<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus Dated July 14, 1995)
$100,000,000
[BOSTON GAS LOGO]
MEDIUM-TERM NOTES, SERIES C
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
Boston Gas Company (the "Company") may offer from time to time its Medium-Term
Notes, Series C (the "Notes") in an aggregate principal amount not to exceed
$100,000,000 (or, if any Notes are to be Original Issue Discount Notes (as
such term is defined under "Description of Notes"), such principal amount as
shall result in an initial aggregate offering price equivalent to no more than
$100,000,000), subject to reduction as a result of the sale of other Debt
Securities; provided, however, that the Company may increase the foregoing
maximum principal amount if in the future it determines that it may wish to
sell additional Notes. See "Description of Notes" and "Plan of Distribution of
Notes". Each Note will have a maturity equal to or greater than nine months
from its date of original issuance ("Issue Date"), as selected by the initial
purchaser and agreed to by the Company. The Notes may be subject to optional
redemption, or obligate the Company to redeem or purchase the Notes pursuant
to sinking fund or analogous provisions or at the option of the Holder
thereof, in each case as indicated in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued in fully registered form in denominations of $1,000 and
integral multiples of $1,000 and such other denomination or denominations in
excess thereof as shall be set forth in the applicable Pricing Supplement.
The interest rate or interest rate formula, if any, issue price, stated
maturity and redemption provisions, if any, for each Note will be established
by the Company at the date of issuance of such Note and will be indicated in a
Pricing Supplement. Each interest-bearing Note will bear interest at either
(a) a fixed rate (a "Fixed Rate Note") or (b) a variable rate determined by
reference to an interest rate formula (a "Floating Rate Note"), which may be
adjusted by adding or subtracting the Spread or multiplying by the Spread
Multiplier, unless otherwise indicated in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, the interest
rate formula will be the Commercial Paper Rate, the Prime Rate, the CD Rate,
the Federal Funds Effective Rate, LIBOR, the Treasury Rate, the CMT Rate, the
11th District Cost of Funds Rate or the J.J. Kenny Rate. Interest rates, or
interest rate formulas, are subject to change by the Company from time to
time, but no such change will affect any Note already issued or as to which an
offer to purchase has been accepted by the Company. In addition, a Note may be
issued that pays amounts in respect of interest and principal over the life of
the Note in accordance with an amortization schedule (an "Amortizing Note").
See "Glossary" for definitions of certain terms used in this Prospectus
Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT
HERETO OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Notes may be represented by a permanent Global Note or Notes, as specified in
the applicable Pricing Supplement, registered in the name of The Depository
Trust Company, as Depositary, or a nominee of the Depositary (each such Note
represented by a permanent Global Note being referred to herein as a "Book-
Entry Note"). Beneficial interests in Book-Entry Notes will only be evidenced
by, and transfers thereof will only be effected through, records maintained by
the Depositary and its participants. Except as described under "Description of
Notes--Book-Entry Notes", owners of beneficial interests in a permanent Global
Note will not be entitled to receive physical delivery of Notes in definitive
form and will not be considered the Holders thereof.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS
PUBLIC(1) COMMISSION(2) TO COMPANY(2)(3)
<S> <C> <C> <C>
Per Note................. 100% .125%-.750% 99.875%-99.25%
Total.................... $100,000,000 $125,000-$750,000 $99,875,000-$99,250,000
</TABLE>
- -------------------------------------------------------------------------------
(1) Unless otherwise indicated in the applicable Pricing Supplement, each Note
will be issued at 100% of its principal amount.
(2) The Company will pay Salomon Brothers Inc, Donaldson, Lufkin & Jenrette
Securities Corporation and J.P. Morgan Securities Inc. (the "Agents"), as
agents, a commission ranging from .125% to .750% of the initial offering
price of any Note, depending on its Stated Maturity, sold through any such
Agent. Commissions on Notes with maturities greater than 30 years will be
negotiated at the time of sale.
(3) Before deducting other expenses payable by the Company estimated at
$229,000.
The Notes are being offered on a continuing basis by the Company through the
Agents, each of which has agreed to use reasonable efforts to solicit offers
to purchase the Notes. The Company also may sell Notes to any Agent acting as
principal for resale to one or more investors or other purchasers at varying
prices related to prevailing market prices at the time of resale, or, if set
forth in the applicable Pricing Supplement, at a fixed public offering price,
as determined by such Agent. The Notes will not be listed on any securities
exchange, unless otherwise indicated in the applicable Pricing Supplement, and
there can be no assurance that the Notes offered by this Prospectus Supplement
will be sold or that there will be a secondary market for the Notes. The
Company reserves the right to withdraw, cancel or modify the offer made hereby
without notice. The Company or any Agent may reject any offer to purchase
Notes, in whole or in part. See "Plan of Distribution of Notes".
SALOMON BROTHERS INC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
The date of this Prospectus Supplement is July 19, 1995.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements the description of the general terms and conditions of Debt
Securities set forth under the heading "Description of Debt Securities" in the
accompanying Prospectus, to which description reference is hereby made. See
"Glossary" for definitions of certain terms used in this Prospectus
Supplement.
