<PAGE> 1
Pursuant to Rule 424(b)(3)
Registration No. 333-01223
PROSPECTUS SUPPLEMENT
(To Prospectus dated April 3, 1996)
$2,000,000,000
Lucent Technologies Inc.
MEDIUM TERM NOTES, SERIES A
------------------------
Due More Than Nine Months From Date of Issue
------------------------
LOGO
Lucent Technologies Inc. (the "Company") may offer from time to time its
medium term notes, which are issuable in one or more series. The medium term
notes offered by this Prospectus Supplement (the "Notes") are part of a separate
series of notes of the Company entitled Medium Term Notes, Series A which is not
limited in aggregate principal amount. The aggregate principal amount (initial
offering price if sold at initial issue discount) of Notes to be offered hereby
will not exceed U.S. $2,000,000,000 or the equivalent thereof in other
currencies or currency units. The amount of Notes offered hereby shall be
reduced by the amount of any other debt securities and any warrants issued by
the Company, after the date hereof, whether inside or outside of the United
States (the "Other Securities"), pursuant to the Registration Statement of which
the accompanying Prospectus is a part (see "Plan of Distribution"). The Notes
may be denominated in U.S. dollars or in such foreign currencies or currency
units as may be designated by the Company (the "Specified Currency"). See
"Important Currency Exchange Information". The interest rate on each Note will
be either a fixed rate (a "Fixed Rate Note"), which may be zero in the case of
certain Notes issued at a price representing a substantial discount from the
principal amount payable upon maturity, or a floating rate (a "Floating Rate
Note"). A Floating Rate Note may be either a Regular Floating Rate Note, a
Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note (each as defined
below) and its rate of interest may be determined by reference to one or more of
the Commercial Paper Rate, the Federal Funds Rate, LIBOR, the Treasury Rate, the
Prime Rate, the CMT Rate or any other Base Rate (each as defined below) or
interest rate formula set forth in the Pricing Supplement, as adjusted by the
Spread and/or Spread Multiplier (as defined below), if any, applicable to such
Note. A Note may pay amounts in respect of interest and principal over the life
of the Note, according to an amortization schedule (an "Amortizing Note"). A
Note may be issued as an indexed note (an "Indexed Note") the principal amount
payable at maturity of which, or premium or interest on which, will be
determined by reference to the level of a designated stock index or designated
currency, commodity or other prices or indices or will otherwise be determined
by application of a formula. See "Description of Medium Term Notes, Series
A--Indexed Notes". The Specified Currency, interest rate or interest rate
formula, reset provisions, issue price, maturity, interest payment dates,
redemption, repayment, and amortization provisions and certain other terms with
respect to each Note will be established at the time of issuance and set forth
in a pricing supplement to this Prospectus Supplement (a "Pricing Supplement").
Interest on each Note (other than an Amortizing Note) is payable on the
dates set forth therein or in the applicable Pricing Supplement. Payment dates
for any Amortizing Note will be specified in the relevant Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the Notes are
not subject to redemption at the option of the Company or repayment at the
option of the holder prior to maturity. Each Note will mature more than nine
months from the date of issue.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued only in fully registered form in denominations of U.S. $1,000 or
the equivalent thereof in the Specified Currency (rounded down to an integral
multiple of 1,000 units of such Specified Currency), or any amount in excess
thereof that is an integral multiple of U.S. $1,000 or 1,000 units of the
Specified Currency. Unless otherwise indicated in the applicable Pricing
Supplement, all Notes with identical terms will be represented by one or more
global Notes (a "Book-Entry Note") registered in the name of a nominee for The
Depository Trust Company ("DTC") or, if so specified in the applicable Pricing
Supplement, a common depositary for the Euroclear System ("Euroclear") and Cedel
Bank, societie anonoyme ("Cedel"). Beneficial interests in Book-Entry Notes will
be shown on and transfers thereof will be effective only through, records
maintained by DTC, Euroclear or Cedel, as the case may be, or their
participants. Book-Entry Notes will not be issuable in definitive form (a
"Certificated Note"), except under the circumstances described herein. See
"Description of Medium Term Notes, Series A".
------------------------
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 PRICING
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<S> <C> <C> <C>
PRICE TO AGENT'S PROCEEDS TO
PUBLIC(1)(2) COMMISSIONS(2)(3) COMPANY(2)(4)
---------------------- ------------------------------- ---------------------------------------
Per Note........................ 100.000% .125%-.750% 99.875%-99.250%
Total........................... U.S.$2,000,000,000 U.S.$2,500,000-$15,000,000 U.S.$1,997,500,000-$1,985,000,000
</TABLE>
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(1) Unless otherwise indicated in a Pricing Supplement, Notes will be issued
at 100% of their principal amount.
(2) Or, in the case of Notes not denominated in U.S. dollars, the equivalent
thereof in the Specified Currency.
(3) The Company will pay a commission to Morgan Stanley & Co. Incorporated;
Bear, Stearns & Co., Inc.; Goldman, Sachs & Co.; Lehman Brothers, Lehman
Brothers Inc.; Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated; or Smith Barney Inc. each as agent (collectively, the
"Agents"), in the form of a discount, depending upon maturity of the
Note, ranging from .125% to .750% of the principal amount of any Note
sold through the Agents. See "Plan of Distribution".
(4) Before deducting expenses payable by the Company estimated at
U.S.$900,000, including reimbursement of the Agents' expenses. The
Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act of 1933.
------------------------
The Notes are being offered on a continuous basis by the Company through the
Agents, who have agreed to use their reasonable best efforts to solicit
purchases of the Notes. The Company also may arrange for the Notes to be sold
through the Agents acting as principal, or through other agents, dealers or
underwriters acting as agent or principal, or may sell the Notes directly to
investors on its own behalf in those jurisdictions where it is authorized to do
so. 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 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
made hereby without notice. The Company, or the Agents which solicit any offer,
may reject such offer in whole or in part. See "Plan of Distribution".
------------------------
MORGAN STANLEY & CO.
Incorporated
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
SMITH BARNEY INC.
September 6, 1996
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
IN CONNECTION WITH THIS OFFERING, THE AGENT(S) MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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PROSPECTUS SUPPLEMENT
Important Currency Exchange Information............................................... S-3
Description of Medium Term Notes, Series A............................................ S-3
Foreign Currency Risks................................................................ S-17
Taxation.............................................................................. S-18
Plan of Distribution.................................................................. S-27
Legal Opinions........................................................................ S-27
PROSPECTUS
Additional Information................................................................ 2
Incorporation of Documents by Reference............................................... 2
The Company........................................................................... 3
Recent Developments................................................................... 3
Use of Proceeds....................................................................... 3
Ratio of Earnings to Fixed Charges.................................................... 4
Description of the Notes.............................................................. 4
Description of the Warrants........................................................... 9
Plan of Distribution.................................................................. 10
For Florida Residents................................................................. 11
Legal Opinions........................................................................ 11
Experts............................................................................... 11
</TABLE>
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IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in the Specified Currency, and
payments of principal of, premium, if any, and any interest on, such Notes will
be made in the Specified Currency, unless otherwise provided in the applicable
Pricing Supplement. Currently, there are limited facilities in the United States
for the conversion of U.S. dollars into foreign currencies or currency units,
and vice versa, and few banks offer non-U.S. dollar denominated checking or
savings account facilities in the United States. However, if requested by a
prospective purchaser of Notes denominated in a Specified Currency other than
U.S. dollars, the Agents soliciting the offer to purchase will arrange for the
conversion of U.S. dollars into such Specified Currency to enable the purchaser
to pay for such Notes. Such request must be made on or before the third Business
Day (as defined below) preceding the date of delivery of the Notes, or by such
other date as determined by such Agent. Each such conversion will be made by the
relevant Agent on such terms and subject to such conditions, limitations and
charges as such Agent may from time to time establish in accordance with its
regular foreign exchange practice. All costs of exchange will be borne by
purchasers of the Notes. References herein to "U.S. dollars", "dollars",
"U.S. $" or "$" are to the currency of the United States of America.
DESCRIPTION OF MEDIUM TERM NOTES, SERIES A
The information herein concerning the Notes should be read in conjunction
with the statements under "Description of the Notes" in the Prospectus dated
April 3, 1996. The following description of the Notes will apply unless
otherwise specified in the applicable Pricing Supplement.
GENERAL
The Notes offered hereby are to be issued under Registration Statement No.
333-01223 pursuant to which the Company has registered debt securities and
warrants to purchase debt securities. The Notes are part of a single series of
notes which is not limited in aggregate principal amount, to be issued under an
Indenture (the "Indenture") dated as of April 1, 1996 between the Company and
The Bank of New York, as trustee (the "Trustee"). The Notes may be issued under
this Prospectus Supplement in an aggregate principal amount (initial offering
price if sold at initial issue discount) of up to U.S. $2,000,000,000 (or the
equivalent thereof in other currencies or currency units), as such amount may be
reduced by any other securities issued by the Company pursuant to the
Registration Statement. The series which includes the Notes may also include
other securities which may be issued by the Company under the Indenture from
time to time. As of August 31, 1996, the aggregate principal amount of
indebtedness of the Company outstanding under the Indenture of all series was
$1,500,000,000.
The Notes are being offered on a continuous basis. Fixed Rate Notes,
Indexed Notes and Amortizing Notes will mature more than nine months from the
date of issue, as specified in the applicable Pricing Supplement. Unless
otherwise specified in the applicable Pricing Supplement, Floating Rate Notes
will mature on an Interest Payment Date (as defined below) more than nine months
from the date of issue.
A Note may be issued as a zero coupon Note or at a price which is at a
substantial discount from its face value ("Discount Note"), in which event such
Note will provide that upon redemption or repayment prior to maturity or
acceleration of maturity thereof an amount less than the principal amount shall
become due and payable. If a bankruptcy proceeding is commenced in respect of
the Company, the claim of the holders of Discount Notes may be limited under
section 502(b) of Title 11 of the United States Code to the initial public
offering price of such Notes, plus that portion of the original issue discount
that is amortized from the date of issue to the commencement of the bankruptcy
proceeding plus accrued interest. Accordingly, the holders of Discount Notes
under such circumstances may receive a lesser amount than they would be entitled
to under the express terms of the Indenture.
Notwithstanding anything in this Prospectus Supplement to the contrary,
unless otherwise specified in the applicable Pricing Supplement, if a Note is a
Discount Note, the amount payable on such Note in the event of redemption or
repayment prior to its maturity or acceleration of its maturity shall be the
Amortized Face
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Amount of such Note as of the date of redemption, repayment or acceleration, as
the case may be. The "Amortized Face Amount" of a Discount Note shall be the
amount equal to (i) the issue price set forth in the applicable Pricing
Supplement plus (ii) the portion of the difference between the issue price and
the principal amount of such Note that has accrued at the yield to maturity set
forth in the Pricing Supplement (computed in accordance with generally accepted
United States bond yield computation principles) to such date of redemption,
repayment or acceleration, but in no event shall the Amortized Face Amount of a
Discount Note exceed its principal amount.
The Pricing Supplement relating to each Note will describe the following
terms: (1) the Specified Currency (and, if such Specified Currency is other than
U.S. dollars, certain other terms relating to such Note); (2) whether such Note
is a Fixed Rate Note, an Amortizing Note, an Indexed Note or a Floating Rate
Note; (3) whether such Note is a Discount Note or an Original Issue Discount
Note (as defined below); (4) the price (expressed as a percentage of the
aggregate principal amount thereof) at which such Note will be issued; (5) the
date on which such Note will be issued; (6) the date on which such Note will
mature; (7) if such Note is a Fixed Rate Note, the rate per annum at which such
Note will bear interest, the Record Dates (as defined below) and the Interest
Payment Dates; (8) if such Note is a Floating Rate Note, whether it is a Regular
Floating Rate Note, a Floating Note/Fixed Rate Note or Inverse Floating Rate
Note, the Base Rate, the Fixed Interest Rate, the Initial Interest Rate, the
Interest Reset Dates, the Interest Determination Date, the Record Dates, the
Interest Payment Dates, the Index Maturity, the Maximum and Minimum Interest
Rates, if any, and the Spread or Spread Multiplier, if any (all as defined
below), and any other terms relating to the method of calculating interest on
such Note; (9) if such Note is an Amortizing Note, the interest and the
repayment information in respect thereof; (10) if such Note is an Indexed Note,
the Indexed Principal Amount, Index (all as defined below) and any other terms
relating to the method of calculating the principal, premium or interest on the
Note; (11) the terms of redemption at the option of the Company, repayment at
the option of the holder, or amortization provisions, if any, and (12) any other
terms of such Note not inconsistent with the provisions of the Indenture.
Notes will be issued in fully registered form only. Unless indicated in the
applicable Pricing Supplement that a Note on original issuance will be issued as
a Certificated Note, each Note will be issued as a Book-Entry Note, and except
as set forth under "Book-Entry System" below, Book-Entry Notes will not be
issuable as Certificated Notes. Unless otherwise specified in the applicable
Pricing Supplement, Notes denominated in U.S. dollars will be issued in
denominations of U.S. $1,000 or any amount in excess thereof which is a multiple
of U.S. $1,000. Unless otherwise specified in a Pricing Supplement, Notes
denominated in a Specified Currency other than U.S. dollars will be issued in
equivalent denominations of the Specified Currency, as determined by the Federal
Reserve Bank of New York, at the noon buying rate in New York City for cable
transfers of such Specified Currency (the "Market Exchange Rate"); provided,
however, in the case of European Currency Units, Market Exchange Rate shall mean
the rate of exchange determined by the Commission of the European Communities
(or any successor thereto) as published in the Official Journal of the European
Communities, or any successor publication, on the Business Day, as defined
below, immediately preceding the trade date for such Notes, of U.S. $1,000
(rounded down to an integral multiple of 1,000 units of such Specified
Currency), or any amount in excess thereof which is an integral multiple of
1,000 units of such Specified Currency.
