it
accrues. This election is applicable to all of the Holder's subsequently
acquired short-term obligations, and is irrevocable without the consent of the
IRS. If such an election is made, the interest deduction will not be deferred,
but such Holder will be required to include in income currently, as described
below, the discount attributable to the Short-Term Note and other
subsequently-acquired short-term obligations. In the case of a Holder not
required and not electing to
S-23
<PAGE> 24
include the discount in income currently, any gain realized on the sale,
exchange, redemption or retirement of such Short Term Note will be ordinary
income to the extent of the original issue discount accrued through the date
thereof.
Holders that report income for United States federal income tax purposes
under the accrual method and certain other Holders (including banks, dealers in
securities and cash method Holders that so elect) are required to include in
income currently the discount attributable to such Short-Term Notes as (i)
original issue discount under the constant yield method described above, or (ii)
pursuant to an election, as acquisition discount. "Acquisition discount" is the
excess of the stated redemption price at maturity of the Short-Term Note over
the Holder's tax basis for the Short-Term Note. Acquisition discount will be
included in income on a straight-line basis unless an election is made to
include such acquisition discount in income under the constant-yield method. The
tax basis of any Short-Term Note in the hands of a Holder shall be increased by
the amount of original issue discount or acquisition discount previously
included in such Holder's income and reduced by any payments previously made
with respect to such Short-Term Note.
For purposes of determining the amount of original issue discount or
acquisition discount subject to these rules, the original issue discount
regulations provide that no interest payments on a Short-Term Note are qualified
stated interest, but instead such interest payments are included in the
Short-Term Note's stated redemption price at maturity.
Market Discount
If a Holder purchases a Note, other than a Discount Note, for an amount
that is less than its issue price or, in the case of a Discount Note, for an
amount that is less than its adjusted issue price as of the purchase date (a
"Market Discount Note"), the amount of the difference will be treated as "market
discount", unless such difference is less than a specified de minimis amount.
In general, any gain realized on the sale, exchange, redemption or
retirement of a Market Discount Note will be treated as ordinary income to the
extent that such gain does not exceed the accrued market discount on such Note.
Alternatively, a Holder of a Market Discount Note may elect to include market
discount in income currently over the life of the Market Discount Note. Such an
election applies to all subsequently acquired debt instruments with market
discount. Such an election is irrevocable without the consent of the IRS. Market
discount accrues on a straight-line basis unless the Holder elects to accrue
such discount on a constant yield to maturity basis. Such an election is
applicable only to the Market Discount Note with respect to which it is made and
is irrevocable without the consent of the IRS. A Holder of a Market Discount
Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
The market discount rules do not apply to a Short-Term Note.
Refer to Pricing Supplements
Certain of the Discount Notes may contain features making them subject to
rules that differ from the general rules discussed above. Pricing Supplements
relating to Notes containing features subject to different rules will describe
the applicable United States federal income tax consequences of such features.
Reporting Obligation
The Company is required to report to the IRS the amount of original issue
discount accrued on Discount Notes held of record by United States persons other
than corporations and other exempt Holders. The amount required to be reported
by the Company may not be equal to the amount of original issue discount
required to be reported as taxable income by a Holder that purchases such
Discount Notes at a price that differs from the issue price of the Notes.
S-24
<PAGE> 25
FOREIGN CURRENCY NOTES
The following summary relates to Notes the payments on which are
denominated in or determined by reference to a Foreign Currency.
Payments of Interest in a Foreign Currency
Upon receipt of an interest payment in a Foreign Currency, cash method
Holders will be required to include in income the U.S. dollar value of the
interest payment, based on the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars.
Upon receipt of an interest payment in a Foreign Currency, accrual method
Holders may determine the amount of income to be recognized with respect to such
interest payment in accordance with either of two methods. Under the first
method, the amount of income recognized will be based on the average exchange
rate in effect during the accrual period (or, with respect to an accrual period
that spans two taxable years, on the average rate for the partial period within
the taxable year).
Under the second method, an accrual method Holder may elect to translate
such accrued interest income into U.S. dollars using the rate of exchange on the
last day of the accrual period (or, with respect to an accrual period that spans
two taxable years, using the rate of exchange on the last day of the taxable
year). If the last day of an accrual period is within five business days of the
date of receipt of the accrued interest, a Holder applying the second method,
may translate such interest using the rate of exchange on the date of receipt.
An election to apply the second method will apply to other debt obligations held
and subsequently acquired by the Holder and may not be changed without the
consent of the IRS.
Upon receipt of an accrued interest payment paid in Foreign Currency, a
Holder will recognize exchange gain or loss, which will be treated as ordinary
income or loss, measured by the difference in exchange rates between the time of
accrual (calculated under either of the two methods set out above) and the time
of receipt of payment.
Purchase, Sale and Retirement of Foreign Currency Notes
A Holder who purchases a Note with previously owned Foreign Currency will
recognize ordinary income or loss in an amount equal to the difference, if any,
between such Holder's tax basis in the Foreign Currency and the U.S. dollar fair
market value of the Note on the date of purchase.
Exchange gain or loss recognized upon the sale, exchange, redemption or
retirement of a Note (attributable to fluctuations in currency exchange rates)
will be ordinary income or loss which will not be treated as interest income or
expense. Exchange gain or loss will equal the difference between the U.S. dollar
value of the Foreign Currency principal amount of the Note, determined on the
date such payment is received or the Note is disposed of, and the U.S. dollar
value of the Foreign Currency principal amount of the Note, determined on the
date the Holder acquired the Note. Such exchange gain or loss will be recognized
only to the extent of the total gain or loss realized by the Holder on the sale,
exchange, redemption or retirement of the Note.
Foreign Currency Discount Notes
Original issue discount for any accrual period on a Discount Note that is
denominated in a Foreign Currency will be determined in the Foreign Currency and
then translated into U.S. dollars in the same manner as stated interest accrued
by an accrual basis Holder. Upon receipt of an amount attributable to original
issue discount (whether in connection with a payment of interest or the sale or
retirement of a Note), a Holder may recognize ordinary income or loss.
Amortizable Bond Premium and Market Discount Notes
With respect to a Note issued with amortizable bond premium, such premium
is determined in the relevant Foreign Currency and reduces interest income in
units of the Foreign Currency. At the time amortized bond
S-25
<PAGE> 26
premium offsets interest income, a Holder should recognize exchange gain or loss
taxable as ordinary income equal to the difference between the exchange rates at
that time and at the time of the acquisition of the Note.
In the case of a Note with market discount, (i) market discount is
determined in units of the Foreign Currency, (ii) accrued market discount taken
into account upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note (other than accrued market
discount required to be taken into account currently) is translated into U.S.
dollars at the exchange rate on the date of such receipt or disposition, and no
exchange gain or loss is recognized on such accrued market discount, and (iii)
accrued market discount currently includable in income by a Holder for any
accrual period is translated into U.S. dollars on the basis of the average
exchange rate in effect during such accrual period, and exchange gain or loss is
determined by the difference in exchange rates between the time of accrual and
the time of receipt of payment.
Exchange of Foreign Currencies
A Holder will have a tax basis in any Foreign Currency received as interest
or on the sale, exchange, redemption or retirement of a Note equal to the U.S.
dollar value of such Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange, redemption or retirement. Any
gain or loss realized by a Holder on a sale or other disposition of Foreign
Currency (including its exchange for U.S. dollars or its use to purchase Notes)
will be ordinary income or loss.
Indexed Notes
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to currency indexed Notes or
other Indexed Notes.
NON-UNITED STATES PERSONS
Subject to the discussion of "Backup Withholding" below, payments of
principal, premium, if any, and interest, including original issue discount, by
the Company or its agent (in its capacity as such) to any Holder of a Note that
is not a United States person will not be subject to United States federal
withholding tax provided, in the case of interest, including original issue
discount, that (i) such 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) such Holder is not a controlled foreign corporation for
United States tax purposes that is related to the Company (directly or
indirectly) through stock ownership, and (iii) the appropriate certification
requirements have been met. Appropriate certification requires a statement from
either (A) the beneficial owner of the Note that certifies to the Company or its
agent, under penalties of perjury, that it is not a United States person and
provides its name and address, 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") and holds the Note,
that certifies to the Company or its agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by another
financial institution and furnishes the payor with a copy thereof.