The Company has initially designated The Chase Manhattan Bank, acting
through its principal corporate trust office in New York, New York, as the
registrar and transfer agent for the Notes (the "Registrar", which term includes
any additional or successor Registrar appointed by the Company), as the paying
agent for the Notes (the "Paying Agent," which term includes any additional or
successor Paying Agent appointed by the Company), and as the authenticating
agent for the Notes (the "Authenticating Agent", which term includes any
additional or successor Authenticating Agent appointed by the Company).
The Notes will constitute unsecured and unsubordinated indebtedness of the
Company and will rank on a parity with the Company's other unsecured and
unsubordinated indebtedness. Unless otherwise specified in the applicable
Pricing Supplement, the Notes are not subject to redemption at the option of the
Company or repayment at the option of the holder prior to maturity. The Notes
will not be subject to any sinking fund, except to the extent otherwise
specified in the applicable Pricing Supplement.
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In the case of Notes denominated in and on which principal and premium, if
any, and interest is payable in U.S. dollars, principal and premium, if any, and
interest will be payable, and the Notes will be transferable, at the principal
corporate trust office of The Chase Manhattan Bank, New York, New York, or at
such other place or places as may be designated pursuant to the Indenture,
provided that the Company, at its option, may pay interest on Certificated Notes
other than interest due at maturity by check mailed to registered holders.
Unless otherwise specified in the applicable Pricing Supplement, interest on
Notes (other than interest at maturity) payable in a Specified Currency other
than U.S. dollars will be paid by mailing a check or draft in the Specified
Currency drawn on an account at a bank outside of the United States. If any
Notes are denominated in a Specified Currency other than U.S. dollars or if the
principal of, premium, if any, or interest on any Notes is payable in a
Specified Currency other than U.S. dollars, the applicable Pricing Supplement
will provide additional information pertaining to the terms of such Notes and
other matters of interest to the holders thereof. At the maturity of any Note,
the principal thereof, together with accrued interest thereon, will be payable
in immediately available funds upon surrender thereof at the office of the
Paying Agent at the above address or at such other place or places as may be
designated pursuant to the Indenture.
PAYMENT CURRENCY
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,
the Company will be entitled to satisfy its obligations to holders of the Notes
by making such payments in U.S. dollars on the basis of the noon buying rate in
New York City for cable transfers of such Specified Currency as determined by
the Federal Reserve Bank of New York on the date of such payment, or, if such
rate of exchange is not then available as of the most recent Record Date (as
defined below). Any payment made under such circumstances in U.S. dollars where
the required payment is in a Specified Currency other than U.S. dollars will not
constitute an Event of Default under the Indenture.
PAYMENT OF PRINCIPAL AND INTEREST
Each Floating Rate Note will bear interest from the date of issue at the
rate per annum stated or the interest rate formula set forth therein and in the
applicable Pricing Supplement, until the principal thereof is paid or made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, each Fixed Rate Note will bear interest from the date of issue at
the rate or rates per annum stated (calculated on the basis of a year of twelve
thirty-day months) therein and in the applicable Pricing Supplement, until the
principal thereof is paid or made available for payment. Interest, if any, will
be payable on each Interest Payment Date (as defined below). Interest will be
payable to the person in whose name a Note is registered at the close of
business on the Record Date with respect to the Interest Payment Date; provided,
however, that interest payable at maturity (whether or not the maturity date is
an Interest Payment Date) will be payable to the person to whom principal shall
be payable. The first payment of interest on any Note (or, in the case of an
Amortizing Note, principal and interest) originally issued between a Record Date
and an Interest Payment Date will be payable on the Interest Payment Date
following the next succeeding Record Date to the registered holder on such next
succeeding Record Date of such Note. Unless otherwise specified in the
applicable Pricing Supplement, the "Record Date" with respect to any Interest
Payment Date shall be the date 15 calendar days prior to such Interest Payment
Date, whether or not such date shall be a Business Day.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law or regulation to close in The City of New York
and (i) with respect to Notes denominated in a Specified Currency other than
U.S. dollars or European Currency Units, in the Principal Financial Center (as
defined below) of the country of the Specified Currency, (ii) with respect to
Notes denominated in European Currency Units in Brussels, Belgium or (iii) with
respect to LIBOR Notes (as defined below), in the City of London. "London
Banking Day" means any day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market. "Principal Financial Center"
generally means the capital city of the country of the Specified Currency,
except
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that with respect to U.S. dollars and Deutsche Marks, Principal Financial Center
means the City of New York and Frankfurt, respectively.
Interest on Floating Rate Notes and Fixed Rate Notes (other than an
Amortizing Note) will be payable on the Interest Payment Dates specified therein
and in the applicable Pricing Supplement (except as provided above with respect
to Notes issued between a Record Date and an Interest Payment Date) and at
maturity. Payment dates for any Amortizing Note will be specified in the
relevant Pricing Supplement. Each date on which interest is payable on a Note is
referred to herein as an "Interest Payment Date".
With respect to Floating Rate Notes, if an Interest Payment Date falls on a
day that is not a Business Day, such Interest Payment Date will be postponed to
the following day that is a Business Day, except that in the case of LIBOR
Notes, as defined below, if such Business Day is in the next succeeding calendar
month, such Interest Payment Date (except if such Interest Payment Date is the
date for payment of principal at maturity ("Maturity Date") or a redemption or
repayment date) shall be the immediately preceding day that is a Business Day.
If the Maturity Date or any earlier redemption or repayment date for the 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 redemption or repayment date, as the case may be.
With respect to Fixed Rate Notes, if an Interest Payment Date falls on a
day that is not a Business Day, the interest payment shall be 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 Date or any
earlier redemption or repayment date for the 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 redemption or
repayment date, as the case may be.
Unless otherwise specified in an applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. Each applicable Pricing Supplement
will specify certain terms with respect to which such Floating Rate Note is
being delivered, including: whether such Floating Rate Note is a "Regular
Floating Rate Note", a "Floating Rate/Fixed Rate Note" or an "Inverse Floating
Rate Note" (as defined below); the Base Rate or Base Rates, Fixed Interest Rate,
Initial Interest Rate, Interest Reset Dates, Interest Determination Dates,
Interest Reset Period, Regular Record Dates, Interest Payment Dates, Index
Maturity, Fixed Rate Commencement Date and Fixed Interest Rate, if any, Maximum
Interest Rate and Minimum Interest Rate, if any, and the "Spread" and/or "Spread
Multiplier", if any, as described below.
The interest rate borne by each Floating Rate Note will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a Floating
Rate/Fixed Rate Note, an Inverse Floating Rate Note or as having an
Addendum attached, such Floating Rate Note will be designated a "Regular
Floating Rate Note" and, except as described below or in an applicable
Pricing Supplement, will bear interest at the rate determined by reference
to the applicable Base Rate or Base Rates (a) plus or minus the applicable
Spread, if any, and/or (b) multiplied by the applicable Spread Multiplier,
if any. Commencing on the initial Interest Reset Date, the rate at which
interest on such Regular Floating Rate Note shall be payable shall be reset
as of each Interest Reset Date; provided, however, that the interest rate
in effect for the period from its original issue date to the initial
Interest Reset Date will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note", then, except as described below or in an applicable
Pricing Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Base Rate or Base Rates (a) plus
or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (a) the interest rate in effect for the period from
its original issue date to the initial Interest Reset Date will be the
Initial
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Interest Rate; and (b) the interest rate in effect commencing on, and
including, the Fixed Rate Commencement Date to maturity shall be the Fixed
Interest Rate.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in an applicable Pricing
Supplement, such Floating Rate Note will bear interest equal to the Fixed
Interest Rate specified in the related Pricing Supplement minus the rate
determined by reference to the applicable Base Rate or Base Rates (a) plus
or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any; provided, however, that the interest
rate thereon will not be less than zero. Commencing on the initial Interest
Reset Date, the rate at which interest on such Inverse Floating Rate Note
is payable shall be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period from its original
issue date to the initial Interest Reset Date will be the Initial Interest
Rate.
Notwithstanding the foregoing, if such Floating Rate Note is designated as
having an Addendum attached as specified on the face thereof, such Floating Rate
Note shall bear interest in accordance with the terms described in such Addendum
and the applicable Pricing Supplement.
Each Floating Rate Note will bear interest at a rate determined by
reference to one or more interest rate bases (each a "Base Rate"), any of which
may be adjusted by a Spread or Spread Multiplier (each as defined below). The
applicable Pricing Supplement will designate one or more of the following Base
Rates as applicable to each Floating Rate Note: (a) the Commercial Paper Rate (a
"Commercial Paper Rate Note"), (b) the Federal Funds Rate (a "Federal Funds Rate
Note"), (c) LIBOR (a "LIBOR Note"), (d) the Treasury Rate (a "Treasury Rate
Note"), (e) the Prime Rate (a "Prime Rate Note"), (f) the CMT Rate (a "CMT Rate
Note") or (g) such other Base Rate or interest rate formula as is set forth in
such Pricing Supplement and in such Floating Rate Note. The "Index Maturity" for
any Floating Rate Note is the period of maturity of the instrument or obligation
from which the Base Rate is calculated and will be specified in the applicable
Pricing Supplement.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or ceiling,
on the rate of interest which may accrue during any interest period ("Maximum
Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
In addition to any Maximum Interest Rate which may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on a Floating Rate
Note 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, with certain exceptions, is
25% per annum on a simple interest basis.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually, annually or otherwise (such period
being the "Interest Reset Period" for such Note and the first date of each
Interest Reset Period being an "Interest Reset Date"), as specified in the
applicable Pricing Supplement. 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). If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date shall be
postponed to the next succeeding Business Day, 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 next preceding Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate or Base Rates (i) plus or minus the Spread, if any, and/or
(ii) multiplied by the Spread Multiplier, if any. The "Spread" is the number of
basis points (one one-hundredth of a percentage point) specified in the
applicable Pricing Supplement as being applicable to the interest rate for such
Floating Rate Note, and the "Spread Multiplier" is the percentage specified in
the applicable Pricing Supplement as being applicable to the interest rate for
such Floating Rate Note.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments on Notes shall be the amount of interest accrued from, and including,
the date of issue or the last date to which interest has been
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paid to, but excluding, the Interest Payment Date or date of maturity, as the
case may be; provided that, in the case of a Floating Rate Note, if an Interest
Payment Date (other than an interest payment date that is a maturity date) is
not a Business Day, the interest payable shall accrue to, but exclude the next
day that is a Business Day.
Unless otherwise specified in the applicable Pricing Supplement, Fixed Rate
Notes will bear interest from the date of issue and will be calculated on the
basis of a year of twelve thirty-day months. With respect to a Floating Rate
Note, accrued interest shall be calculated by multiplying the principal amount
of such Floating Rate Note (or, in the case of an Indexed Note, unless otherwise
specified in the applicable Pricing Supplement, the Face Amount (as defined
below) of such Indexed Note) by an accrued interest factor. Such accrued
interest factor will be computed by adding the interest factors calculated for
each day in the Interest Reset Period or from the last date from which accrued
interest is being calculated. Unless otherwise specified in the applicable
Pricing Supplement, the interest factor for each such day is computed by
dividing the interest rate applicable to such day by 360, in the cases of
Commercial Paper Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime
Rate Notes, or by the actual number of days in the year, in the case of Treasury
Rate Notes and CMT Rate Notes. The interest rate applicable to any day that is
an Interest Reset Date is the applicable rate as reset on such date. The
interest rate applicable to any other day is the interest rate for the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate, as described below).
Unless otherwise provided in the applicable Pricing Supplement, The Chase
Manhattan Bank will be the calculation agent (the "Calculation Agent") with
respect to any issue of Floating Rate Notes. Upon the request of the holder of
any Floating Rate Note, the Calculation Agent will provide the interest rate
then in effect and, if determined, the interest rate which will become effective
on the next Interest Reset Date with respect to such Floating Rate Note. The
Calculation Agent's determination of any interest rate will be final and binding
in the absence of manifest error.
All percentages resulting from any calculation of the rate of interest on a
Floating Rate Note will be rounded, if necessary, to the nearest
one-hundred-thousandth of a percentage point (.0000001), with five one-
millionths of a percentage point rounded upward (e.g., .09876546 being rounded
to .0987655), and all dollar amounts used in or resulting from such calculation
on Floating Rate Notes will be rounded to the nearest cent (with one-half cent
rounded upward).
The interest rate in effect with respect to a Floating Rate Note from the
Issue Date to the first Interest Reset Date (the "Initial Interest Rate") will
be specified in the applicable Pricing Supplement. The interest rate for each
subsequent Interest Reset Date will be determined by the Calculation Agent as
follows. Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date" pertaining to any Commercial Paper Interest Determination
Date, Federal Funds Interest Determination Date, Treasury Rate Determination
Date, Prime Rate Interest Determination Date and CMT Rate Determination Date
(each as hereinafter defined) will be the earlier of, either (i) the tenth
calendar day after such interest rate determination date, or, if such tenth day
is not a Business Day, the next succeeding Business Day, or (ii) the Business
Day preceding the applicable Interest Payment Date or date of maturity, as the
case may be.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any) specified in the Commercial Paper Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Commercial Paper Rate" for each Interest Reset Date will be determined on the
Calculation Date by the Calculation Agent as of the second Business Day prior to
such Interest Reset Date (a "Commercial Paper Interest Determination Date") and
shall be the Money Market Yield (as defined below) on such Commercial Paper
Interest Determination Date of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement, as such rate shall be
published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" ("H.15(519)"), or any
successor publication, under the heading "Commercial Paper". In the event that
such rate is not published prior to 9:00 A.M., New York City time, on
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the Calculation Date, then the Commercial Paper Rate shall be the Money Market
Yield on such Commercial Paper Interest Determination Date of the rate for
commercial paper of the specified Index Maturity as published by the Federal
Reserve Bank of New York in its daily statistical release "Composite 3:30 P.M.