If a Holder of a Note that is not a United States person is engaged in a
trade or business in the United States and interest, including original issue
discount, on the Note is effectively connected with the conduct of such trade or
business, such Holder, although exempt from the withholding tax discussed in the
preceding paragraph, may be subject to United States federal income tax on such
interest and original issue discount and gain on, if any, disposition in the
same manner as if it were a United States person. In addition, such a Holder
that is a foreign corporation may be subject to the 30% branch profits tax
(subject to adjustment pursuant to an applicable treaty) on its effectively
connected earnings and profits (including original issue discount and other
interest). Instead of the certificate described in the preceding paragraph, such
Holder must provide the Company or its agent with a properly executed IRS Form
4224 to claim exemption from United States federal withholding tax. However,
such a Holder may still be required to provide the certification described in
the preceding paragraph in order to obtain an exemption from backup withholding,
discussed below.
Any capital gain, market discount or exchange gain realized upon sale,
exchange, redemption or retirement of a Note by a Holder that is not a United
States person will not be subject to United States federal income or withholding
taxes if (i) such gain (including market discount) is not effectively connected
with a United States
S-26
<PAGE> 27
trade or business of the Holder, and (ii) in the case of an individual, such
Holder (A) is not present in the United States for 183 days or more in the
taxable year of the sale, exchange, redemption or retirement, or (B) does not
have a tax home (as defined in Section 911(d)(3) of the Code) in the United
States in the taxable year of the sale, exchange, retirement or other
disposition and the gain is not attributable to an office or other fixed place
of business maintained by such individual in the United States.
Notes held by an individual who is neither a citizen nor a resident of the
United States for United States federal income tax purposes at the time of such
individual's death will not be subject to United States federal estate tax
provided that the income from the Notes was not or would not have been
effectively connected with a United States trade or business of such individual
and that such individual qualified for the exemption from United States federal
withholding tax (without regard to the certification requirements) that is
described above.
PROSPECTIVE PURCHASERS OF THE NOTES THAT ARE NOT UNITED STATES PERSONS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE CONSEQUENCES TO THEM
OF OWNERSHIP OF NOTES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
BACKUP WITHHOLDING AND INFORMATION REPORTING
For each calendar year in which the Notes are outstanding, the Company is
required to provide the IRS with certain information, including the Holder's
name, address and taxpayer identification number (either the Holder's Social
Security number or its employer identification number, as the case may be), the
aggregate amount of principal and interest paid (including original issue
discount, if any) to that Holder during the calendar year and the amount of tax
withheld, if any. This obligation, however, does not apply with respect to
certain Holders that are certain United States persons, including corporations,
tax-exempt organizations, qualified pension and profit sharing trusts and
individual retirement accounts ("exempt recipients").
In the event that a Holder that is not an exempt recipient fails to supply
its correct taxpayer identification number in the manner required by applicable
law or under reports its tax liability, the Company, its agents or paying agents
or a broker may be required to "backup" withhold a tax equal to 31% of each
payment of interest (including original issue discount) and principal and
premium, if any, on the Notes. This backup withholding is not an additional tax
and may be credited against the Holder's United States federal income tax
liability, provided that the required information is furnished to the IRS.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any other agent
thereof (in its capacity as such) to a Holder of a Note with respect to which
the Holder has provided required certification that it is not a United States
person under penalties of perjury as set forth in clause (iii) in the first
paragraph under "Non-United States Persons" or has otherwise established an
exemption, provided that neither the Company nor such agent has actual knowledge
that the Holder is a United States person or that the conditions of any other
exemption are not in fact satisfied.
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that if the broker is (i) a United States person, (ii) a
controlled foreign corporation for United States tax purposes, or (iii) a
foreign person, 50% or more of whose gross income from all sources for the
three-year period ending on the close of its taxable year preceding the payment
was effectively connected with a United States trade or business, in which case
information reporting may apply to such payments. Payment of the proceeds from a
sale of a Note to or through the United States office of a broker is subject to
information reporting and backup withholding unless the Holder or beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding, provided that
neither the Company nor such broker has actual knowledge that the Holder is a
United States person or that the conditions of any other exemption are not in
fact satisfied.
NOTE WARRANTS
The Company also may issue from time to time warrants to purchase Notes
("Note Warrants"). The Note Warrants may be issued together with or separately
from any Notes and, if issued together with Notes, may be attached to or
separate from such Notes. The particular terms of any issue of Note Warrants,
the terms of the
S-27
<PAGE> 28
Warrant Agreement under which such Note Warrants are issued, the Notes issuable
upon exercise of such Note Warrants, any initial public offering price, any net
proceeds to the Company and any other specific terms of such issue of Note
Warrants and a description of any material federal income tax consequences to
holders thereof will be set forth in a supplement to this Prospectus Supplement
respecting such issue of Note Warrants (a "Note Warrant Supplement"). Unless
accompanied by a Note Warrant Supplement, no Note Warrants are offered by this
Prospectus Supplement.
PLAN OF DISTRIBUTION
Under the terms of a Distribution Agreement, dated April 13, 1998, the
Notes are being offered on a continuing basis by the Company through the Agents,
each of which has agreed to use its reasonable best efforts to solicit offers to
purchase the Notes. The Company will pay each Agent a commission ranging from
.125% to .750% of the principal amount of each Note sold through such Agent. The
commission payable by the Company to the Agents with respect to Notes with
maturities greater than 30 years will be negotiated at the time the Company
issues such Notes and will be disclosed in the applicable Pricing Supplement.
The Company will have the sole right to accept offers to purchase Notes and may
reject any such offer, in whole or in part. Each Agent will have the right, in
its discretion reasonably exercised, without notice to the Company, to reject
any offer to purchase Notes received by it, in whole or in part. The Company may
sell Notes to any Agent, acting as principal, at a discount or premium to be
agreed upon at the time of sale, for resale to investors and other purchasers at
varying prices related to prevailing market prices at the time of such resale or
at a fixed public offering price, as determined by such Agent. Unless otherwise
indicated in the applicable Pricing Supplement, any Note sold to an Agent as
principal shall be purchased by such Agent at a price equal to 100% of the
principal amount thereof less a percentage equal to the commission applicable to
an agency sale of a Note of identical maturity. In addition, any Agent may offer
the Notes it has purchased as principal to other dealers, or may use a selling
or dealer group, in connection with the resale of the Notes purchased, subject
to the Company's prior approval. Such Agent may sell Notes to any such approved
dealer at a discount and, unless otherwise specified in the Pricing Supplement,
such discount allowed to any dealer will not be in excess of the discount to be
received by such Agent from the Company. After the initial public offering of
any Notes, the public offering price, concession and discount for such resales
may from time to time be varied by such Agent. The Company has reserved the
right to sell Notes directly to investors from time to time on its own behalf
and on such sales no discounts will be allowed and no commissions will be paid.
In addition the Company may appoint additional agents or terminate existing
Agents.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of Notes will be required to be made in immediately available
funds in The City of New York.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Act"). The Company has agreed to indemnify the
Agents against and contribute toward certain liabilities, including liabilities
under the Act. The Company has agreed to reimburse the Agents for certain
expenses.
In addition to offering Notes through the Agents as described herein, the
Company may sell other Debt Securities, shares of Common Stock or Warrants to
purchase Debt Securities or shares of Common Stock. Under certain circumstances,
the sale of any such Securities may reduce correspondingly the maximum aggregate
amount of Notes that may be offered by this Prospectus Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be listed on any securities exchange and will not have an established
trading market when issued. Each Agent may make a market in the Notes, but such
Agent is not obligated to do so and may discontinue market-making at any time
without notice. There can be no assurance that the Notes offered by this
Prospectus Supplement will be sold or that there will be a secondary market for
the Notes.
In order to facilitate an offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, Notes in the open market. Finally, the Agents may reclaim
selling concessions allowed to any agent or a dealer for distributing the Notes
in the offering, if the
S-28
<PAGE> 29
Agents repurchase previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Agents are not required to engage in these
activities, and may end any of these activities at any time.
The Agents and their affiliates may engage in transactions with and perform
services for the Company or its affiliates in the ordinary course of business.
S-29
<PAGE> 30
PROSPECTUS
TRW LOGO
TRW INC.
Debt Securities
Common Stock
Warrants
TRW Inc. ("TRW" or the "Company") intends to issue from time to time (i)
debt securities (the "Debt Securities"), (ii) shares of its common stock, par
value $0.625 per share ("Common Stock"), (iii) warrants to purchase debt
securities (the "Debt Warrants"), and (iv) warrants to purchase Common Stock
("Common Stock Warrants" and, together with the Debt Warrants, the "Securities
Warrants") from which the Company will receive proceeds of up to an aggregate of
$1,000,000,000 (or the equivalent in foreign denominated currency or units
consisting of multiple currencies) and which will be offered on terms to be
determined at the time of sale (the Debt Securities, Common Stock and Securities
Warrants offered hereby being referred to herein collectively as the "Offered
Securities"). The Debt Securities and Debt Warrants may be issued in one or more
series with the same or various maturities, at par or at a premium or with an
original issue discount. The Common Stock Warrants may be issued in one or more
series with the same or various maturities, with exercise prices at market value
or at a premium or discount to market value. The purchase price for the Offered
Securities and the principal of and any premium and any interest on the Debt
Securities may be payable in U.S. dollars or foreign denominated currency or
currency units.
The specific terms of the Offered Securities in respect of which this
Prospectus is delivered, including, where applicable, (i) in the case of Debt
Securities, the specific designation, aggregate principal amount, designated
currency or currency units, offering price, maturity, rate of interest (or
method of calculation) and time of any payment of interest, any right on the
part of the holders of Debt Securities to require the repurchase thereof by the
Company, any redemption, sinking fund and other terms and any securities
exchange listing of Debt Securities, (ii) in the case of Common Stock, the
number of shares and the initial public offering price, (iii) in the case of
Securities Warrants, the designation and the number of securities issuable upon
their exercise, the duration, offering price, exercise price, number and
detachability thereof, and (iv) in the case of all Offered Securities, whether
such Offered Securities will be offered separately or as a unit with other
Offered Securities, will be set forth in the applicable Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company may sell the Offered Securities in any one or more of the
following ways: (i) directly to purchasers; (ii) through agents; (iii) to
dealers; or (iv) to underwriters. If any underwriters, agents or dealers are
involved in the sale of the Offered Securities, their names and any applicable
fee, commission or discount arrangements with them will be set forth in the
Prospectus Supplement. See "Plan of Distribution." The net proceeds to the
Company from such sale also will be set forth in the Prospectus Supplement.
March 25, 1998
<PAGE> 31
No person has been authorized to give any information or to make any
representations not contained in this Prospectus or any Prospectus Supplement in
connection with the Offer made by this Prospectus or any Prospectus Supplement
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or by any underwriter, dealer or
agent. This Prospectus and any Prospectus Supplement do not constitute an offer
to sell or a solicitation of an offer to buy any of the Offered Securities in
any jurisdiction in which or to any person to whom it is unlawful to make such
offer or solicitation. This Prospectus and any Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than those to which they relate. Neither the delivery of this Prospectus
and any Prospectus Supplement and any sale of or offer to sell the Offered
Securities shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission. The Common Stock is traded on the New York,
Chicago and Philadelphia Stock Exchanges and on the Pacific Exchange, as well as
on the Frankfurt and London Stock Exchanges. Reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005; the
Chicago Stock Exchange, Incorporated, 440 South LaSalle Street, Chicago,
Illinois 60605; the Pacific Exchange, Inc., 301 Pine Street, San Francisco,
California 94104; and the Philadelphia Stock Exchange Inc., Stock Exchange
Building, 1900 Market Street, Philadelphia, Pennsylvania 19103.
This Prospectus constitutes part of a Registration Statement on Form S-3
(the "Registration Statement," which term shall include any amendments thereto)
filed by the Company with the Commission under the Securities Act of 1933 (the
"Securities Act"), relating to the securities offered hereby. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
securities offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests for such copies should be directed to Financial Services,
TRW Inc., 1900 Richmond Road, Cleveland, Ohio 44124, telephone (216) 291-7654.
The following documents filed by the Company with the Commission (File No.
1-2384) are hereby incorporated by reference in this Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1997;
and
2
<PAGE> 32
2. The description of the Common Stock (and related preference stock
purchase rights) contained in Exhibit 4(a) to the Company's Form 10-Q for
the quarter ended March 31, 1996 and the Company's Form 8-A dated April 25,
1996, including any amendments and reports filed for the purpose of
updating those descriptions.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THE COMPANY
TRW is an international company that provides advanced technology products
and services. The principal businesses of TRW and its subsidiaries are the
design, manufacture and sale of products and the performance of systems
engineering, research and technical services for industry and the United States
Government in two industry segments: Automotive and Space, Defense & Information
Systems. TRW's principal products and services include automotive systems and
components; spacecraft; software and systems engineering support services; and
electronic systems, equipment and services. TRW was incorporated under the laws
of Ohio on June 17, 1916.
The principal executive offices of the Company are located at 1900 Richmond
Road, Cleveland, Ohio 44124, and the telephone number is (216) 291-7000.
AUTOMOTIVE
TRW's Automotive segment designs, manufactures and sells a broad range of
steering, suspension, engine, safety, engineered fastening, electronic,
electromechanical and other components and systems for passenger cars and
commercial vehicles, including trucks, buses, farm machinery and off-highway
vehicles. These products include occupant safety systems such as seat belt
systems and inflatable restraint systems, sensors, steering wheels, manual and
power steering gears, engine valves and valve train components, suspension
components, electronic monitoring and control systems, electromechanical
assemblies, fasteners, stud welding systems and other components.
The products included in this industry segment are sold primarily to
automotive original equipment manufacturers. In addition, TRW sells its
automotive components for use as aftermarket parts to automotive original
equipment manufacturers and others for resale through their own independent
distribution networks.
SPACE, DEFENSE & INFORMATION SYSTEMS
TRW's Space, Defense & Information Systems segment includes spacecraft,
software and systems engineering and integrating support services and electronic
systems, equipment and services.
The Company's spacecraft activities include the design and manufacture of
spacecraft equipment, propulsion subsystems, electro-optical and instrument
systems, spacecraft payloads, high-energy lasers and laser technology and other
high-reliability components. TRW's software and systems engineering and
integration support services are in the fields of command and control, security
for defense and nondefense applications, modeling and simulation, training,
telecommunications, counterterrorism, undersea surveillance, antisubmarine
warfare and other high technology space and defense mission support systems,
management of radioactive waste, automated fingerprint matching, upgrading of
the nation's air traffic control program and other civilian applications. The
Company's electronic systems, equipment and services include the design and
manufacture of
3
<PAGE> 33
communications systems, avionics systems, commercial telecommunications and
other electronic technologies for space, defense and selected commercial
applications. The Company's information technology systems, products and
services are in the areas of defense, health and human safety and welfare,
integrated supply chain, warehousing, logistics, criminal justice, tax systems
modernization and financial reporting applications for government and commercial
customers.
Products and services in this industry segment are sold and distributed
principally to the United States Government, agencies of the United States
Government, state, local and foreign governments and government agencies and
commercial customers. TRW's spacecraft business involves the sale to the United
States Government of subsystems and components for space propulsion and unmanned
spacecraft for defense, scientific research and communications purposes. TRW is
currently participating in a number of spacecraft programs. Software and systems
engineering and integration support services are sold primarily to the United
States Government defense agencies and to Federal civilian and other state and
local governmental agencies. These services include a wide variety of computer
software systems and analytical services for space and defense, air traffic
control, and advanced communication and data retrieval applications. Sales to
the United States Government of electronic systems, equipment and services
consist of systems and subsystems for defense and space applications, including
communications, command and control, guidance, navigation, electric power,
sensing and electronic display equipment. Information technology systems,
products and services are sold primarily to the United States Government,
agencies of the United States Government, state, local and foreign governments
and government agencies and commercial customers. While classified projects are
not discussed herein the operating results relating to classified projects are
included in the Company's consolidated financial statements, and the business
risks associated with such projects do not differ materially from those of other
projects for the United States Government.