Quotations for U.S. Government Securities" ("Composite Quotations") under the
heading "Commercial Paper". If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) (or any
successor publication) or Composite Quotations, then the Commercial Paper Rate
shall be the Money Market Yield of the arithmetic mean of the offered rates as
of 11:00 A.M., New York City time, on such Commercial Paper Interest
Determination Date of three leading dealers of commercial paper in The City of
New York selected by the Calculation Agent for commercial paper of the specified
Index Maturity, placed for an industrial issuer whose bond rating is AA, or the
equivalent, from a nationally recognized rating agency; provided, however, that
if the dealers selected as aforesaid by the Calculation Agent are not quoting
offered rates as mentioned in this sentence, the rate of interest in effect for
the applicable period will be the rate of interest in effect on such Commercial
Paper Interest Determination Date.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<C> <C> <S>
Money Market Yield = D x 360
---------------- x 100
360 - (D x M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the period for which interest is being calculated.
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) 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" for each Interest Reset Date shall be the effective rate on
the second Business Day prior to such Interest Reset Date (a "Federal Funds
Interest Determination 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 Federal Funds
Interest Determination Date, the Federal Funds Rate will be the interest rate on
such Federal Funds Interest Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate". If such rate is not
yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Federal Funds Interest Determination Date, the Federal Funds
Rate for such Federal Funds Interest Determination Date will be the rate on such
Federal Funds Interest Determination Date made publicly available by the Federal
Reserve Bank of New York which is equivalent to the rate which appears in
H.15(519) under the heading "Federal Funds (Effective)"; provided, however, that
if such rate is not made publicly available by the Federal Reserve Bank of New
York by 9:00 A.M., New York City time, on the Calculation Date, the Federal
Funds Rate will be the Federal Funds Rate in effect on such Federal Funds
Interest Determination Date.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified in
the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
for each Interest Reset Date will be determined by the Calculation Agent as
follows:
(i) With respect to the second London Banking Day prior to such
Interest Reset Date (a "LIBOR 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
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used) for deposits in the Index Currency (as defined below) having the
Index Maturity designated in the applicable Pricing Supplement, commencing
on such Interest Reset Date, that appear on the Designated LIBOR Page as of
11:00 A.M., London time, on that LIBOR 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 such Interest Reset Date, that appears on
the Designated LIBOR Page as of 11:00 A.M., London time, on that LIBOR
Determination Date. If fewer than two offered rates appear, or no rate
appears, as applicable, LIBOR in respect of the related LIBOR Determination
Date will be determined as if the parties had specified the rate described
in clause (ii) below.
(ii) With respect to a LIBOR Determination Date on which fewer than
two offered rates appear (unless, as aforesaid, only a single rate is
required), or no rate appears, as the case may be, on the applicable
Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent will request the principal London offices of each of four major
reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR 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 Index Currency in such
market at such time. If at least two such quotations are provided, LIBOR
determined on such LIBOR Determination Date will be the arithmetic mean of
such quotations. If fewer than two quotations are provided, LIBOR
determined on such LIBOR 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 LIBOR
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 the 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 Index
Currency in such market at such time; provided, however, that if the banks
so selected by the Calculation Agent are not quoting as mentioned in this
sentence, LIBOR determined on such LIBOR Determination Date will be LIBOR
otherwise in effect on such LIBOR Determination Date.
"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 designated as page "LIBO" with
respect to the applicable Index Currency on the Reuters Monitor Money Rates
Service (or such other page as may replace page "LIBO" on such 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 designated as page "3750" with
respect to the applicable Index Currency on the Dow Jones Telerate Service (or
such other page as may replace page "3750" on such service or such other service
as may be nominated by the British Bankers' Association 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.
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<PAGE> 11
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) 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 Reset Date, the rate for the
auction held on the Treasury Rate Determination Date (as defined below)
pertaining to such Interest Reset 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 "U.S. Government
Securities -- Treasury bills -- auction average (investment)", or any successor
publication, or, if not so published by 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Treasury Rate Determination Date, the
auction average rate (expressed as a bond equivalent, on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) 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 Treasury Rate 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) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City time,
on such Treasury Rate 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 Treasury Rate in effect on such Interest Reset Date.
The "Treasury Rate Determination Date" pertaining to an Interest Reset Date
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, except that 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
Treasury Rate Determination Date pertaining to the Interest Reset Date occurring
in the next succeeding week. If an auction date shall fall on any day that would
otherwise be an Interest Reset Date for a Treasury Rate Note, then such Interest
Reset Date shall instead be the Business Day immediately following such auction
date.
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)
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement the "Prime
Rate" means, with respect to any Prime Rate Interest Determination Date (as
defined below) the rate on such date as published in H.15(519) under the heading
"Bank Prime Loan". If such rate is not published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Prime Rate Interest
Determination Date, the Prime Rate will be determined by the Calculation Agent
and 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 Prime Rate Interest
Determination Date. "Reuters Screen USPRIME1 Page" means the display designated
as page "USPRIME1" on the Reuters Monitor Money Rates Service (such term to
include 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). If fewer than four such rates appear on the Reuters Screen USPRIME1 Page
for such Prime Rate Interest Determination Date, the Prime Rate will be
determined by the Calculation Agent and will be the arithmetic
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<PAGE> 12
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 Prime Rate Interest
Determination Date by at least two of three major money center banks in The City
of New York selected by the Calculation Agent from a list approved by the
Company. If fewer than two such rates are quoted as aforesaid the Prime Rate
will be calculated by the Calculation Agent and will be determined as the
arithmetic mean of the prime rates furnished 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. $500,000,000 and being subject to
supervision or examination by federal or state authority, selected by the
Calculation Agent from a list approved by the Company to provide such rate or
rates; provided that if the banks or trust companies selected as aforesaid by
the Calculation Agent from a list approved by the Company are not quoting as
mentioned in this sentence, the rate of interest in effect for the applicable
period will be the rate of interest in effect on such Prime Rate Interest
Determination Date. The "Prime Rate Interest Determination Date" pertaining to
an Interest Reset Date for Prime Rate Notes will be the second Business Day
prior to such Interest Reset Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the rates (calculated with reference
to the CMT Rate and the Spread and/or Spread Multiplier, if any) specified in
such CMT Rate Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date relating to a CMT Rate
Note or any Floating Rate Note for which the interest rate displayed is
determined with reference to the CMT Rate (a "CMT Rate Interest Determination
Date"), the rate displayed on the Designated CMT Telerate Page under the caption
". . . Treasury Constant Maturities . . . Federal Reserve Board release
H.15 . . . Mondays approximately 3:45 P.M.," under the column for the Designated
CMT Maturity Index (as defined below) for (i) if the Designated Telerate Page is
7055, the rate on such CMT Rate Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the related CMT Rate Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the related
Calculated Date, then the CMT Rate for such CMT Rate Interest Determination Date
will be such treasury constant maturity rate for the Designated CMT Maturity
Index as published in H.15(519). If such rate is no longer published, or if not
published by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such CMT Rate Interest Determination Date will be such
treasury constant maturity rate for the designated CMT Maturity Index (or other
United States Treasury rate for the Designated CMT Maturity Index) for the CMT
Rate Interest Determination Date with respect to such Interest Reset Date as may
then be published by either the Board of Governors of the Federal Reserve System
or the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519). If such information is
not provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity, based on
the arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 P.M., New York City time, on the CMT Rate Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers (each, a "Reference
Dealer") in the City of New York selected by the Calculation Agent (from five
such Reference Dealers selected by the Calculation Agent and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for the
most recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not less than
such Designated CMT Maturity Index minus one year. If the Calculation Agent
cannot obtain three such Treasury Note quotations, the CMT Rate for such CMT
Rate Interest Determination Date will be calculated by the Calculation Agent and
will be a yield to maturity based on the arithmetic mean of the secondary market
offer side prices as of approximately 3:30 P.M., New York City time, on the CMT
Rate Interest Determination Date of three
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<PAGE> 13
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 such 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 in an amount of at least U.S. $100 million. If three or four (and
not five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as described herein, the CMT Rate will be the CMT Rate in
effect on such CMT Rate Interest Determination Date. If two Treasury Notes with
an original maturity as described in the third preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity index, the quotes
for the CMT Rate Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service designated in the applicable Pricing Supplement for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519) (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)). If no such page is
specified in the applicable Pricing Supplement, the Designated CMT Telerate Page
shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated.
AMORTIZING NOTES
The Company may from time to time offer Amortizing Notes. Unless otherwise
specified in the applicable Pricing Supplement, interest on each Amortizing Note
will be computed on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable Pricing Supplement, payments
with respect to Amortizing Notes will be applied first to interest due and
payable thereon and then to the reduction of the unpaid principal amount
thereof. Further information concerning additional terms and conditions of any
issue of Amortizing Notes will be provided in the applicable Pricing Supplement.
A table setting forth repayment information in respect of each Amortizing Note
will be included in the applicable Pricing Supplement and set forth on such
Notes.
INDEXED NOTES
The Company may from time to time offer Indexed Notes, the principal amount
payable at maturity (the "Indexed Principal Amount") of which, or premium or
interest on which, is determined by reference to a measure (the "Index") which
will be related to (i) the rate of exchange between the Specified Currency for
such Note and the other currency or composite currency (the "Indexed Currency")
specified in the applicable Pricing Supplement (such Indexed Notes, "Currency
Indexed Notes"); (ii) the difference in the price of a specified commodity (the
"Indexed Commodity") on specified dates (such Indexed Notes, "Commodity Indexed
Notes"); (iii) the difference in the level of a specified stock index (the
"Stock Index"), which may be based on U.S. or foreign stocks, on specified dates
(such Indexed Notes, "Stock Indexed Notes"); or (iv) such other objective price
or economic measures as are described in the applicable Pricing Supplement. The
manner of determining the Indexed Principal Amount of an Indexed Note, and
historical and other information concerning the Indexed Currency, Indexed
Commodity, Stock Index or other price or economic measures used in such
determination, will be set forth in the applicable Pricing Supplement, together
with information concerning tax consequences to the holders of such Indexed
Notes.
If the determination of the Indexed Principal Amount of an Indexed Note is
based on an Index calculated or announced by a third party and such third party
either suspends the calculation or announcement of such Index or changes the
basis upon which such Index is calculated (other than changes consistent with
policies in effect at the time such Indexed Note was issued and permitted
changes described in the applicable
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Pricing Supplement), then such Index shall be calculated for purposes of such
Indexed Note by an independent calculation agent named in the applicable Pricing
Supplement on the same basis, and subject to the same conditions and controls,
as applied to the original third party. If for any reason such Index cannot be
calculated on the same basis and subject to the same conditions and controls as
applied to the original third party, then the Indexed Principal Amount of such
Indexed Note shall be calculated in the manner set forth in the applicable
Pricing Supplement. Any determination of such independent calculation agent
shall in the absence of manifest error be binding on all parties.
Unless otherwise specified in the applicable Pricing Supplement, interest
on an Indexed Note will be payable by the Company based on the amount designated
in the applicable Pricing Supplement as the "Face Amount" of such Indexed Note.
The applicable Pricing Supplement will describe whether the principal amount of
the related Indexed Note that would be payable upon redemption or repayment
prior to maturity will be the Face Amount of such Indexed Note, the Indexed
Principal Amount of such Indexed Note at the time of redemption or repayment, or
another amount described in such Pricing Supplement.
An investment in Notes indexed, as to principal or interest or both, to one
or more values of currencies (including exchange rates between currencies),
commodities or interest rate indices entails significant risks that are not
associated with a similar investment in a conventional fixed-rate or floating
rate debt security. If the interest rate of such a Note is so indexed, it may
result in an interest rate that is less than that payable on a conventional
fixed-rate or floating rate debt security issued at the same time, including the
possibility that no interest will be paid. If the principal amount of such a
Note is so indexed, the principal amount payable at maturity may be less than
the original purchase price of such Note if allowed pursuant to the terms of
such Note, including the possibility that no principal will be paid. The
secondary market for such Notes will be affected by a number of factors
independent of the creditworthiness of the Company and the value of the
applicable currency, commodity or interest rate index, including the volatility
of the applicable currency, commodity or interest rate index, the time remaining
to the maturity of such Notes, the amount outstanding of such Notes and market
interest rates. The value of the applicable currency, commodity or interest rate
index depends on a number of interrelated factors, including economic, financial
and political events, over which the Company has no control. Additionally, if
the formula used to determine the principal amount or interest payable with
respect to such Notes contains a multiple or leverage factor, the effect of any
change in the applicable currency, commodity or interest rate index may be
increased. The historical experience of the relevant currencies, commodities or
interest rate indices should not be taken as an indication of future performance
of such currencies, commodities or interest rate indices during the term of any
Note. Accordingly, prospective investors should consult their own financial and
legal advisors as to the risks entailed by an investment in such Notes and the
suitability of such Notes in light of their particular circumstances.
REDEMPTION AND REPURCHASE
Unless otherwise specified in the Pricing Supplement relating to a Note,
such Note cannot be redeemed prior to maturity. If any Note will be redeemable
at the option of the Company, the applicable Pricing Supplement will indicate
the date or dates for redemption prior to such 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 unless otherwise specified
in the applicable Pricing Supplement. 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 by such method as the Trustee shall deem fair and appropriate. Unless
otherwise indicated in the Pricing Supplement relating to each Note, the Notes
will not be subject to any sinking fund.
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.
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REPAYMENT
Unless otherwise specified in the Pricing Supplement relating to a Note,
such Note cannot be repaid prior to maturity at the option of the holder. If any
Note will be repayable at the option of the holder, the applicable Pricing
Supplement will indicate the date or dates for repayment prior to 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 the repayment option applicable to a Note to be exercised, the
Trustee 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 or the
National Association of Securities Dealers, Inc. 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, and
containing a statement that the option to elect repayment is being exercised
thereby and a guarantee that the Note to be repaid with the form entitled
"Option to Elect Repayment" on the reverse of the Note duly completed will be
received by the Trustee 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 Trustee by such fifth Business Day. 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.