TRW also performs diverse testing and general research projects in many of
the technical disciplines related to its space, defense and information systems
products and services under both private and United States Government contracts,
including several advanced defense system projects.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, the
Company anticipates that some or all of the net proceeds from the sale of the
Offered Securities may be used by the Company, together with internally
generated funds and possible future borrowings, for capital expenditures,
possible future acquisitions, repayment or refinancing of the Company's
indebtedness, future repurchases by the Company of its Common Stock, increased
working capital requirements and other corporate purposes.
4
<PAGE> 34
RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
The following table shows the ratio of earnings to fixed charges of the
Company and its subsidiaries. For purposes of this ratio, "earnings" consist of
earnings from continuing operations before income taxes adjusted for minority
interests in earnings of consolidated subsidiaries, plus fixed charges, less
undistributed earnings of affiliates less than fifty percent of which are owned
by the Company. "Fixed charges" consist of interest on borrowed funds,
amortization of debt discount and expense and one-third of rental expense which
is representative of the interest factor.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.................... 2.9x(1) 3.4x(2) 5.4x 3.9x 2.5x
</TABLE>
- ---------------
(1) The 1997 earnings from continuing operations before income taxes of $239.7
million includes a $548 million earnings charge for purchased in-process
research and development related to the acquisition of BDM International,
Inc. Excluding this charge, the ratio of earnings to fixed charges would
have been 7.2x.
(2) The 1996 earnings from continuing operations before income taxes of $302.2
million includes a charge of $384.8 million as a result of actions taken in
the automotive and space and defense businesses. Excluding this charge, the
ratio of earnings to fixed charges would have been 7.1x.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued in one or more series under an
indenture dated as of May 1, 1986, as supplemented (the "Indenture"), between
the Company and The Chase Manhattan Bank, as successor trustee (the "Trustee")
to Mellon Bank, N.A. The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all the provisions of the Indenture.
GENERAL
The Indenture does not limit the amount of Debt Securities which can be
issued and provides that Debt Securities may be issued up to the aggregate
principal that may be authorized from time to time by the Company. Reference is
made to the Prospectus Supplement for the following terms of Debt Securities
offered hereby ("Offered Debt Securities"): (i) the specific designation,
aggregate principal amount and authorized denominations of the Offered Debt
Securities; (ii) the percentage of the principal amount at which such Offered
Debt Securities will be issued; (iii) the date on which the Offered Debt
Securities will mature; (iv) the rate per annum (which may be fixed or
floating), if any, at which the Offered Debt Securities will bear interest or
the method of determining such rate; (v) the times at which any such interest
will be payable and the record dates with respect thereto; (vi) any sinking fund
or redemption terms; (vii) any right of the holders to require the Company to
repurchase the Offered Debt Securities; (viii) the currency or currencies in
which the purchase price for, the principal of and any premium and any interest
on the Offered Debt Securities may be payable; (ix) if the currency in which the
purchase price for, the principal of and any premium and any interest on the
Offered Debt Securities may be payable is at the purchaser's election, the
manner in which such an election may be made; (x) any securities exchange on
which the Offered Debt Securities will be listed; (xi) whether the Debt
Securities are to be issued in the form of one or more global securities
representing such Debt Securities (each, a "Global Security") and, if so, the
identity of a depository (the "Depository") for such Global Securities; and
(xii) any other specific terms. In the case of Offered Debt Securities that are
registered, principal, any premium, and any interest on the Offered Debt
Securities may be paid at the option of the Company by check mailed to the
address of the person entitled thereto as it appears in the register for the
Offered Debt Securities. Interest payments will be subject to applicable
withholding taxes.
5
<PAGE> 35
The Debt Securities will be unsecured and will rank on a parity in right of
payment with all other unsecured and unsubordinated indebtedness of the Company.
No service charge will be made for any transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith (Section 3.05
of the Indenture).
Debt Securities of a series may be issuable in the form of one or more
Global Securities, which will be denominated in an amount equal to the aggregate
principal amount of such Debt Securities. See "Global Securities" below.
The Debt Securities may be issued as discounted Debt Securities (bearing no
interest or interest at a rate that at the time of issuance is below market
rates) to be sold at a substantial discount below the stated principal amount.
Federal income tax consequences and other special considerations applicable to
any such discounted Debt Securities will be described in the Prospectus
Supplement relating thereto.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, the Depository identified in the Prospectus Supplement relating to such
series. Unless and until it is exchanged in whole or in part for Debt Securities
in definitive form, a Global Security may not be transferred except as a whole
by or to the Depository for such Global Security or its successor, or any
nominee of such Depository or successor Depository (Section 2.04 of the
Indenture).
The specific terms of the depository arrangement with respect to any series
of Debt Securities and the rights of and limitations on owners of beneficial
interests in Global Securities representing Debt Securities will be described in
the Prospectus Supplement relating to such Debt Securities.
LIMITATION ON LIENS
The Indenture provides that, so long as any of the Debt Securities remain
outstanding, the Company will not, nor will it permit any Domestic Subsidiary
(as defined) to, create or assume any mortgage, security interest, pledge or
lien ("mortgage") upon any Principal Property (as defined) or upon any shares of
capital stock or indebtedness of any Domestic Subsidiary if such mortgage
secures or is intended to secure, directly or indirectly, the payment of any
indebtedness for borrowed money evidenced by notes, bonds, debentures or other
similar evidences of indebtedness ("Debt") without providing that the Debt
Securities shall be secured equally and ratably by such mortgage. This
restriction does not apply to (i) mortgages on any Principal Property existing
at the time of the acquisition thereof or securing the purchase price thereof or
securing the cost of construction of or improvement on a Principal Property that
are created or assumed contemporaneously with, or within 120 days after, such
acquisition or completion of such construction or improvement; (ii) mortgages on
property of a corporation existing at the time such corporation becomes a
Domestic Subsidiary or is merged or consolidated with the Company or a Domestic
Subsidiary or existing at the time of a sale, lease or other disposition of the
properties of such corporation (or a division thereof) or other Person (as
defined) as an entirety or substantially as an entirety to the Company or a
Domestic Subsidiary; (iii) mortgages securing indebtedness of the Company or a
Domestic Subsidiary to the Company or a Wholly Owned Domestic Subsidiary (as
defined); (iv) mortgages in favor of the United States or any State or Territory
or Possession thereof, or any foreign country, or any department, agency,
instrumentality or political subdivision of any of such domestic or foreign
jurisdictions, to secure partial, progress, advance or other payments pursuant
to any contract or statute or to secure any debt incurred for the purpose of
financing all or part of the purchase price or the cost of constructing the
property subject to such mortgages; and (v) mortgages representing the
extension, renewal or replacement (or successive extensions, renewals or
replacements) of mortgages referred to in the foregoing clauses (i) through (iv)
(Section 5.05 of the Indenture). "Principal Property" is defined in the
Indenture as each manufacturing plant, engineering facility or research facility
owned or leased by the Company or a Domestic Subsidiary other than any such
plant or facility or portion thereof which the Directors reasonably determine
not to be of material importance to the Company and its Subsidiaries (as
defined) taken as a whole (Section 1.01 of the Indenture). See also "-- Exempted
Indebtedness" below.
6
<PAGE> 36
LIMITATION ON SALE AND LEASEBACK
Sale and leaseback transactions by the Company or any Domestic Subsidiary
(except for transactions involving temporary leases for a term of three years or
less and except for transactions among themselves) involving any Principal
Property are prohibited unless the sale is for an amount at least equal to its
fair value and either (a) the Company or such Domestic Subsidiary would be
entitled, pursuant to clauses (i) through (v) of the foregoing Limitation on
Liens covenant, to create Debt secured by a mortgage on the Principal Property
to be leased in an amount equal to the Attributable Debt (as defined) with
respect to such transaction without equally and ratably securing the Debt
Securities, or (b) the Company, within 120 days, applies an amount equal to the
net proceeds of the sale to the redemption of the securities issued under the
Indenture ("Indenture Securities") or other Consolidated Funded Debt (as
defined) of the Company ranking prior to or on a parity with the Indenture
Securities (or, in lieu of such redemption, delivers Indenture Securities to the
Trustee for cancellation) (Section 5.06 of the Indenture). "Attributable Debt"
is defined in the Indenture to mean, as to any particular lease under which any
Person (as defined) is liable, the lesser of (x) the fair value of the property
subject to such lease (as determined by the Directors of the Company) or (y) the
total net amount of rent required to be paid by such Person under such lease
during the remaining term thereof, discounted from the respective due dates
thereof to such date at the actual interest factor included in such rent. The
net amount of rent required to be paid under any such lease for any such period
shall be the aggregate amount of the rent payable by the lessee with respect to
such period after excluding amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges. In the case of any lease which is terminable by the lessee upon the
payment of a penalty, such net amount shall also include the amount of such
penalty, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated (Section 1.01 of
the Indenture). "Consolidated Funded Debt" is defined in the Indenture as all
indebtedness for borrowed money of the Company and its consolidated subsidiaries
having a maturity of more than 12 months from, or being renewable or extendable
beyond 12 months from, the date of incurrence. See also "Exempted Indebtedness".