BOOK-ENTRY SYSTEM
Unless indicated in the applicable Pricing Supplement that a Note on
original issuance will be issued as a Certificated Note, all Notes will be
Book-Entry Notes. Upon issuance, all Book-Entry Notes having the same Issue
Date, maturity date, redemption or repayment provisions, Interest Payment Dates
and, in the case of Fixed Rate Notes, interest rate, amortization schedule, or,
in the case of Floating Rate Notes, Base Rate, Initial Interest Rate, Interest
Payment Dates, Index Maturity, Interest Reset Dates, Fixed Interest Rate, Spread
or Spread Multiplier, if any, Minimum Interest Rate, if any, and Maximum
Interest Rate, if any, will be represented by a single global security (a
"Global Security"). Unless otherwise indicated in the applicable Pricing
Supplement, each Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, DTC and registered in the name of a nominee of DTC. If so
specified in the applicable Pricing Supplement, a Book-Entry Note may be
registered in the name of a nominee for a common depositary for Euroclear and
Cedel. Except under circumstances described below, Book-Entry Notes will not be
exchangeable for Certificated Notes and will not otherwise be issuable in
definitive form. DTC currently only accepts Notes which have a Specified
Currency of U.S. dollars.
If DTC or a common depositary for Euroclear and Cedel is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will issue Notes in
definitive form in exchange for the entire Global Security representing such
Notes. In addition, the Company may at any time and in its sole discretion
determine not to have the Notes represented by entire Global Securities and, in
such event, will issue Notes in definitive form in exchange for the Global
Securities representing such Notes. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to physical delivery
in definitive form of Notes represented by such Global Security equal in
principal amount to such beneficial interest and to have such Notes registered
in its name. Notes so issued in definitive form will be issued as registered
Notes in denominations of $1,000 or any amount in excess thereof that is an
integral multiple of $1,000, unless otherwise specified by the Company.
DTC
DTC has advised the Company that it is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC holds securities
that its participants ("Participants") deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in
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deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities. Direct Participants ("Direct Participants") include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
NASD. Access to DTC's system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly.
The rules applicable to DTC and its Participants are on file with the Securities
and Exchange Commission.
Upon the issuance of a Global Security, DTC will credit on its book-entry
registration and transfer system the accounts of persons held with it with the
respective principal amounts of the Notes represented by such Global Security.
Such accounts shall be designated by the Agent with respect to such Notes or by
the Company if such 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 may hold interests through Participants. Ownership
of beneficial interests in such Global Security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of Participants) and on the
records of Participants (with respect to interests of persons other than
Participants). 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 beneficial interests in
a Global Security.
So long as DTC or its nominee is the registered owner of such Global
Security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Security for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Security will not be entitled to have Notes represented by
such Global Security registered in their names, will not receive or be entitled
to receive physical delivery of Notes in definitive form and will not be
considered the owners or holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Notes registered in
the name of DTC or its nominee will be made to DTC or its nominee, as the case
may be, as the registered owner of the Global Security representing such Notes.
None of the Company, the Trustee, any paying agent or the registrar for such
Notes will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial interests in such Global
Security for such Notes or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium or interest, will credit immediately participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the Global Security for such Notes as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interest in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participants.
Cedel
Cedel is incorporated under the laws of Luxembourg as a professional
depositary. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Cedel provides to Cedel Participants, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depositary, Cedel is subject to regulation by the Luxembourg Monetary Institute.
Cedel Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations and may include the Agents
or affiliates thereof. Indirect access to Cedel is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedel Participant either directly or
indirectly.
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Distributions with respect to Notes held beneficially through Cedel will be
credited to cash accounts of Cedel Participants in accordance with its rules and
procedures, to the extent received by the common depositary for Cedel. Holding
of Notes through Cedel will be subject to such rules and procedures.
Euroclear
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Agents or affiliates thereof. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Notes held beneficially through Euroclear
will be credited to the cash accounts of Euroclear Participants in accordance
with the Terms and Conditions, to the extent received by the common depositary
for Euroclear.
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls. An investment in Notes that are
denominated in a Specified Currency other than U.S. dollars entails significant
risks that are not associated with a similar investment in a security
denominated and upon which interest is payable in U.S. dollars. Such risks
include, without limitation, the possibility of significant changes in rates of
exchange between the U.S. dollar and the various foreign currencies and the
possibility of the imposition or modification of foreign 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 rate that may occur
during the term of any Note. Depreciation of the currency specified in a Note
against the U.S. dollar would result in a decrease in the effective yield of
such Note below its coupon rate, and under certain circumstances could result in
a loss to the investor on a U.S. dollar basis.
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS DO NOT DESCRIBE ALL
THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A FOREIGN CURRENCY OR A
CURRENCY UNIT AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE
PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR AS SUCH RISKS MAY CHANGE FROM TIME
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TO TIME. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN
SPECIFIED CURRENCIES OTHER THAN U.S. DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE
INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN
CURRENCY TRANSACTIONS.
Notes denominated in foreign currencies other than European Currency Units
will not be sold in, or to residents of, the country of the Specified Currency
in which particular Notes are denominated.
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 and interest
on the Notes. Such persons should consult their own counsel with regard to such
matters.
Governing Law and Judgments. The Notes will be governed by and construed
in accordance with the laws of the State of New York. In the event an action
based on Notes denominated in a Specified Currency other than U.S. dollars were
commenced in a New York court, such court could render or enter a judgment or
decree in the Specified Currency. Such judgment would then be converted into
U.S. dollars at the rate of exchange prevailing on the date of entry of the
judgment or decree. The Indenture provides that the rate of exchange to be used
in determining any such judgment shall be the rate at which in accordance with
normal banking procedures the Trustee could purchase such Specified Currency in
The City of New York on the New York Banking Day (as defined in the Indenture)
preceding the day on which final judgment is given.
Exchange Controls, etc. 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 at the time of payment
of principal of, and premium, if any, or interest on a Note. In the case of any
Note issued in a specified currency that is not currently subject to exchange
controls, there can be no assurance that the absence of exchange controls will
continue to exist. Even if no explicit exchange controls are in place, it is
possible that the Specified Currency for any particular Note would not be
available at such Note's maturity. 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 Record Date. See
"Description of Medium Term Notes, Series A -- Payment Currency". Information
concerning exchange rates for the Specified Currency, if other than U.S.
dollars, in which principal of, premium, if any, or interest on the Notes is
payable, as against the U.S. dollar at selected times during the last five
years, as well as exchange controls affecting such currencies, will be set forth
in the applicable Pricing Supplement.
TAXATION
In the opinion of Davis Polk & Wardwell, special tax counsel to the
Company, the following summary accurately describes the principal United States
federal income tax consequences of ownership and disposition of the Notes to
initial holders. This summary is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, including final
regulations concerning the treatment of debt instruments issued with original
issue discount (the "OID Regulations"), changes to any of which subsequent to
the date of this Prospectus Supplement may affect the tax consequences described
herein. These statements address only the tax consequences to initial holders
holding Notes as capital assets within the meaning of section 1221 of the Code
and do not address the tax consequences of holding Notes to dealers in
securities or currencies, persons holding Notes as a hedge against or which are
hedged against currency risks, certain financial institutions, insurance
companies, or United States Holders (as defined below) whose "functional
currency", as defined in section 985 of the Code, is not the U.S. dollar.
Persons considering the purchase of Notes should consult their tax advisors
concerning the application of United States federal income tax laws, as well as
the laws of any state, local or foreign taxing jurisdictions, to their
particular situations.
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As used herein, a "United States Holder" of a Note means a holder that (a)
is (i) for United States federal income tax purposes a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source or (b) is not
otherwise a United States Holder but whose income from a Note is effectively
connected with the conduct of a United States trade or business. The term also
includes certain former citizens of the United States who continue to be subject
to United States federal income tax on a net basis with respect to U.S. source
income.
As used herein, the term "United States Alien Holder" means an owner of a
Note that is, for United States federal income tax purposes, (i) a nonresident
alien individual, (ii) a foreign corporation, (iii) a nonresident alien
fiduciary of a foreign estate or trust or (iv) a foreign partnership one or more
of the members of which is, for United States federal income tax purposes, a
nonresident alien individual, a foreign corporation or a nonresident alien
fiduciary of a foreign estate or trust.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
Payments of Interest. Interest on a Note (whether paid in a foreign
currency or in U.S. dollars) will generally be taxable to a United States Holder
as ordinary interest income at the time it accrues or is received in accordance
with the United States Holder's method of accounting for federal income tax
purposes. Under the OID Regulations, all payments of interest on a Note that
matures one year or less from its date of issuance will be included in the
stated redemption price at maturity of such Note and will be taxed in the manner
described below under "Original Issue Discount Notes." Special rules governing
the treatment of interest received or accrued with respect to Original Issue
Discount Notes (as defined below), Foreign Currency Notes (as defined below) and
Currency Indexed Notes (as defined below) are described under "Original Issue
Discount Notes", "Foreign Currency Notes" and "Currency Indexed Notes" below.
Sale, Exchange or Retirement of the Notes. A United States Holder's
adjusted tax basis in a Note will equal the cost of the Note to such holder,
increased by any amounts of market discount and original issue discount (each as
defined below), if any, previously includible in taxable income by the holder
with respect to such Note and reduced by any amortized premium and any principal
payments received by the holder and, in the case of an Original Issue Discount
Note, by the amounts of any other payments that do not constitute qualified
stated interest (as defined below).
Upon the sale, exchange or retirement of a Note, a United States Holder
will recognize gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement of the Note and the holder's adjusted tax
basis in the Note. For these purposes, the amount realized does not include any
amount attributable to accrued interest on the Note. Amounts attributable to
accrued interest are treated as interest as described under "Payments of
Interest" above. In the case of a Note denominated in a Specified Currency other
than the U.S. dollar, the amount realized upon the sale, exchange or retirement
of the Note will be the U.S. dollar value of the foreign currency received on
the date of sale, exchange or retirement. Except to the extent described under
"Foreign Currency Notes" below and except to the extent that the gain represents
market discount not previously included in the holder's income, such gain or
loss will be capital gain or loss and will be long-term capital gain or loss if
at the time of the sale, exchange or retirement the Note has been held for more
than one year.
Under current law, the excess of net long-term capital gains over net
short-term capital losses is taxed at a lower rate than ordinary income for
certain non-corporate taxpayers. The distinction between capital gain or loss
and ordinary income or loss is also relevant for purposes of, among other
things, the limitations on the deductibility of capital losses.
ORIGINAL ISSUE DISCOUNT NOTES
A Note that is issued for an amount less than its stated redemption price
at maturity will generally be considered to have been issued at an original
issue discount for federal income tax purposes (an "Original Issue Discount
Note"). The "issue price" of a Note will equal the first price to the public
(not including bond
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houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers) at which a substantial amount of
such Notes is sold for money. The "stated redemption price at maturity" of a
Note is the total of all payments required to be made under the Note other than
"qualified stated interest" payments. "Qualified stated interest" is stated
interest unconditionally payable as a series of payments in cash or property
(other than debt instruments of the issuer) at least annually during the entire
term of the Note and equal to the outstanding principal balance of the Note
multiplied by a single fixed rate of interest. In addition, ordinarily, a
Floating Rate Note providing for one or more qualified floating rates of
interest, a single fixed rate and one or more qualified floating rates, a single
objective rate or a single fixed rate and a single objective rate that is a
qualified inverse floating rate will generally have qualified stated interest if
interest is unconditionally payable at least annually during the term of the
Note at a rate that is considered to be a single qualified floating rate or a
single objective rate under the following rules. If a Floating Rate Note
provides for two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the Note,
the qualified floating rates together constitute a single qualified floating
rate. If interest on a debt instrument is stated at a fixed rate for an initial
period of one year or less followed by a variable rate that is either a
qualified floating rate or an objective rate for a subsequent period, and the
value of the variable rate on the issue date is intended to approximate the
fixed rate, the fixed rate and the variable rate together constitute a single
qualified floating rate or objective rate. Two or more rates will be
conclusively presumed to meet the requirements of the preceding two sentences if
the values of the applicable rates on the issue date are within 1/4 of 1 percent
of each other.
Special tax considerations (including possible original issue discount) may
arise with respect to Floating Rate Notes providing for (i) one Base Rate
followed by one or more Base Rates, (ii) a single fixed rate followed by a
qualified floating rate, or (iii) a Spread Multiplier. Special rules may apply
if a Floating Rate Note bears interest at an objective rate and it is reasonably
expected that the average value of the rate during the first half of the Note's
term will be either significantly less than or significantly greater than the
average value of the rate during the final half of the Note's term. Special
rules may also apply if a Floating Rate Note is subject to a cap, floor,
governor or similar restriction that is not fixed throughout the term of the
Note and is reasonably expected as of the issue date to cause the yield on the
Note to be significantly less or more than the expected yield determined without
the restriction. Purchasers of Floating Rate Notes should carefully examine the
applicable Pricing Supplement and should consult their tax advisors since tax
consequences will depend, in part, on the particular terms of the purchased
Note.
Final Treasury Regulations published on June 14, 1996 (the "1996 OID
Regulations") address, among other things, the accrual of original issue
discount on, and the character of gain realized on the sale, exchange or
retirement of, debt instruments providing for contingent payments. Prospective
United States Holders of Indexed Notes or Floating Rate Notes providing for
contingent payments should refer to the discussion regarding taxation in the
applicable Pricing Supplement and should consult their tax advisors regarding
the federal income tax consequences of the ownership and disposition of such
Notes.
If the difference between a Note's stated redemption price at maturity and
its issue price is less than a specified de minimis amount, generally 1/4 of 1
percent of the stated redemption price at maturity multiplied by the number of
complete years to maturity, then the Note will not be considered to have
original issue discount. Holders of Notes with a de minimis amount of original
issue discount will generally include such original issue discount in income, as
capital gain, on a pro rata basis as principal payments are made on the Note.
A United States Holder of Original Issue Discount Notes will be required to
include any qualified stated interest payments in income in accordance with the
Holder's method of accounting for federal income tax purposes. United States
Holders of Original Issue Discount Notes that mature more than one year from
their date of issuance will be required to include original issue discount in
income for federal income tax purposes as it accrues, in accordance with a
constant yield method based on a compounding of interest, before the receipt of
cash payments attributable to such income. Under this method, United States
Holders of Original Issue Discount Notes generally will be required to include
in income increasingly greater amounts of original issue discount in successive
accrual periods.
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Under the OID Regulations, a United States Holder of a Note may elect (the
"Constant Yield Election") to include in gross income all interest that accrues
on a Note using the constant yield method. For purposes of the election,
interest includes 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. Once made, such election may not be revoked without the
consent of the Internal Revenue Service.
If the Company has an option to redeem a Note, or the United States Holder
has an option to cause a Note to be repurchased prior to the Note's stated
maturity, for purposes of determining whether the Note has original issue
discount, such option will be presumed to be exercised if, by presuming the
option to be exercised, the yield on the 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 United States 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 purposes of accrual of original issue
discount, as if it were redeemed or repurchased and a new Note were issued on
the presumed exercise date for an amount equal to the Note's adjusted issue
price on that date.
The OID Regulations contain aggregation rules stating that in certain
circumstances if more than one type of Note is issued as part of the same
issuance of securities to a single holder, some or all of such Notes may be
treated together as a single debt instrument with a single issue price, maturity
date, yield to maturity and stated redemption price at maturity for purposes of
calculating and accruing any original issue discount. Unless otherwise provided
in the applicable Pricing Supplement, the Company does not expect to treat any
of the Notes as being subject to the aggregation rules for purposes of computing
original issue discount.
Short Term Notes. Under the OID Regulations, a Note that matures one year
or less from its date of issuance will be treated as a "short-term Original
Issue Discount Note." In general, a cash method holder of a short-term Original
Issue Discount Note is not required to accrue original issue discount for
federal income tax purposes unless it elects to do so. United States Holders
making such an election, United States Holders who report income for federal
income tax purposes on the accrual method and certain other United States
Holders, including banks and dealers in securities, are required to include
original issue discount on such short-term Original Issue Discount Notes on a
straight-line basis, unless an election is made to accrue the original issue
discount according to a constant yield method based on daily compounding. In the
case of a United States Holder who is not required, and does not elect, to
include original issue discount in income currently, any gain realized on the
sale, exchange or retirement of the short-term Original Issue Discount Note will
be ordinary income to the extent of the original issue discount accrued on a
straight-line basis (or, if elected, according to a constant yield method based
on daily compounding) through the date of sale, exchange or retirement. In
addition, such Holders will be required to defer deductions for any interest
paid on indebtedness incurred to purchase or carry short-term Original Issue
Discount Notes in an amount not exceeding the deferred interest income, until
such deferred interest income is recognized.
Amortizing Notes. Payments in respect of interest on an Amortizing Note
will be includible as described under "Payments of Interest" above. Amounts
received in respect of principal will reduce the Holder's basis in such Note. In
the case of an Amortizing Note which is also an Original Issue Discount Note,
each payment (other than a payment of qualified stated interest) is treated
first as a payment of original issue discount to the extent of the original
issue discount that has accrued as of the date of payment and has not been
allocated to prior payments and second as a payment of principal. Payments other
than payments of qualified stated interest reduce the Holder's basis in the
Note.
Market Discount and Premium. If a United States Holder purchases a Note
(other than a short-term Original Issue Discount Note) for an amount that is
less than its stated redemption price at maturity or, in the case of an Original
Issue Discount Note, its adjusted issue price (as defined in section 1.1275-1 of
the OID Regulations), the amount of the difference will be treated as "market
discount" for federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules of the Code, a
United States Holder will be required to treat any principal payment (or, in the
case of an Original Issue Discount Note, any payment that does not constitute
qualified stated interest) on, or any gain on the sale, exchange, retirement or
other disposition of, a Note as ordinary income to the extent of the market
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<PAGE> 22
discount which has not previously been included in income and is treated as
having accrued on such Note at the time of such payment or disposition. If such
Note is disposed of in a nontaxable transaction (other than as provided in
section 1276(c) and (d) of the Code), accrued market discount will be includible
as ordinary income to the Holder as if such Holder had sold the Note at its then
fair market value. In addition, the United States Holder may not be allowed to
deduct currently all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or to carry such Note.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the Note,
unless the United States Holder makes an irrevocable election to compute the
accrual on a constant yield basis. A United States Holder of a Note may elect to
include market discount in income currently as it accrues (on either a straight
line or a constant yield basis) in which case the rule described above regarding
deferral of interest deductions will not apply. This election to include market
discount in income currently, once made, applies to all market discount
obligations of a United States Holder acquired on or after the first day of the
first taxable year to which the election applies, and may not be revoked without
the consent of the Internal Revenue Service.
If a United States Holder acquires a Note for an amount that is greater
than its stated redemption price at maturity, the United States Holder will be
considered to have purchased such Note with "amortizable bond premium" equal in
amount to such excess. Such a Holder will not be required to include any
original issue discount in income and may elect (in accordance with applicable
Code provisions) to amortize such premium, using a constant yield method, over
the remaining term of the Note (where such Note is not optionally redeemable
prior to its maturity date). If such Note may be optionally redeemed prior to
maturity after the United States Holder has acquired it, the amount of
amortizable bond premium is determined with reference to the amount payable on
maturity or, if it results in a smaller premium attributable to the period of an
earlier redemption date, with reference to the amount payable on the earlier
redemption date. A United States Holder who elects to amortize bond premium must
reduce his tax basis in the Note by the amount of premium amortized in any year.
An election to amortize bond premium applies to all taxable debt obligations
then owned and thereafter acquired by the United States Holder and may be
revoked only with the consent of the Internal Revenue Service. Bond premium on a
Note held by a United States Holder that does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of a
Note.
A United States Holder that purchases an Original Issue Discount Note for
an amount that is greater than its adjusted issue price but less than or equal
to its stated redemption price at maturity will be considered to have purchased
such Note at an "acquisition premium" within the meaning of the Code. Under the
OID Regulations, the amount of original issue discount which such United States
Holder must include in its gross income with respect to such Note for any
taxable year will be reduced by the portion of such acquisition premium properly
allocable to such year.
FOREIGN CURRENCY NOTES
The following summary relates to Notes that are denominated in a currency
or currency unit other than the U.S. dollar ("Foreign Currency Notes").
Payment of Interest. A United States Holder who uses the cash method of
accounting and who receives a payment of interest in a foreign currency with
respect to a Foreign Currency Note generally will be required to include in
income the U.S. dollar value of the foreign currency payment (determined on the
date such payment is received) regardless of whether the payment is in fact
converted to U.S. dollars at that time. Such U.S. dollar value will be the
United States Holder's tax basis in the foreign currency received. A cash method
United States Holder who receives such a payment in U.S. dollars pursuant to an
option available under such Note will be required to include the amount of such
payment in income upon receipt.
An accrual basis United States Holder generally will be required to include
in income the U.S. dollar value of the amount of interest income that has
accrued with respect to a Foreign Currency Note during an accrual period. Unless
the United States Holder makes the "Spot Rate Convention Election" discussed in
the next paragraph, the U.S. dollar value of such accrued income will be
determined by translating such income at the average rate of exchange for the
accrual period or, with respect to an accrual period that spans two taxable
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<PAGE> 23
years, at the average rate for the partial period within each taxable year. The
average rate of exchange for the accrual period (or partial period) is the
simple average of the exchange rates for each business day of such period (or
other method if such method is reasonably derived and consistently applied).
Such United States Holder will recognize ordinary gain or loss with respect to
accrued interest income on the date such income is received. The amount of
ordinary gain or loss recognized will equal the difference between the U.S.
dollar value of the foreign currency payment received determined on the date
such payment is received in respect of such accrual period and the U.S. dollar
value of interest income that has accrued during such accrual period (as
determined above).
Spot Rate Convention Election. A United States Holder may elect to
translate accrued interest income into U.S. dollars at the exchange rate in
effect on the last day of an accrual period for the original issue discount,
market discount or accrued interest or, in the case of an accrual period that
spans two taxable years, at the exchange rate in effect on the last day of the
taxable year. Additionally, if a payment of such income is actually received
within 5 business days of the last day of the accrual period or taxable year, an
electing United States Holder may instead translate such income into U.S.dollars
at the exchange rate in effect on the day of actual receipt. Any such election
will apply to all debt instruments held by the United States Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States Holder, and may not be revoked without the consent
of the Internal Revenue Service.
Purchase, Sale, Exchange or Retirement. A United States Holder's tax basis
in a Foreign Currency Note will be the amount paid for such Note (which, if the
payment is in foreign currency, will be the U.S. dollar value of such foreign
currency determined on the date of such purchase) plus or minus the U.S. dollar
value of any adjustment on account of original issue discount, market discount,
acquisition premium or bond premium. A United States Holder who converts U.S.
dollars to a foreign currency and immediately uses that currency to purchase a
Foreign Currency Note denominated in the same currency normally will not
recognize gain or loss in connection with such conversion and purchase. However,
a United States Holder who purchases a Foreign Currency Note with previously
owned foreign currency will recognize ordinary income or loss in an amount equal
to the difference, if any, between such United States Holder's tax basis in the
foreign currency and the U.S. dollar fair market value of the Foreign Currency
Note on the date of purchase.
If foreign currency is received on the sale, exchange or retirement of a
Foreign Currency Note, the amount realized will be the U.S. dollar value of such
foreign currency, determined on the date of sale, exchange or retirement. A
United States Holder will have a tax basis in such foreign currency equal to
such U.S. dollar value.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss. Such gain or loss will not be treated as
interest income or expense. Such foreign currency gain or loss will equal the
difference between (i) the U.S. dollar value of the foreign currency principal
amount of such Foreign Currency Note and any payment with respect to accrued
interest, determined on the date such Note is disposed of, and (ii) the U.S.
dollar value of the foreign currency principal amount of such Note, determined
on the date such United States Holder acquired such Note, and the U.S. dollar
value of the accrued interest received, determined by translating such interest
at the average exchange rate for the accrual period or with reference to the
"Spot Rate Convention Election" as described above. The foreign currency
principal amount of a Foreign Currency Note generally equals the issue price in
foreign currency of such Note. Such foreign currency gain or loss will be
recognized only to the extent of the total gain or loss realized by a United
States Holder on the sale, exchange or retirement of the Foreign Currency Note.
The source of such foreign currency gain or loss will be determined by reference
to the residence of the United States Holder or the "qualified business unit" of
the holder on whose books the Note is properly reflected.
Any gain or loss recognized by such a holder in excess of such foreign
currency gain or loss will be capital gain or loss (except to the extent of any
accrued market discount or, in the case of a short-term Original Issue Discount
Note, to the extent of any original issue discount not previously included in
the United States Holder's income).
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The Section 988 Regulations provide a special rule for purchases and sales
of Foreign Currency Notes traded on an established securities market by a cash
basis taxpayer under which units of foreign currency paid or received are
translated into U.S. dollars at the spot rate on the settlement date of the
purchase or sale. Accordingly, no exchange gain or loss will result from
currency fluctuations between the trade date and the settlement of such a
purchase or sale. An accrual basis taxpayer may elect the same treatment
required of cash basis taxpayers with respect to purchases and sales of Foreign
Currency Notes traded on an established securities market provided the election
is applied consistently. Such election cannot be changed without the consent of
the Internal Revenue Service. Any gain or loss realized by a United States
Holder on a sale or other disposition of foreign currency (including its
exchange for U.S. dollars or its use to purchase Foreign Currency Notes) will be
ordinary income or loss.
Original Issue Discount. Original issue discount for any accrual period on
an Original Issue Discount Note that is a Foreign Currency Note will be
determined in the relevant foreign currency and then translated into U.S.
dollars in the same manner as stated interest accrued by an accrual basis United
States Holder, as described above under "Payment of Interest." Upon the 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 United States
Holder may recognize ordinary income or loss.
Premium and Market Discount. In the case of a Foreign Currency Note,
market discount will be determined in the relevant foreign currency. The amount
of accrued market discount (other than market discount currently included in
income pursuant to an election by the holder) which is required to be recognized
on the disposition of the Note will be translated into U.S. dollars based on the
exchange rate on the disposition date. No part of such accrued market discount
will be treated as exchange gain or loss. Accrued market discount which a holder
elects to accrue into income currently is translated into U.S. dollars using the
average exchange rate in effect during the accrual period. In such case,
movement in the exchange rate between the accrual date and disposition date will
result in exchange gain or loss at the time of the disposition with respect to
the amount of the market discount accrued.
In the case of a Foreign Currency Note, bond premium which the holder
elected to amortize or acquisition premium will be computed in the relevant
foreign currency and will reduce interest income or original issue discount
determined in such foreign currency. Exchange gain or loss will be realized with
respect to amortizable bond premium or acquisition premium by treating the
portion of the premium amortized with respect to any period as a return of
principal. The Section 988 Regulations provide that if a holder does not elect
to amortize bond premium, any loss realized on the sale, exchange or retirement
of a Foreign Currency Note will be capital loss to the extent of such bond
premium.
CURRENCY INDEXED NOTES
The proper treatment of payments of principal of and interest on Currency
Indexed Notes is uncertain at this time. United States Holders of Currency
Indexed Notes should consult their tax advisors as to the federal income tax
consequences of the ownership and disposition of such Notes.