EXEMPTED INDEBTEDNESS
Notwithstanding the limitations on mortgages and sale and leaseback
transactions outlined above, the Company or any Domestic Subsidiary is permitted
to create or assume mortgages or to enter into sale and leaseback transactions,
provided that at the time of such event, and after giving effect thereto, the
sum of (i) outstanding indebtedness incurred after the date of the Indenture and
secured by a mortgage, security interest or lien (other than certain permitted
mortgages) plus (ii) the Attributable Debt in respect of sale and leaseback
transactions entered into after the date of the Indenture (other than certain
permitted sale and leaseback transactions) will not exceed 15% of the
Consolidated Net Tangible Assets (as defined) of the Company (Sections 1.01,
5.05(b) and 5.06(b) of the Indenture).
Other than the restrictions on liens and sale and leaseback transactions
described above or as may be set forth in the Prospectus Supplement with respect
to any series of Debt Securities, the Indenture does not contain and the Debt
Securities will not contain any covenants or other provisions designed to afford
holders of the Debt Securities protection in the event of a highly leveraged
transaction involving the Company.
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to any series of
Debt Securities as being any one of the following events, unless it is
inapplicable, and such other events as may be established for the Debt
Securities of a particular series: (a) failure of the Company for 60 days to pay
interest on any Debt Securities of such series; (b) failure of the Company to
pay principal or premium, if any, when due with respect to any Debt Securities
of such series; (c) failure of the Company for 10 days to satisfy any sinking
fund obligation with respect to any Debt Securities of such series; (d) failure
of the Company for 75 days after appropriate notice to perform any other
covenant or agreement in the Indenture applicable to such series; or (e) certain
events of bankruptcy, insolvency or reorganization. No Event of Default with
respect to a particular series of Debt Securities issued under the Indenture
necessarily constitutes an Event of Default with respect to any other series of
Indenture Securities. In case an Event of Default shall occur and be continuing
with respect to any series of Debt Securities, the Trustee
7
<PAGE> 37
or the holders of not less than 25% in aggregate principal amount of the Debt
Securities of such series then outstanding may declare the principal of such
series (or a portion of the principal amount in the case of certain discounted
Debt Securities) to be due and payable (Section 7.01 of the Indenture). Any
Event of Default with respect to a particular series of Debt Securities, except
in each case a failure with respect to such Debt Security to pay principal,
premium, if any, or interest, if any, or any sinking fund installment, if any,
may be waived by the holders of a majority in aggregate principal amount of the
outstanding Debt Securities of such series (Section 7.06 of the Indenture).
The Indenture requires the Company to file annually with the Trustee an
Officers' Certificate (as defined) as to the existence of defaults in
performance of certain covenants in the Indenture (Section 5.08 of the
Indenture). The Indenture provides that the Trustee may withhold notice to the
holders of the Debt Securities of a particular series of any default (except in
payment of principal, premium, if any, or interest, if any, or in the making of
any sinking fund payment, if any) with respect to such series of Debt Securities
if the Trustee determines in good faith that the withholding of notice is in the
interest of the holders of such Debt Securities (Section 7.07 of the Indenture).
The holders of a majority in aggregate principal amount of all outstanding
Indenture Securities will have the right, subject to certain limitations, to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee (Section 7.06 of the Indenture). The Indenture provides that in case an
Event of Default shall occur (which shall not have been cured or waived), the
Trustee will be required to exercise such of its rights and powers under the
Indenture and to use the degree of care and skill in their exercise that a
prudent man would exercise or use in the conduct of his own affairs (Section
8.01 of the Indenture). Subject to the provisions of Section 8.01, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of the Debt Securities, unless
they shall have offered to the Trustee reasonable security or indemnity (Section
8.02 of the Indenture).
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Indenture provides that the Company may consolidate with, or sell or
convey all or substantially all of its assets to, or merge into, any other
entity, if (i) the corporation formed by such consolidation or into which the
Company is merged, or the entity which acquired all or substantially all of the
Company's assets shall be organized and existing under the laws of the United
States of America or any state thereof and the resulting entity expressly
assumes the due and punctual payment of the principal of (and premium, if any)
and interest on the Debt Securities according to their tenor and the due and
punctual performance and observance of all of the covenants and conditions of
the Indenture to be performed, observed or satisfied by the Company and (ii)
immediately after such merger or consolidation, or such sale or conveyance, no
Event of Default shall have occurred or be continuing and such successor entity
shall not immediately thereafter have outstanding any secured indebtedness not
permitted by Section 5.05 of the Indenture (see "-- Limitation on Liens" above)
unless such entity secures the Debt Securities in accordance with Section 12.03
of the Indenture (Section 12.01 of the Indenture).
DEFEASANCE
The Indenture provides that the Company, at its option, either (a) will be
discharged from any and all obligations with respect to any series of Debt
Securities (except for certain obligations to register the transfer or exchange
of the Debt Securities, replace stolen, lost or mutilated Debt Securities,
maintain paying agencies and hold moneys for payment in trust) or (b) need not
comply with certain restrictive covenants of the Indenture (as described under
"Limitation on Liens" and "Limitation on Sale and Leaseback") with respect to
any series of Debt Securities, upon the deposit with the Trustee (or, in the
case of a discharge of obligations, 91 days after such deposit), in trust, of
money or the equivalent in securities of the government that issued the currency
in which the Debt Securities are denominated or government agencies backed by
the full faith and credit of such government, or a combination thereof, which
through the payment of interest thereon and principal thereof in accordance with
their terms will provide money in an amount sufficient to pay all the principal
(including any mandatory sinking fund payments) of, and interest on, and any
repurchase obligations with respect to, such series of Debt Securities
8
<PAGE> 38
on the dates such payments are due in accordance with the terms of the Debt
Securities. To exercise any such option, no Event of Default, or event which
with notice or lapse of time would become an Event of Default, with respect to
such series of Debt Securities shall have occurred and be continuing. The
Company is required to deliver to the Trustee an opinion of counsel to the
effect that the deposit and related defeasance would not cause the holders of
the Debt Securities to recognize income, gain or loss for United States federal
income tax purposes and, in the case of a discharge of obligations, accompanied
by a ruling to such effect received from or published by the Internal Revenue
Service (Section 13.02 of the Indenture).
MODIFICATION OF THE INDENTURE
With certain exceptions, the Indenture, the rights and obligations of the
Company and the rights of the holders of the Debt Securities may be modified by
the Company with the consent of the holders of not less than 66 2/3% in
aggregate principal amount of the outstanding Indenture Securities of each
series to be affected; but, without the consent of the holders of all
outstanding Debt Securities affected thereby, no such modifications may be made
which would among other things (i) change the maturity of any Debt Security or
reduce the principal amount thereof or any premium thereon, or reduce the rate
or extend the time of payment of interest thereon, or change the method of
computing the amount of principal thereof on any date or (ii) reduce the
above-stated percentage of outstanding Indenture Securities, the consent of the
holders of which is required to modify or alter the Indenture. A supplemental
indenture which changes or eliminates any covenant or other provision of the
Indenture which has expressly been included solely for the benefit of one or
more particular series of Debt Securities, or which modifies the rights of the
holders of Debt Securities of such series with respect to such covenant or other
provision, shall be deemed not to affect the rights under the Indenture of the
holders of securities of any other series (Section 11.02 of the Indenture).