INTEGRATION OF NOTES AND RELATED HEDGES
The 1996 OID Regulations also set forth rules under which holders are
permitted (or may, under certain circumstances, be required by the IRS) to treat
a Note and a related hedge as an integrated "synthetic" debt instrument if
certain requirements are met. Prospective holders should consult their tax
advisors in advance regarding the possible application of these rules to their
particular situations.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under United States federal income tax law now in effect, and subject to
the discussion of backup withholding in the following section, payments of
principal and interest (including original issue discount) and premium by the
Company or any paying agent to any United States Alien Holder of a Note will not
be subject to United States federal withholding tax, provided, in the case of
interest, 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
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<PAGE> 25
Company entitled to vote, (ii) such holder is not for United States federal
income tax purposes a controlled foreign corporation related to the Company
through stock ownership, (iii) such holder is not a bank receiving interest
described in section 881(c)(3)(A) of the Code, (iv) the interest is not
contingent on certain attributes of the Company (or the attributes of a person
who is a "related person" of the Company as defined in Code Sections 267(b) or
707(b)), and (v) either (A) the beneficial owner of the Note certifies, under
penalties of perjury, to the Company or paying agent, as the case may be, that
he is not a United States Holder and provides his name and address, and U.S.
taxpayer identification number, if any, 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 on behalf of the beneficial owner certifies,
under penalties of perjury, to the Company or paying agent, as the case may be,
that such certificate has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof. A certificate described in this paragraph is
effective only with respect to payments of interest (including original issue
discount) made to the certifying United States Alien Holder after the issuance
of the certificate in the calendar year of its issuance and the two immediately
succeeding calendar years.
If a United States Alien Holder 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, the United
States Alien 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 in the same manner as if it were a United
States Holder. See "Tax Consequences to United States Holders" above. Such a
holder will be required to provide to the Company a properly executed Internal
Revenue Service Form 4224 in order to claim an exemption from withholding tax.
In addition, if such a holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, interest
(including original issue discount) on a Note will be included in earnings and
profits if such interest and original issue discount is effectively connected
with the conduct by the United States Alien Holder of a trade or business in the
United States.
Generally, any gain or income realized upon the sale, exchange or
retirement or other disposition of a Note will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the United States Alien Holder, or
(ii) in the case of a United States Alien Holder who is an individual, the
United States Alien Holder is present in the United States for 183 days or more
in the taxable year of such sale, retirement or other disposition, and either
(a) such individual has a "tax home" (as defined in section 911(d)(3) of the
Code) in the United States or (b) the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States.
A Note held by an individual who is a United States Alien Holder at the
time of death will not be subject to United States federal estate tax on the
Note if (i) the holder does not own, actually or constructively, 10% or more of
the total combined voting power of all classes of stock of the Company entitled
to vote; (ii) at the time of such individual's death, the interest payments with
respect to the Notes are not effectively connected with a United States trade or
business of such holder; and (iii) no portion of the value of the Notes held by
such estate is attributable to interest that is contingent on certain attributes
of the Company (or the attributes of a person who is a "related person" of the
Company as defined in Code Sections 267(b) or 707(b)).
On April 15, 1996, the Internal Revenue Service proposed regulations (the
"Proposed Regulations") that could affect the procedures to be followed by a
United States Alien Holder in establishing such status. The Proposed Regulations
would generally be effective for payments made after December 31, 1997. United
States Alien Holders should consult their tax advisors regarding the effect, if
any, of the Proposed Regulations on their ownership or disposition of Notes.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to certain payments of principal, premium and interest
(including original issue discount) made to, and to the proceeds of sales before
maturity by, non-corporate United States Holders. A 31% backup withholding tax
will apply if the non-corporate United States Holder (i) fails to furnish its
Taxpayer Identification Number ("TIN") which, for an individual, would be his
Social Security Number, (ii) furnishes an incorrect TIN, (iii) is notified by
the Internal Revenue Service that it has failed to properly report payments of
interest and dividends, or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that it has furnished a correct TIN and has not been
notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments. Backup
withholding will not apply with respect to payments made to certain exempt
recipients, such as tax-exempt organizations.
In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding and information reporting will not apply to
payments of principal and interest made by the Company or any paying agent
thereof on a Note with respect to which the holder has provided the required
certification under penalties of perjury of its non-United States status
described above or has otherwise established an exemption, provided that the
Company or paying agent, as the case may be, does not have actual knowledge that
the payee is a United States person (as defined in section 7701(a)(30) of the
Code).
In addition, as a general rule, if principal, premium or interest payments
are collected outside the United States by a foreign office of a custodian,
nominee or other agent acting on behalf of a beneficial owner of a Note, such
custodian, nominee or other agent will not be required to apply backup
withholding to such payments made to such beneficial owner and will not be
subject to information reporting. However, if such custodian, nominee or other
agent is a United States person, a controlled foreign corporation for United
States tax purposes, or a foreign person 50% or more of whose gross income is
effectively connected with its conduct of a United States trade or business for
a specified three-year period, such custodian, nominee or other agent may be
subject to certain information reporting requirements with respect to such
payments unless it has in its records documentary evidence that the beneficial
owner is not a United States person and certain conditions are met or the
beneficial owner otherwise establishes an exemption. Under proposed Treasury
Regulations, backup withholding may apply to any payment which such custodian,
nominee or other agent is required to report if such custodian, nominee or other
agent has actual knowledge that the payee is a United States person.
Under current Treasury Regulations, payments on the sale, exchange or
retirement of a Note to or through a foreign office of a broker will not be
subject to backup withholding. However, if such broker is a United States
person, a controlled foreign corporation for United States tax purposes, or a
foreign person 50% or more of whose gross income is effectively connected with
its conduct of a United States trade or business for a specified three-year
period, information reporting will be required unless the broker has in its
records documentary evidence that the beneficial owner is not a United States
person and certain other conditions are met or the beneficial owner otherwise
establishes an exemption. Under proposed Treasury Regulations, backup
withholding may apply to any payment that such broker is required to report if
such broker has actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the holder certifies under
penalties of perjury to its non-United States person status or otherwise
establishes an exemption.
Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
United States federal income tax, provided that the required information is
furnished to the United States Internal Revenue Service.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding to their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
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PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company through
the Agents, who have agreed to use their reasonable best efforts to solicit
purchases of the Notes. The Company will pay an Agent a commission, in the form
of a discount ranging from .125% to .750% of the principal amount of the Note
sold through it, depending upon maturity of the Note. The Company may also sell
the Notes to the Agents acting as principal at a discount for resale to
investors at varying prices related to prevailing market prices at the time of
resale, to be determined by the Agents. The Agents may offer the Notes from time
to time to dealers at variable prices determined at the time of sale, which may
represent selling concessions to the dealers, for resale by the dealers to
investors at varying prices determined by the dealers at the time of resale. In
addition, the Company may arrange for the Notes to be sold through other agents,
dealers or underwriters acting as agent or principal, or may sell the Notes
directly to investors on its own behalf in those jurisdictions where it is
authorized to do so. In the case of sales made directly by the Company, no
commission will be payable.
The Company will have the sole right to accept offers to purchase Notes and
may reject any proposed purchase of Notes in whole or in part. The Agents will
have the right, in their reasonable discretion, to reject any offer to purchase
Notes received by them in whole or in part.
The Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act of 1993 (the "Act"), or to
contribute to payments the Agents may be required to make in respect thereof.
The Agents may be deemed to be "Underwriters" within the meaning of the Act.
Each of the Agents may from time to time purchase and sell Notes in the
secondary market, but is not obligated to do so, and there can be no assurance
that there will be a secondary market for the Notes or liquidity in the second
market if one develops. From time to time, each of the Agents may make a market
in the Notes.
LEGAL OPINIONS
Richard J. Rawson, Senior Vice President, General Counsel and Secretary of
the Company is passing upon the legality of the Notes for the Company.
Davis Polk & Wardwell of New York City is passing upon the legality of the
Notes for the Agents and certain tax matters in connection with the issuance of
the Notes for the Company. Such firm may from time to time act as counsel for
the Company and its subsidiaries.
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<PAGE> 28
PROSPECTUS
$3,500,000,000
LUCENT TECHNOLOGIES
NOTES AND WARRANTS
------------------------
Lucent Technologies Inc. (the "Company"), directly, through agents
designated from time to time, or through dealers or underwriters also to be
designated, may sell from time to time notes, debentures and other debt
securities (the "Notes") of the Company, and Warrants (the "Warrants") to
purchase Notes, for an aggregate offering price of up to $3,500,000,000, or the
equivalent thereof in one or more foreign currencies or currency units, on terms
to be determined at the time of sale. The specific designation, aggregate
principal amount, maturities, rates or method of calculating rates and time of
payment of interest, purchase price, any terms for redemption or repayment, the
currencies or currency units in which the Notes are denominated or payable,
whether the Notes are issuable in registered form or bearer form (with or
without interest coupons) or both, or in uncertificated form, whether Notes
initially will be represented by a single temporary or permanent global Note,
the duration, purchase price, exercise price and detachability of any Warrants,
and the agent, dealer or underwriter, if any, in connection with the sale of,
and any other terms with respect to, the Notes and/or Warrants in respect of
which this Prospectus is being delivered are set forth in the accompanying
Prospectus Supplement ("Prospectus Supplement"). The Company reserves the sole
right to accept and, together with its agents from time to time, to reject in
whole or in part any proposed purchase of Notes or Warrants to be made directly
or through agents.
------------------------
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.
------------------------
If an agent of the Company or a dealer or an underwriter is involved in the
sale of the Notes or Warrants in respect of which this Prospectus is being
delivered, the agent's commission or dealer's or underwriter's discount is set
forth in, or may be calculated from, the Prospectus Supplement and the net
proceeds to the Company from such sale will be the purchase price of such Notes
or Warrants less such commission in the case of an agent, the purchase price of
such Notes or Warrants in the case of a dealer or the public offering price less
such discount in the case of an underwriter, and less, in each case, the other
attributable issuance expenses. The aggregate proceeds to the Company from all
the Notes and Warrants will be the purchase price of Notes and Warrants sold,
less the aggregate of agents' commissions and dealers' and underwriters'
discounts and other expenses of issuance and distribution. The net proceeds to
the Company from the sale of Notes and Warrants are also set forth in the
Prospectus Supplement. See "Plan of Distribution" for possible indemnification
arrangements for the agents, dealers and underwriters.
------------------------
April 3, 1996
<PAGE> 29
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR
THE PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS
AND 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 AGENT, DEALER OR UNDERWRITER. THE DELIVERY OF THIS PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH THEY RELATE.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 ("Exchange Act") and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission ("SEC"). Such reports, proxy statements and other information filed
by the Company can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, and at the regional offices of the SEC located at 13th
Floor, 7 World Trade Center, New York, NY 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Such material can
also be inspected at the New York Stock Exchange. Copies of such material can
also be obtained at prescribed rates from the Public Reference Section of the
SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
------------------------
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the SEC (File
No. 1-11639) and are incorporated herein by reference.
(1) The Company's Registration Statement on Form 10 (No. 1-11639) filed
with the Commission on February 26, 1996 (the "Form 10") including the exhibits
thereto, as amended by Amendment No. 1 thereto filed on Form 10/A on March 12,
1996 and Amendment No. 2 thereto filed on Form 10/A on March 22, 1996 and
Amendment No. 3 thereto filed on Form 10/A on April 1, 1996.
All documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Notes and Warrants shall be deemed to be
incorporated by reference in this Prospectus and to be 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 other subsequently filed document which also is or is
deemed to be incorporated by reference herein or in the accompanying Prospectus
Supplement 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.
COPIES OF THE ABOVE DOCUMENTS, OTHER THAN EXHIBITS UNLESS SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS PROSPECTUS
INCORPORATES, MAY BE OBTAINED UPON REQUEST WITHOUT CHARGE FROM THE SECRETARY'S
DEPARTMENT, LUCENT TECHNOLOGIES INC., 600 MOUNTAIN AVENUE, MURRAY HILL, NEW
JERSEY 07974 (TELEPHONE NUMBER 908-582-8500).
2
<PAGE> 30
THE COMPANY
The Company was incorporated in November 1995 under the laws of the State
of Delaware and has its principal executive offices at 600 Mountain Avenue,
Murray Hill, New Jersey 07928 (telephone number 908-582-8500).
The Company is one of the world's leading designers, developers and
manufacturers of telecommunications systems, software and products. The Company
is a global market leader in the sale of public telecommunications network
systems, business communications systems and microelectronic components for
communications applications. Further, the Company is the largest supplier in the
United States of telecommunications products for consumers. In addition, the
Company supports network operators and businesses with engineering,
installation, maintenance and operations support services. The Company's
research and development activities are conducted through Bell Laboratories,
which consists of approximately three-quarters of the total resources of AT&T's
former Bell Laboratories division.
The Company's systems for network operators enable network operators to
provide wireline and wireless local, long-distance and international voice, data
and video services. The Company's networks include switching, transmission and
cable systems packaged and customized with application software, operations
support systems and associated professional services. The Company's business
systems are primarily customer premises-based telecommunications systems that
enable businesses to communicate within and between locations. The Company
designs, develops and sells high-performance integrated circuits, electronic
power systems and optoelectronic components for communications applications,
both for other manufacturers and for incorporation into its own systems and
products. In addition, the Company offers a wide range of communications
products in the United States for consumers and small businesses, including
corded, cordless and cellular telephones, telephone answering systems and
related accessories.
The Company is a majority owned subsidiary of AT&T Corp. ("AT&T"). AT&T has
announced its intention, subject to the satisfaction of certain conditions, to
divest its ownership interest in the Company by December 31, 1996 by means of a
tax-free distribution to its shareholders.
RECENT DEVELOPMENTS
The Company's business is highly seasonal, with revenue and net income
concentrated in the fourth quarter of the year. Consequently, during the three
quarters ending in March, June and September, the Company historically has not
been as profitable as in the quarter ending in December, and the Company
traditionally incurs losses in the first quarter. Such seasonality also causes
the Company's cash flow requirements to vary greatly from quarter to quarter.
In the first quarter of 1996, the Company expects to incur a net loss
before cumulative effects of accounting changes, net of taxes in the range of
$100 million to $140 million as compared to a net loss of $22 million in the
first quarter of 1995. For the second quarter of 1996, the Company expects that
it may earn substantially less than the $159 million earned in the second
quarter of 1995, resulting in a loss for the first half of 1996. There are
several factors influencing the significantly lower operating results
anticipated for the first half of 1996: (i) one-time expenses associated with
the Company's transition to operation as an independent publicly held company,
including replication and modification of information, payroll and financial
systems, and development of corporate identity programs; (ii) increased selling,
general and administrative expenses associated with plans that pre-date the
Company's restructuring decisions; (iii) the planned increase in expenditure by
the Company for research and development; and (iv) one-time costs associated
with the integration of the businesses purchased from Philips Electronics NV in
February 1996. The impact on selling, general and administrative expenses of the
actions taken in connection with the Company's strategic reorganization is not
expected to be realized until the second quarter of 1996 and subsequent periods.
USE OF PROCEEDS
The Company intends to use the proceeds from the sale of the Notes and
Warrants towards refunding of debt, capital expenditures and general corporate
purposes. The specific use of proceeds will be indicated in the
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<PAGE> 31
accompanying Prospectus Supplement hereto. The amount and timing of the sales of
the Notes and Warrants will depend on market conditions and the availability of
other funds to the Company.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the unaudited historical ratios of earnings
to fixed charges of the Company and its subsidiaries.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------
1995 1994 1993 1992 1991
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
-- 3.2 2.8 1.7 --
</TABLE>
For the purpose of calculating the ratio: (i) earnings have been calculated
by adding fixed charges to income before income taxes, and by deducting
therefrom interest capitalized during the period and the Company's share of the
undistributed income in less-than-fifty-percent-owned affiliates; and (ii) fixed
charges comprise total interest (including capitalized interest) and the portion
of rentals representative of the interest factor. For the years ended December
31, 1995 and 1991, the ratio computations indicate that earnings were inadequate
to cover fixed charges by $1,154 million and $1,529 million, respectively. The
years ended December 31, 1995 and 1991 include pre-tax restructuring and other
charges of $2,801 million and $1,006 million, respectively.
DESCRIPTION OF THE NOTES
The Notes are to be issued under an indenture (the "Indenture"), dated as
of April 1, 1996, between the Company and The Bank of New York, as Trustee (the
"Trustee").
A copy of the Indenture is filed as an exhibit to the Registration
Statement. 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. References are to the
Indenture, and wherever particular provisions are referred to, such provisions
are incorporated by reference as part of the statement made, and the statement
is qualified in its entirety by such reference.
GENERAL
The Indenture does not limit the aggregate principal amount of Notes which
may be issued thereunder and provides that the Notes may be issued from time to
time in one or more series. Reference is made to the Prospectus Supplement which
accompanies this Prospectus for a description of the Notes being offered thereby
including: (1) the aggregate principal amount of such Notes; (2) the percentage
of their principal amount at which such Notes will be sold; (3) the date(s) on
which such Notes will mature, or whether such Notes are payable on demand; (4)
the rate(s) per annum at which such Notes will bear interest, if any, or the
method of calculating such rate or rates of interest; (5) the times at which
such interest, if any, will be payable; (6) the terms for redemption or early
repayment, if any; (7) the denominations in which such Notes are authorized to
be issued; (8) the coin or currency in which the Notes are denominated, which
may be a composite currency such as the European Currency Unit; (9) any
provision enabling payments of the principal of or any premium or interest on
the Notes in a coin or currency other than the currency in which the Notes are
denominated, including a non-U.S. dollar denominated currency; (10) the manner
in which the amount of payments of principal of and any premium or interest on
the Notes is to be determined if such determination is to be made with reference
to one or more indexes; (11) whether such Notes are issuable in registered form
("registered Notes") or bearer form (with or without interest coupons) ("bearer
Notes") or both, and whether such Notes shall be uncertificated; (12) whether
any series of Notes will be represented by one or more temporary or permanent
global securities and, if so, whether any such global securities will be in
registered or bearer form, the identity of the depository for such global
security or securities and the method of transferring beneficial interests in
such global security or securities; (13) if a temporary global security is to be
issued with respect to a series or any portion thereof, the terms upon which
interests in such temporary global security may be exchanged for interests in a
permanent global security or for definitive Notes of the series and the terms
upon which interest in a permanent global security, if any, may be exchanged for
definitive Notes of the series; (14) information with respect to book-entry
procedures, if any; (15) whether and under what
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<PAGE> 32
circumstances the Company will pay additional amounts on any Notes held by a
person who is not a United States person in respect of taxes or similar charges
withheld and, if so, whether the Company will have the option to redeem such
Notes rather than pay such additional amounts; and (16) any other terms,
including any terms which may be required by or advisable under United States
laws and regulations or advisable in connection with the marketing of the Notes
of such series, which will not be inconsistent with the provisions of the
Indenture.
Notes of any series may be registered Notes or bearer Notes or both as
specified in the terms of the series. Additionally, Notes of any series may be
represented by a single global note registered in the name of a depository's
nominee and, if so represented, beneficial interests in such global note will be
shown on, and transfers thereof will be effected only through, records
maintained by a designated depository and its participants. Notes of any series
may also be uncertificated. Unless otherwise indicated in the Prospectus
Supplement, no bearer Notes (including Notes in permanent global bearer form, as
described below) will be offered, sold, resold or delivered, directly or
indirectly, to persons who are within the United States or its possessions or to
any United States person in connection with their original issuance or their
exchange for a portion of a temporary or permanent global Note. For purposes of
this Prospectus, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof, or an estate or trust the income of which is subject to United States
Federal income taxation regardless of its source.
Unless otherwise indicated in the Prospectus Supplement, principal and
interest, if any, will be payable at the office of one or more paying agents as
specified in the Prospectus Supplement; provided that payment of interest may be
made at the option of the Company by check mailed to the address of the person
entitled thereto as it appears in the register of the Notes. To the extent set
forth in the Prospectus Supplement, except in special circumstances set forth in
the Indenture, interest, if any, on bearer Notes will be payable only against
presentation and surrender of the coupons for the interest installments
evidenced thereby as they mature at the office of a paying agent of the Company
located outside of the United States and its possessions. The Company will
maintain one or more such agents for a period of two years after the principal
of such bearer Notes has become due and payable. During any period thereafter
for which it is necessary in order to conform to United States tax laws or
regulations, the Company will maintain a paying agent outside of the United
States and its possessions to which the bearer Notes and coupons related thereto
may be presented for payment and will provide the necessary funds therefor to
such paying agent upon reasonable notice.
Bearer Notes and the coupons related thereto will be transferable by
delivery. Unless otherwise indicated in the Prospectus Supplement, registered
Notes will be transferable at the office of one or more transfer or paying
agents as specified in the Prospectus Supplement.
The Notes will be unsecured obligations of the Company and will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Company.
Unless otherwise indicated in the Prospectus Supplement, the Notes will be
issued only in denominations of $25,000, or the equivalent thereof in the case
of Notes denominated in a foreign currency or currency unit (rounded downward to
an integral multiple of 1,000 units of such foreign currency or currency unit),
and any integral multiple of $1,000 over $25,000, or, in the case of Notes
denominated in a foreign currency or currency unit, 1,000 units of such currency
or currency unit, or in such other denominations, not less than $25,000, as may
be specified in the terms of Notes of any particular series. No service charge
will be made for any transfer or exchange of such Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Notes may be issued as original issue discount Notes (bearing no interest
or interest at a rate which at the time of issuance is below market rates) to be
sold at a substantial discount below their stated principal amount. Federal
income tax consequences and other special considerations applicable to any such
original issue discount Notes will be described in the Prospectus Supplement
relating thereto.
Registered Notes may be exchanged for an equal aggregate principal amount
of registered Notes of the same series having the same date of maturity,
interest rate, original issue date and other terms in such authorized
denominations as may be requested upon surrender of the registered Notes to a
transfer agent of
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<PAGE> 33
the Company as specified in the Prospectus Supplement and upon fulfillment of
all other requirements of such agent.
To the extent permitted by the terms of a series of Notes authorized to be
issued in registered form and bearer form, bearer Notes may be exchanged for an
equal aggregate principal amount of registered or bearer Notes of the same
series having the same date of maturity, interest rate, original issue date and
other terms in such authorized denominations as may be requested upon delivery
of the bearer Notes with all unpaid coupons relating thereto to a transfer or
paying agent of the Company as specified in the Prospectus Supplement and upon
fulfillment of all other requirements of such agent. Registered Notes will not
be exchangeable for bearer Notes.
TEMPORARY GLOBAL NOTES
If so specified in the Prospectus Supplement, all or any portion of the
Notes of a series that are issuable as bearer Notes initially will be
represented by one or more temporary global Notes, without interest coupons, to
be deposited with a common depository in London for Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the Euroclear System
("Euroclear"), and CEDEL S.A. ("CEDEL") for credit to the respective accounts of
the beneficial owners of such Notes (or to such other accounts as they may
direct). On and after the exchange date determined as provided in any such
temporary global Note and described in the Prospectus Supplement, the interest
in such temporary global Note will be exchangeable for definitive Notes in
bearer form, registered form, or permanent global form, or any combination
thereof, as specified in the Prospectus Supplement.
The Prospectus Supplement will set forth the procedures by which interest
in respect of any portion of a temporary global Note payable in respect of an
Interest Payment Date (as defined in such Prospectus Supplement) occurring prior
to the issuance of definitive Notes will be paid.
PERMANENT GLOBAL NOTES
If any Notes of a series are issuable in either bearer or registered
permanent global form, the Prospectus Supplement will describe the
circumstances, if any, under which beneficial owners of interests in any such
permanent global Note may exchange such interests for Notes of such series and
of like tenor and principal amount in any authorized form and denomination. A
person having a beneficial interest in a permanent global Note, except with
respect to payment of principal of, premium, if any, and any interest on such
permanent global Note, will be treated as a holder of such principal amount of
outstanding Notes represented by such permanent global Note as shall be
specified in a written statement of the holder of such permanent global Note, or
in the case of a permanent global Note in bearer form, of Euroclear or CEDEL
which is produced to the Trustee by such person. Principal of, premium, if any,
and any interest on a permanent global Note will be payable in the manner
described in the Prospectus Supplement.
COVENANTS
Limitation on Secured Indebtedness. The Company covenants in the Indenture
that it will not, and will not permit any Restricted Subsidiary to, create,
assume, incur or guarantee any Secured Indebtedness without securing the Notes
equally and ratably with such Secured Indebtedness unless immediately thereafter
the aggregate amount of all Secured Indebtedness (not including Secured
Indebtedness with which the Notes are equally and ratably secured or Secured
Indebtedness which is concurrently being retired) and the discounted present
value of all net rentals payable under leases entered into in connection with
sale and leaseback transactions (as further described below) would not exceed
15% of Consolidated Net Tangible Assets. (Section 4.03)
Limitation on Sale and Leaseback Transactions. The Company covenants in
the Indenture that it will not, and will not permit any Restricted Subsidiary
to, enter into any lease longer than three years (not including leases of newly
acquired, improved or constructed property) covering any Principal Property of
or any Restricted Subsidiary that is sold to any other person in connection with
such lease, unless either (a) immediately thereafter, the sum of (i) the
discounted present value of all net rentals payable under all such leases
entered into after January 31, 1996 (except any such leases entered into by a
Restricted Subsidiary before the time it became a Restricted Subsidiary) and
(ii) the aggregate amount of all Secured Indebtedness
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<PAGE> 34
(not including Secured Indebtedness with which the Notes are equally and ratably
secured) does not exceed 15% of Consolidated Net Tangible Assets, or (b) an
amount equal to the greater of (x) the net proceeds to the Company or a
Restricted Subsidiary from such sale and (y) the discounted present value of all
net rentals payable thereunder, is applied within 180 days to the retirement of
long-term debt of the Company or a Restricted Subsidiary (other than such debt
which is subordinate to the Notes or which is owing to the Company or a
Restricted Subsidiary). (Section 4.04)
Certain Definitions. "Secured Indebtedness" means indebtedness of the
Company or any Restricted Subsidiary for borrowed money secured by any lien upon
(or in respect of any conditional sale or other title retention agreement
covering) any Principal Property or the stock or indebtedness of a Restricted
Subsidiary, but excluding from such definition all indebtedness: (i) outstanding
on February 1, 1996 secured by liens (or arising from conditional sale or other
title retention agreements) existing on that date; (ii) incurred after January
31, 1996 to finance the acquisition, improvement or construction of such
property and either secured by purchase money mortgages or liens placed on such
property within 180 days of acquisition, improvement or construction or arising
from conditional sale or other title retention agreements; (iii) secured by
liens on Principal Property or the stock or indebtedness of Restricted
Subsidiaries and existing at the time of acquisition thereof; (iv) owing to the
Company or any other Restricted Subsidiary; (v) secured by liens existing at the
time a corporation becomes a Restricted Subsidiary; (vi) incurred to finance the
acquisition or construction of property secured by liens in favor of any country
or any political subdivision thereof; and (vii) constituting any replacement,
extension or renewal of any such indebtedness (to the extent such indebtedness
is not increased). "Principal Property" means land, land improvements, buildings
and associated factory, laboratory, office and switching equipment (excluding
all products marketed by the Company or any of its subsidiaries) constituting a
manufacturing, development, warehouse, service, office or operating facility
owned by or leased to the Company or a Restricted Subsidiary, located within the
United States and having an acquisition cost plus capitalized improvements in
excess of 1.25 per cent of Consolidated Net Tangible Assets as of the date of
such determination, other than any such property financed through the issuance
of tax-exempt governmental obligations, or which the Board of Directors
determines is not of material importance to the Company and its Restricted
Subsidiaries taken as a whole, or in which the interest of the Company and all
its subsidiaries does not exceed 50%. "Consolidated Net Tangible Assets" means
the total assets of the Company and its subsidiaries, less current liabilities
and certain intangible assets (other than product development costs).