CONCERNING THE TRUSTEE
The Trustee acts as trustee under other indentures and trust agreements to
which the Company is a party under which approximately $973,530,000 aggregate
principal amount of debentures and notes were outstanding as of February 28,
1998. The Trustee is also a depository for funds of the Company and performs
other services and provides credit facilities for the Company and its
subsidiaries in the ordinary course of business.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 500,000,000
shares of Common Stock, (ii) 5,000,000 shares of Serial Preference Stock II,
without par value (the "Serial Preference Stock II"), and (iii) 99,536 shares of
Serial Preference Stock, without par value (the "Serial Preference Stock" and,
together with the Serial Preference Stock II, the "Preference Stock"). The
following summary description of the capital stock of the Company is qualified
in its entirety by reference to the Amended Articles of Incorporation of the
Company, the Regulations of the Company and the Rights Agreement, dated as of
April 24, 1996 (the "Rights Agreement"), between the Company and National City
Bank, as Rights Agent (the "Rights Agent"), a copy of each of which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part.
COMMON STOCK
As of February 27, 1998, there were 133,431,355 shares of Common Stock
issued, 10,743,854 shares held in treasury and 122,687,501 shares outstanding
and held of record by 25,390 shareholders. All outstanding shares of Common
Stock are duly authorized, validly issued, fully paid and nonassessable. The
Common Stock is subject to the express terms of the Preference Stock and any
series thereof. Each share of Common Stock is entitled to one vote per share on
the election of directors and upon all other matters on which shareholders are
entitled to vote. The holders of Common Stock are not entitled to cumulative
voting rights, except if requested by such holders pursuant to Ohio law. Holders
of Common Stock are entitled to receive dividends and other distributions when,
as and if declared from time to time by the Board of Directors of the Company
out of funds legally available for such purposes subject to any preferential
rights of, and sinking fund or redemption or purchase rights with respect to,
outstanding shares of Preference Stock, if any. Dividends may not be paid to
holders of
9
<PAGE> 39
Common Stock if the dividends fixed with respect to the Preference Stock have
not been paid or provided for. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock would be entitled to share ratably in all assets remaining after
payment of liabilities subject to prior distribution rights and payment of any
distributions owing to holders of shares of Preference Stock then outstanding,
if any. Holders of the shares of Common Stock have no preemptive or conversion
rights, and the shares of Common Stock are not subject to further calls or
assessment by the Company. There are no redemption or sinking fund provisions
applicable to the shares of Common Stock. The Common Stock is traded on the New
York, Chicago and Philadelphia Stock Exchanges and on the Pacific Exchange, as
well as on the Frankfurt and London Stock Exchanges.
PREFERENCE STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue Preference Stock in one or more series and to fix the
rights, designations, preferences, privileges, qualifications and restrictions
thereof, including dividend rights, conversion rights, terms and rights of
redemption, liquidation preferences and sinking fund terms (any or all of which
may be greater than the rights of the Common Stock). Shares of Preference Stock
rank, as to dividend and liquidation rights, senior to Common Stock and on a
parity with each other. Dividends on Preference Stock are cumulative from the
date of issuance or from such other date or dates as may be fixed for the series
by the Board of Directors. The Board of Directors, without action of the
shareholders, can issue shares of Preference Stock with conversion, voting and
other rights that could adversely affect the rights of the holders of shares of
Common Stock.
As of February 27, 1998, there are no shares of Serial Preference Stock
outstanding. The holders of Serial Preference Stock are entitled to receive $100
per share in the event of any involuntary liquidation, dissolution or winding up
of the affairs of the Company. As of February 27, 1998, there are two series of
Serial Preference Stock II outstanding: Cumulative Preference Stock II, $4.40
Convertible Series 1 ("Series 1"), and Cumulative Serial Preference Stock II,
$4.50 Convertible Series 3 ("Series 3"). As of February 27, 1998, the Company
had 1,735,000 authorized shares of Series 1, of which 43,786 shares were
outstanding, and 2,120,000 authorized shares of Series 3, of which 73,403 shares
were outstanding. In addition, there are authorized, but not outstanding,
1,145,000 shares of Cumulative Redeemable Serial Preference Stock II, Series 4
("Series 4"). The fixed annual dividend rates are $4.40 per share for Series 1
and $4.50 per share for Series 3, and in the event of liquidation, dissolution
or winding up of the affairs of the Company, the holders of outstanding shares
of Series 1 and Series 3 are entitled to receive $104 and $40 per share,
respectively, in case of any involuntary liquidation, dissolution or winding up
of the affairs of the Company and an amount equal to the redemption price in
effect on the distribution date in case of any voluntary liquidation,
dissolution or winding up of the affairs of the Company. The quarterly dividend
rate fixed for each share of Series 4 is the lesser of $100 or 100 times the
aggregate per share dividend amounts declared on a share of Common Stock since
the immediately preceding quarterly dividend payment date. In the event of any
liquidation, dissolution or winding up of the affairs of the Company, the
holders of outstanding shares of Series 4 are entitled to receive an amount per
share at least equal to the redemption price in effect on the Distribution Date
(as defined below).
Each share of Serial Preference Stock II is entitled to one vote, and the
holders of Serial Preference Stock are entitled to two votes per share. Holders
of Common Stock, Serial Preference Stock II and Serial Preference Stock vote
together as one class on all matters, except following certain defaults in the
payment of dividends on the Preference Stock, or with respect to certain
transactions or amendments to the Company's Articles of Incorporation, which
require holders of Serial Preference Stock II and Serial Preference Stock to
vote separately as two classes.
Shares of Series 1 are convertible into Common Stock at the option of the
holders at any time prior to redemption at the rate of 8.8 shares (as adjusted)
of Common Stock for each share of Series 1, and outstanding shares of Series 3
are convertible into Common Stock at the option of the holders at any time prior
to redemption at the rate of 7.448 shares (as adjusted) of Common Stock for each
share of Series 3, in each case subject to adjustment to reflect stock splits,
stock dividends, combinations and certain issuances of securities and
distributions. Shares of Series 4 are not convertible into shares of Common
Stock. Shares of Series 1 and Series 3 are redeemable at a price of $104 and
$100 per share, respectively. Shares of Series 4 are redeemable at a price of
10
<PAGE> 40
$30,000 per share, subject to adjustment from time to time pursuant to the
Rights Agreement, which sets forth the terms of the shareholder purchase rights
plan adopted by the Board of Directors.
PREFERENCE STOCK PURCHASE RIGHTS
Under the Rights Agreement, each outstanding share of Common Stock is
accompanied by one-half of a preference share purchase right (each, a "Right").
Except as described below, each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series 4 at a purchase price of
$300 per one one-hundredth of a share of Series 4 (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
the Rights Agreement.
Until the earlier to occur of (i) the close of business on the tenth
business day following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of capital stock of the Company that may be voted on all
matters submitted to shareholders of the Company generally (the "Voting
Shares"); provided, however, the Company, any subsidiary of the Company, any
employee benefit or stock ownership plan of the Company, any person who acquires
Voting Shares from the Company in transactions approved by the Board of
Directors, any person who becomes the beneficial owner of 20% or more of the
outstanding Voting Shares as a result of an acquisition of Voting Shares by the
Company (so long as that person does not afterwards acquire additional Voting
Shares) and any person whom the Board of Directors determines has inadvertently
become an Acquiring Person and who promptly divests sufficient Voting Shares so
as no longer to be an Acquiring Person are excluded from the definition of
Acquiring Person, (ii) the close of business on the tenth business day (or such
later date as may be specified by a majority of the Board of Directors)
following the commencement of a tender offer or exchange offer by a person or
group of affiliated or associated persons, the consummation of which would
result in beneficial ownership by such person of 20% or more of such outstanding
Voting Shares, or (iii) the close of business on the tenth business day after
the first occurrence of certain events described below that would result in the
Rights becoming exercisable to purchase shares of Common Stock or common stock
of another person (the earliest of such dates being hereinafter called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of May 17, 1996, and certain
subsequently issued shares of Common Stock, by such Common Stock certificates.