"Restricted Subsidiary" means (i) any Subsidiary of the Company which has
substantially all its property in the United States, which owns or is a lessee
of any Principal Property and in which the investment of the Company and all its
Subsidiaries exceeds 1.25 per cent of Consolidated Net Tangible Assets as of the
date of such determination, other than certain financing Subsidiaries and
Subsidiaries formed or acquired after January 31, 1996 for the purpose of
acquiring the business or assets of another person and that do not acquire all
or any substantial part of the business or assets of the Company or any
Restricted Subsidiary and (ii) any other Subsidiary designated by the Board of
Directors of the Company as a Restricted Subsidiary. "Subsidiary" means any
corporation a majority of the voting shares of which are at the time owned or
controlled directly or indirectly, by the Company or by one or more
Subsidiaries, or by the Company and one or more Subsidiaries. (Section 1.01)
Limitation on Consolidation, Merger, Sale or Conveyance of Assets. Nothing
in the Indenture shall prevent any consolidation of the Company with, or merger
of the Company into, any other corporation or corporations (whether or not
affiliated with the Company), or successive consolidations or mergers to which
the Company or its successor or successors shall be a party or parties, or shall
prevent any sale or conveyance of the property of the Company (including stock
of subsidiaries) as an entirety or substantially as an entirety to any other
corporation (whether or not affiliated with the Company) authorized to acquire
and own or operate the same; provided that the Company covenants in the
Indenture that upon any such consolidation, merger, sale or conveyance, the due
and punctual payment of the principal of (and premium, if any) and interest on
all of the Notes of each series, 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 or observed by the Company shall be expressly
assumed, by supplemental indenture executed and delivered to the Trustee by the
corporation formed by such consolidation, or into which the Company shall have
been merged, or which shall
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<PAGE> 35
have acquired such property. The Indenture does not contain any covenants or
provisions which would afford protection to Noteholders in the event of a highly
leveraged transaction. (Section 5.01)
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein in
respect of any series of Notes shall have happened and be continuing, either the
Trustee or the holders of 25% in principal amount of the outstanding Notes of
such series may declare the principal of all of the Notes of such series to be
due and payable. (Section 6.01).
Events of Default in respect of the Notes of any series are defined in the
Indenture as being: default for 90 days in payment of any interest installment
when due; unless otherwise specified in the Prospectus Supplement with respect
to the Notes of any series, default in payment of principal of or premium, if
any, on Notes of such series when due; default for 90 days after written notice
to the Company by the Trustee or by the holders of 25% in principal amount of
the outstanding Notes of such series in performance of any agreement in the
Notes or Indenture in respect of such series; and certain events of bankruptcy,
insolvency and reorganization. (Section 6.01)
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default in respect of any series of Notes, give to the holders
of such series notice of all uncured and unwaived defaults known to it; provided
that, except in the case of default in payment on any of the Notes of such
series, the Trustee will be protected in withholding such notice if it in good
faith determines that the withholding of such notice is in the interest of the
holders of such series. The term "default" for the purpose of this provision
means any event which is, or after notice or passage of time or both would be,
an Event of Default. (Section 7.05)
The Indenture contains provisions entitling the Trustee, subject to the
duty of the Trustee during an Event of Default in respect of any series of Notes
to act with the required standard of care, to refuse to perform any duty or
exercise any right or power unless it receives indemnity satisfactory to it.
(Section 7.01)
The Indenture provides that the holders of a majority in principal amount
of the outstanding Notes of any series may direct the time, method and place of
conducting proceedings for remedies available to the Trustee, or exercising any
trust or power conferred on the Trustee, in respect of such series. (Section
6.06)
In certain cases, the holders of a majority in principal amount of the
outstanding Notes of a series may on behalf of the holders of all Notes of such
series waive any past default or Event of Default, or compliance with certain
provisions of the Indenture, except among other things a default in payment of
the principal of, premium, if any, or interest on, any of the Notes of such
series. (Sections 6.01 and 6.06)
The terms for any series of Notes may provide that the holders of Notes of
such series shall act as one class together with the holders of Notes of one or
more other series in voting, giving notice, waiving, giving directions or taking
any other specified, permitted or authorized action.
DISCHARGE AND DEFEASANCE
Under terms satisfactory to the Trustee, the Company may discharge certain
obligations to holders of any series of Notes issued under the Indenture which
have not already been delivered to the Trustee for cancellation and which have
either become due and payable or are by their terms due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the Trustee as trust funds an amount in cash sufficient to pay at maturity
(or upon redemption) the principal of and interest on such Notes. (Section 8.01)
In the case of any series of Notes the exact amounts (including the
currency of payment) of principal of and interest due on such series can be
determined at the time of making the deposit referred to below, the Company at
its option may also (i) discharge any and all of its obligations to holders of
such series of Notes ("defeasance") on the 91st day after the conditions set
forth below have been satisfied, but may not thereby avoid its duty to register
the transfer or exchange of such series of Notes, to replace any temporary,
mutilated, destroyed, lost or stolen Notes of such series or to maintain an
office or agency in respect of such series of Notes, or (ii) be released with
respect to such series of Notes from the obligations imposed by the covenants
described under "Covenants" above ("covenant defeasance"). Defeasance and
covenant defeasance may be
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<PAGE> 36
effected only if, among other things, (i) the Company irrevocably deposits with
the Trustee as trust funds (a) money in an amount, (b) in the case of Notes
payable only in U.S. Dollars, U.S. Government Obligations which through the
payment of interest and principal in respect thereof will provide money in an
amount or (c) a combination of (a) and (b), certified by a nationally recognized
firm of independent public accountants to be sufficient to pay each installment
of principal of and interest on all outstanding Notes of such series on the
dates such installments of principal and interest are due; and (ii) the Company
delivers to the Trustee an opinion of independent counsel to the effect that the
holders of such series of Notes will not recognize gain or loss for United
States Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to United States Federal income tax on the same
amount and in the same manner and at the same time as would have been the case
if such defeasance or covenant defeasance had not occurred (which opinion may
include or be based on a ruling to that effect received from or published by the
Internal Revenue Service). "U.S. Government Obligations" means (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged; or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America. (Sections 1.01 and 8.02)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of a majority in principal amount of the
outstanding Notes of each series affected thereby (with such series voting as a
separate class), to execute supplemental indentures adding any provisions to or
changing or eliminating any of the provisions of the Indenture or modifying the
rights of the holders of Notes of each such series, except that no such
supplemental indenture may, without the consent of each holder affected, among
other things, change the maturity of any Notes, or change the principal amount
thereof, or any premium thereon, or change the rate or change the time of
payment of interest thereon, make any Note payable in money other than that
stated in the Note, or reduce the aforesaid percentage of outstanding Notes.
(Sections 9.01 and 9.02)
CONCERNING THE TRUSTEE
The Company may from time to time maintain lines of credit, and have other
customary banking relationships, with The Bank of New York, the Trustee under
the Indenture.
DESCRIPTION OF THE WARRANTS
The Company may issue Warrants for the purchase of Notes. Warrants may be
issued independently or together with any Notes offered by any Prospectus
Supplement and may be attached to or separate from such Notes. The Warrants will
be issued under a Warrant Agreement to be entered into between the Company and a
bank or trust company, as Warrant Agent, and may be issued in one or more
series, all as set forth in the Prospectus Supplement relating to the particular
issue of Warrants. The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
Warrants. The following summaries of certain provisions of the form of Warrant
Agreement do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the provisions of the form of Warrant Agreement
(including the form of certificate evidencing the Warrants ("Warrant
Certificate")), copies of which are filed as exhibits to the Registration
Statement.
GENERAL
If Warrants are offered, the Prospectus Supplement will describe the
following terms of the Warrants offered hereby (to the extent such terms are
applicable to such Warrants): (i) the offering price; (ii) the coin or currency
for which Warrants may be purchased, which may be a composite currency such as
the European Currency Unit; (iii) the date on which the right to exercise the
Warrants shall commence and the date on which such right shall expire or, if the
Warrants are not continuously exercisable throughout such period, the specific
date or dates on which they will be exercisable; (iv) whether the Warrants will
be issuable in
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<PAGE> 37
registered or bearer form or both and whether the Warrants will be issued in
temporary and/or permanent global form, or in uncertificated form; (v) the
designation, aggregate principal amount, currency or currency unit and other
terms of the Notes purchasable upon exercise of the Warrants and, if such Notes
are issuable in bearer form, restrictions applicable to the purchase of Notes in
bearer form upon exercise of the Warrants; (vi) the designation and terms of the
Notes with which the Warrants are issued and the number of Warrants issued with
each such Note; (vii) the date on and after which the Warrants and the related
Notes will be separately transferable; (viii) the principal amount of Notes
purchasable upon exercise of one Warrant and the price at which and currency or
currency units in which such principal amount of Notes may be purchased upon
such exercise; (ix) United States Federal income tax consequences; and (x) any
other terms of the Warrants, including any terms which may be required or
advisable under United States laws or regulations.
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 the Prospectus Supplement.
Prior to the exercise of their Warrants, holders of Warrants will not have any
of the rights of holders of the Notes purchasable upon such exercise, including
the right to receive payments of principal of, premium, if any, or interest, if
any, on the Notes purchasable upon such exercise or to enforce covenants in the
Indenture.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder to purchase such principal amount of
Notes at such exercise price as shall in each case be set forth in, or
calculable from, the Prospectus Supplement relating to the Warrants. Warrants
may be exercised at any time up to 5:00 P.M. New York time on the date set forth
in the Prospectus Supplement relating to such Warrants. After such time on the
date (or such later date to which such date may be extended by the Company),
unexercised Warrants will become void.
Subject to any restrictions and additional requirements that may be set
forth in the Prospectus Supplement relating thereto, Warrants may be exercised
by delivery to the Warrant Agent of the Warrant Certificate evidencing such
Warrants properly completed and duly executed and of payment as provided in the
Prospectus Supplement of the amount required to purchase the Notes purchasable
upon such exercise. Warrants will be deemed to have been exercised upon receipt
of such Warrant Certificate and payment at the corporate trust office of the
Warrant Agent or any other office indicated in the Prospectus Supplement and the
Company will, as soon as practicable thereafter, issue and deliver the Notes
purchasable upon such exercise. If fewer than all of the Warrants represented by
such Warrant Certificate are exercised, a new Warrant Certificate will be issued
for the remaining amount of the Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Notes and Warrants being offered hereby in four
ways: (i) directly to purchasers, (ii) through agents, (iii) through dealers, or
(iv) through underwriters. Any or all of the foregoing may be customers of,
engage in transactions with or perform services for the Company in the ordinary
course of business.
Offers to purchase the Notes and Warrants may be solicited directly by the
Company or by agents designated by the Company from time to time. Any such
agent, who may be deemed to be an underwriter as that term is defined in the
Securities Act of 1933, as amended (the "Securities Act"), involved in the offer
or sale of the Notes and/or Warrants in respect of which this Prospectus is
delivered will be named, and any commission payable by the Company to such agent
set forth, in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment. Agents may be entitled under agreements, which
may be entered into with the Company, to indemnification by the Company against
certain civil liabilities, including liabilities under the Securities Act.
If a dealer is utilized in the sale of the Notes and/or Warrants in respect
of which this Prospectus is delivered, the Company will sell such Notes and/or
Warrants to the dealer, as principal. The dealer may then resell such Notes
and/or Warrants to the public (or to other dealers for resale to the public at
prices to be determined by such other dealers) at varying prices to be
determined by such dealer at the time of resale.
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Dealers may be entitled to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act.
If the sale is accomplished through an underwriter or underwriters, the
Company will enter into an underwriting agreement with such underwriters at the
time of sale to them and the names of the underwriters and the terms of the
transaction will be set forth in the Prospectus Supplement, which will be used
by the underwriters to make resales of the Securities in respect of which this
Prospectus is delivered to the public. The underwriters may be entitled, under
the relevant underwriting agreement, to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters to solicit offers by certain institutions to purchase
Notes and/or Warrants from the Company at the public offering price set forth in
the Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on a specified future date. Institutions with
which Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, educational and charitable
institutions, and other institutions, but shall in all cases be subject to the
approval of the Company. Except as otherwise provided in the Prospectus
Supplement, Contracts will not be subject to any conditions except that the
purchase by an institution of the Notes covered by its Contract shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject. A commission indicated in the
Prospectus Supplement will be paid to agents and underwriters soliciting
purchases of the Notes and/or Warrants pursuant to Contracts accepted by the
Company.
The place and time of delivery for the Notes and/or Warrants in respect of
which this Prospectus is delivered are set forth in the accompanying Prospectus
Supplement.
FOR FLORIDA RESIDENTS
AT&T, the parent of the Company, provides telecommunications services
between the United States and Cuba jointly with Empresa de Telecomunicaciones
Internacionales de Cuba ("EMTELCUBA"), the Cuban telephone company, pursuant to
all applicable U.S. laws and regulations. All payments due EMTELCUBA are handled
in accordance with the provisions of the Cuban Assets Control Regulations and
the Cuban Democracy Act of 1992 and specific licenses issued thereunder. AT&T is
the sole owner of the Cuban American Telephone and Telegraph Company ("CATT"), a
Cuban corporation. CATT owns cable facilities between the United States and Cuba
that were activated on November 25, 1994.
This information is accurate as of the date hereof. Current information
concerning the Company's and its affiliates' business dealings with the
government of Cuba or with any person or affiliate located in Cuba may be
obtained from the Division of Securities and Investor Protection of the Florida
Department of Banking and Finance, the Capitol, Tallahassee, Florida 32399-0350,
telephone number (904) 488-9805.
LEGAL OPINIONS
Richard J. Rawson, Senior Vice President and General Counsel of the
Company, is passing upon the legality of the Notes and Warrants for the Company.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company and its subsidiaries at December 31, 1995 and 1994 and for the years
ended December 31, 1995, 1994 and 1993 incorporated by reference in this
Prospectus and Registration Statement have been incorporated herein in reliance
upon the report of Coopers & Lybrand L.L.P., independent auditors, given on the
authority of that firm as experts in accounting and auditing.
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