The Rights Agreement provides that, until the Distribution Date, the Rights will
be transferred with and only with the Common Stock. Until the Distribution Date
(or earlier redemption or expiration of the Rights), the surrender for transfer
of any certificates for shares of Common Stock outstanding as of May 17, 1996
will also constitute the transfer of the Rights associated with the shares of
Common Stock represented by such certificates.
No Right is exercisable at any time prior to the Distribution Date. The
Rights will expire on April 24, 2006 (the "Final Expiration Date") unless
earlier redeemed by the Company as described below. Until a Right is exercised,
the holder thereof, as such, will have no rights as a shareholder of the
Company, including, without limitation, the right to vote or to receive
dividends. Upon the occurrence of certain events described below, the Rights
will become exercisable to purchase shares of Common Stock or common stock of
another person in lieu of shares of Series 4.
In the event that (i) an Acquiring Person merges into or combines with the
Company where the Company is the surviving corporation or engages in certain
other self-dealing transactions, (ii) during such time as there is an Acquiring
Person, there is a reclassification of securities or other transaction that
increases by more than one percent the amount of Company securities owned by the
Acquiring Person, (iii) any person, together with all affiliated or associated
persons, becomes an Acquiring Person, or (iv) (a) (1) any person is determined
by the Board of Directors to have become, or to have announced an intention to
become, the owner of an amount of Voting Shares that the Board of Directors
determines is substantial (which amount is not less than 5% of the outstanding
Voting Shares) and (2) the Board of Directors determines that such ownership is
causing or may reasonably be anticipated to cause a material adverse effect on
the Company's government contracting business (such person being an "Adverse
Person") or (b) as to any specific person, the Board of Directors has
established a specific percentage of Voting Shares (which percentage is not less
than 5% or less than the ownership level of Voting Shares that such person has
publicly announced it owns) that, if owned by such person, will result in such
person being declared an Adverse Person in accordance with the criteria set
forth above and such person becomes
11
<PAGE> 41
an Adverse Person (each event described in (i) - (iv) above being a "Flip-in
Event"), proper provision shall be made so that each holder of a Right, other
than Rights that are or were owned beneficially by such person on or after the
date upon which such person became an Acquiring Person or an Adverse Person
(which thereafter will be void), will thereafter have the right to receive, upon
exercise thereof at the then current exercise price of the Right, that number of
shares of Common Stock (or, in certain circumstances, cash, property or other
securities of the Company or any combination thereof) having a market value of
two times the exercise price of the Right.
In the event that after any person has become an Acquiring Person (i) the
Company merges with or into any person and the Company is not the surviving
corporation, (ii) any person merges with or into the Company and the Company is
the surviving corporation, but its Common Stock is changed or exchanged or (iii)
50% or more of the Company's assets or earning power, including, without
limitation, securities creating obligations of the Company, are sold to any
person (each event described in (i) - (iii) above being a "Flip-over Event"),
proper provision shall be made so that each holder of a Right (other than Rights
held by an Acquiring Person or an Adverse Person) will thereafter have the right
to receive, upon exercise thereof at the then current Purchase Price, that
number of shares of common stock (or, under certain circumstances, an
economically equivalent security or securities) of such other person that at the
time of such transaction would have a market value of two times the exercise
price of the Right.
The Purchase Price payable, and the number of shares of Series 4 or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution. With certain exceptions, no
adjustment in the Purchase Price will be required until cumulative adjustments
require an adjustment in the Purchase Price of at least one percent. No
fractional shares of Series 4 will be issued (other than fractions that are
integral multiples of one one-hundredth of a share of Series 4), and in lieu
thereof, a payment in cash may be made based on the market price of the shares
of Series 4 on the last trading day prior to the date of exercise.
The Company may redeem the Rights in whole, but not in part, at a price of
$.01 per Right, subject to adjustment (the "Redemption Price") at any time prior
to the earlier of (i) the close of business on the tenth business day after the
first occurrence of a Flip-in Event or a Flip-over Event or (ii) April 24, 2006;
provided, however, that the Board of Directors may not redeem the Rights after
they declare a person to be an Adverse Person. Immediately upon the effective
date of the action of the Board of Directors electing to redeem the Rights, the
right to exercise the Rights will terminate and the only right of holders of
Rights will be to receive the Redemption Price. The Company will give notice of
any redemption to the holders of the then outstanding Rights by mailing notice
to all such holders at their last addresses as they appear on the registry books
of the Rights Agent.
At any time after the occurrence of a Flip-in Event or a Flip-over Event,
but before any person or group of affiliated or associated persons becomes the
beneficial owner of 50% or more of the then outstanding shares of Common Stock,
the Company may exchange all or part of the then outstanding and exercisable
Rights for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right, as adjusted. Immediately upon the action of the Board of
Directors ordering the exchange of any Rights, the right to exercise those
Rights shall terminate and the only right thereafter of a holder of those Rights
will be to receive the appropriate number of shares of Common Stock in exchange.
The Company will give notice of any exchange by public announcement and by
mailing notice of the exchange to all the holders of the affected Rights at
their last addresses as they appear on the registry books of the Rights Agent.
The Company may amend the Rights Agreement without the approval of any
holders of Rights in order to cure any ambiguity, to correct or supplement any
defective or inconsistent provision, or to make any other provisions with
respect to the Rights as the Company may deem necessary or desirable; provided,
however, that from and after the earlier of (i) the Distribution Date or (ii)
the date on which the Board of Directors declare any person to be an Adverse
Person (the "Final Amendment Date"), the Rights Agreement may not be amended in
any manner that would adversely affect the interests of the holders of Rights.
Without limiting the foregoing, the Company may at any time prior to the Final
Amendment Date amend the Rights Agreement to lower the ownership thresholds
governing when a beneficial owner becomes an Acquiring Person and when the
Distribution Date occurs to not less than the greater of (a) the sum of .001%
and the largest percentage of outstanding shares
12
<PAGE> 42
of Common Stock then beneficially owned by any person (other than the Company,
any subsidiary of the Company, any employee benefit plan or stock ownership plan
of the Company or any person who acquires Voting Shares from the Company in
transactions approved by the Board of Directors) or (b) 10%.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors. The Rights should not interfere
with any merger or other business combination approved by the Board of Directors
since the Board of Directors may, at their option, at any time until ten
business days following the first occurrence of a Flip-in Event or a Flip-over
Event, redeem all, but not less than all, of the then outstanding Rights at the
applicable Redemption Price.
This summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
OHIO LAW AND CERTAIN CHARTER PROVISIONS
Certain statutory provisions of Ohio law and the Company's Amended Articles
of Incorporation and Regulations may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or changes in management
of the Company, including transactions in which shareholders of the Company
might otherwise receive a premium over the then current market prices for their
shares.
The Company's Amended Articles of Incorporation and Regulations contain
various provisions that may have the effect, either alone or in combination with
each other, of making more difficult or discouraging a business combination or
an attempt to obtain control of the Company that is not approved by the Board of
Directors. These provisions include (i) the right of the Board of Directors to
issue unissued and unreserved shares of Common Stock without shareholder
approval; (ii) the right of the Board of Directors to issue shares of Preference
Stock in one or more series and to designate the number of shares of each such
series and the relative rights and preferences of such series, including voting
rights (to the extent now or hereafter permitted by law), terms of redemption,
redemption prices and conversion rights, without further shareholder approval;
(iii) a Board of Directors divided into three classes such that directors are
elected to serve for three-year staggered terms; (iv) provisions prohibiting the
removal of directors without cause except upon the vote of holders of two-thirds
of the combined voting power represented by the outstanding shares of Common
Stock, Serial Preference Stock and Serial Preference Stock II; and (v)
provisions restricting the ability of shareholders to call a special meeting
except upon the consent of shareholders representing 35% of the outstanding
shares entitled to vote at such meeting.
Under Ohio law, any person who proposes to make a "control share
acquisition" must provide written notice thereof to the target corporation and
must obtain prior shareholder approval. A "control share acquisition" is the
acquisition of shares in an "issuing public corporation" resulting in the person
being able to exercise voting power in the election of directors of the issuing
public corporation within three ranges: (i) one-fifth to one-third, (ii)
one-third to one-half and (iii) more than one-half of such voting power. The
Company is an "issuing public corporation."
Further, Ohio law prohibits any person who owns 10% or more of an issuing
public corporation's stock from engaging in mergers, consolidations, majority
share acquisitions, asset sales, loans and certain other transactions with the
corporation for a three-year period after acquiring the 10% ownership, unless
approval is first obtained from the corporation's board of directors. After the
three-year waiting period, the 10% shareholder can complete the transaction only
if, among other things: (i) approval is received from two-thirds of all voting
shares and from a majority of shares not held by the 10% shareholder or certain
affiliated persons; or (ii) the transaction meets certain criteria designed to
ensure fairness to all remaining shareholders. The Company is an issuing public
corporation under this statute.
13
<PAGE> 43
TRANSFER AGENTS AND REGISTRARS
The Transfer Agents for the Common Stock are the Company in Cleveland, Ohio
and National City Bank in Cleveland, Ohio; the Registrar is National City Bank
in Cleveland, Ohio. The Rights Agent is National City Bank in Cleveland, Ohio.
AGREEMENTS
The Company is, and from time to time will become, a party to agreements,
some of which may have the effect of restricting dividends, except stock
dividends, and other distributions on, and the purchase, redemption or
retirement of, capital stock of the Company, unless the total amount involved in
such transactions does not exceed a specified amount plus the consolidated net
income of the Company (as defined in the applicable agreement), subject to
certain adjustments.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Debt Warrants for the purchase of Debt Securities or
Common Stock Warrants for the purchase of Common Stock (Debt Warrants and Common
Stock Warrants being referred to herein collectively as "Securities Warrants").
Securities Warrants may be issued independently or together with any Debt
Securities or Common Stock offered by any Prospectus Supplement and may be
attached to or separate from such Debt Securities or Common Stock. Each series
of Securities Warrants will be issued under a separate Warrant Agreement to be
entered into between the Company and a bank or trust company, as Warrant Agent
(the "Warrant Agent"), all as set forth in a Prospectus Supplement relating to
the particular issue of Securities Warrants. The Warrant Agent will act solely
as an agent of the Company in connection with warrant certificates evidencing
the Securities Warrants (the "Warrant Certificates") and will not assume any
obligation or relationship of agency or trust for or with any holders of Warrant
Certificates or beneficial owners of Securities Warrants. The following
summaries of certain provisions of the form of Warrant Agreements and Warrant
Certificates do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Warrant Agreements
and the Warrant Certificates.
GENERAL
The Prospectus Supplement will describe the terms of the offered Securities
Warrants, including, where applicable, the following: (i) the offering price;
(ii) the currency or currency units in which the purchase price for offered
Securities Warrants may be payable; (iii) if applicable, the designation,
aggregate principal amount, currency or currency units and other terms of Debt
Securities purchasable upon exercise of the offered Debt Warrants; (iv) the
number of shares of Common Stock purchasable upon the exercise of the offered
Stock Warrant; (v) if applicable, the designation and terms of the Debt
Securities with which the offered Debt Warrants are issued and the number of
offered Debt Warrants issued with each such Debt Security; (vi) if applicable,
the date on and after which the offered Securities Warrants and the related Debt
Securities or shares of Common Stock will be separately transferable; (vii) the
price and currency or currency units at which the amount of Debt Securities or
shares of Common Stock, as the case may be, may be purchased upon exercise;
(viii) the date on which the right to exercise the offered Securities Warrants
shall commence and the date (the "Expiration Date") on which such right shall
expire; (ix) United States federal income tax consequences applicable to such
Securities Warrant; (x) whether the offered Securities Warrants represented by
the Warrant Certificates will be issued in registered or bearer form; and (xi)
any other terms of the offered Securities Warrants.
Warrant Certificates may be exchanged for new Warrant Certificates of
different denominations, may (if in registered form) be presented for
registration of transfer and may be exercised at the corporate trust office of
the Warrant Agent or any other office indicated in an applicable Prospectus
Supplement. Prior to the exercise of any Securities Warrants to purchase Debt
Securities or Common Stock, holders of such Securities Warrants will not have
any of the rights of holders of the Debt Securities or Common Stock, as the case
may be, purchasable upon such exercise, including the right to receive payments
of principal of, premium, if any, or interest, if any, on the Debt Securities
purchasable upon such exercise or to enforce covenants in the Indenture, or to
receive payments
14
<PAGE> 44
of dividends, if any, on the Common Stock purchasable upon such exercise or to
exercise any applicable right to vote.
EXERCISE OF WARRANTS
Each Securities Warrant will entitle the holder to purchase such principal
amount of Debt Securities or such number of shares of Common Stock at such
exercise price as shall in each case be set forth in, or calculable from, an
applicable Prospectus Supplement relating to the Securities Warrants. Securities
Warrants may be exercised at any time up to 5:00 P.M. New York City time on the
Expiration Date set forth in an applicable Prospectus Supplement relating to
such Securities Warrants. After the close of business on the Expiration Date (or
such later date to which such Expiration Date may be extended by the Company),
unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivery to the Warrant Agent of
payment as provided in the Prospectus Supplement of the amount required to
purchase the Debt Securities or shares of Common Stock purchasable upon such
exercise together with certain information set forth on the reverse side of the
Warrant Certificate. Securities Warrants will be deemed to have been exercised
upon receipt of the exercise price by the Warrant Agent, subject to the receipt
of the Warrant Certificate evidencing such Securities Warrants within five
business days of the date of exercise. Upon receipt of such payment and the
Warrant Certificate properly completed and duly executed at the corporate trust
office of the Warrant Agent or any other office indicated in an applicable
Prospectus Supplement prior to the close of business on the Expiration Date, the
Company will, as soon as practicable, issue and deliver the Debt Securities or
shares of Common Stock issuable upon such exercise. If fewer than all of the
Securities Warrants represented by such Warrant Certificate are exercised, a new
Warrant Certificate will be issued for the remaining amount of Securities
Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities in any one or more, or in any
combination, of the following ways: (i) directly to purchasers; (ii) through
agents; (iii) to dealers; or (iv) to underwriters. Agents or dealers may be
deemed to be "underwriters" within the meaning of the Securities Act.
Offers to purchase Offered Securities may be solicited directly by the
Company or by agents designated by the Company. Any such agent will be named,
and any commissions payable by the Company to such agent (or the method by which
such commissions can be determined) will be set forth, in the applicable
Prospectus Supplement.
If underwriters or dealers are used in a sale, the Offered Securities will
be acquired by the underwriters or dealers for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price, which may be changed, or at
varying prices determined at the time of sale. The Offered Securities may be
offered to the public either through underwriting syndicates represented by one
or more managing underwriters or directly by one or more of such firms. Unless
otherwise indicated in the applicable Prospectus Supplement, the obligations of
the underwriters to purchase such Offered Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
such Offered Securities if any are purchased. Any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
Agents, dealers and underwriters may be entitled under agreements between
them and the Company to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, or to contribution
to payments which may be required to be made in respect thereof. Agents, dealers
or underwriters may engage in transactions with or perform services for the
Company in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by institutions to
purchase Offered Securities from the Company at the offering price set forth in
the Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on the date stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment
15
<PAGE> 45
companies, educational and charitable institutions and other institutions but
shall in all cases be subject to the approval of the Company. Contracts will be
subject to those conditions set forth in the applicable Prospectus Supplement. A
commission indicated in the Prospectus Supplement will be paid to underwriters
and agents soliciting purchases of Offered Securities pursuant to Contracts
accepted by the Company. The underwriters and persons soliciting such Contracts
will have no responsibility for the validity or performance of any Contracts.
The place and time of delivery for the Offered Securities will be set forth
in the Prospectus Supplement.
LEGAL OPINIONS
The legality of the Offered Securities to be offered hereby will be passed
upon for the Company by William B. Lawrence, Esq., 1900 Richmond Road,
Cleveland, Ohio 44124, and for any underwriters or dealers by Cravath, Swaine &
Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019. Mr.
Lawrence is Executive Vice President, General Counsel and Secretary of the
Company and is also a shareholder of the Company.
EXPERTS
The consolidated financial statements of TRW Inc. incorporated by reference
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997, 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 are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
16