GENERAL
The Notes offered hereby will be issued under the Indenture referred to in
the accompanying Prospectus, under which The First National Bank of Boston has
been appointed as successor Trustee (the "Trustee"). The Notes constitute a
single series for purposes of the Indenture, limited to an aggregate principal
amount not to exceed $100,000,000. The foregoing limit may be increased by the
Company if in the future it determines that it may wish to sell additional
Notes. The Notes offered hereby may be reduced by an amount equal to the
aggregate initial offering price of any other Debt Securities (as defined in
the accompanying Prospectus) sold by the Company (including any other series
of medium-term notes). See "Plan of Distribution of Notes". The Notes are
referred to in the accompanying Prospectus as the "Debt Securities". For a
description of the rights attaching to different series of Securities under
the Indenture, see "Description of Debt Securities" in the Prospectus.
Each Note will mature on a Business Day nine months or more after its date
of issue, as selected by the initial purchaser and agreed to by the Company.
The Notes, other than Book-Entry Notes, will be issuable only in fully
registered form in minimum denominations of $1,000 and integral multiples of
$1,000 unless otherwise indicated in the Pricing Supplement. The Notes
constitute senior unsecured debt securities of the Company.
The Notes will be denominated in U.S. dollars and payment of principal and
interest on the Notes will be made in U.S. dollars.
Unless otherwise specified in any Pricing Supplement, the Notes will not be
subject to any sinking fund.
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note. Except as set forth below under "Book-Entry Notes," Book-
Entry Notes will not be issuable in definitive form.
Payments of principal, premium, if any, and interest payable at the Stated
Maturity or at any Redemption Date of a Certificated Note will be made in
immediately available funds at the office of the Paying Agent, provided that
the Note is presented to the Paying Agent in time for the Paying Agent to make
such payments in such funds in accordance with its normal procedures. The
Company has initially designated the Trustee, acting through its principal
corporate trust office at 150 Royall Street, Canton, Massachusetts, or
BancBoston Trust Company of New York, 55 Broadway, New York, New York, as its
Paying Agent (each a "Paying Agent"). Interest payments will be made in
immediately available funds only if agreed to on a case-by-case basis by the
Company and otherwise will be made by check mailed on the Interest Payment
Date to the person entitled thereto or by wire transfer to persons holding an
aggregate of at least $5 million principal amount of Notes having the same
Interest Payment Date (except that interest payments made at any Redemption
Date or at the Stated Maturity will be made as described above). Interest
payments which are required to be made in immediately available funds as
aforesaid will not be made in such funds unless written instructions to that
effect have been presented to the Paying Agent at least 15 days prior to the
Regular Record Date from and after which a holder has elected to receive
payments in immediately available funds. The Company will provide the Paying
Agent
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<PAGE>
with funds available for immediate use for such purpose. With respect to
payment at Stated Maturity of Book-Entry Notes, see "Description of Notes--
Book-Entry Notes."
Certificated Notes may be presented for registration of transfer or exchange
at the principal corporate trust office of the Trustee at 150 Royall Street,
Canton, Massachusetts, or BancBoston Trust Company of New York, 55 Broadway,
New York, New York. With respect to transfers of Book-Entry Notes and
exchanges of Global Notes representing Book-Entry Notes, see "Description of
Notes--Book-Entry Notes."
The total amount of any principal, premium, if any, and/or interest due on
any Global Note representing one or more Book-Entry Notes on any Interest
Payment Date or at the Stated Maturity will be made available to the Trustee
on such date. As soon as possible thereafter, the Trustee will make such
payments to the Depositary, in accordance with existing arrangements between
the Trustee and the Depositary. The Depositary will allocate such payments to
each Book-Entry Note represented by such Global Note and make payments to the
owners or holders thereof in accordance with its existing operating
procedures. Neither the Company nor the Trustee shall have any responsibility
or liability for such payments by the Depositary. So long as the Depositary or
its nominee is the registered owner of any Global Note, the depositary or its
nominee, as the case may be, will be considered the sole owner or holder of
the Book-Entry Note or Notes represented by such Global Note for all purposes
under the Indenture. The Company understands, however, that under existing
industry practice, the Depositary will authorize the persons on whose behalf
it holds a Global Note to exercise certain rights of holders of Notes. See
"Description of Notes--Book-Entry Notes."
The Notes may be issued as Original Issue Discount Notes. An Original Issue
Discount Note is a Note which is issued at a price lower than the principal
amount thereof and which provides that upon redemption or acceleration of the
Maturity thereof an amount less than the principal thereof shall become due
and payable. In the event of redemption or acceleration of the Maturity of an
Original Issue Discount Note, the amount payable to the Holder of such Note
upon such redemption or acceleration will be determined in accordance with the
terms of the Note, but will be an amount less than the amount payable at the
Stated Maturity of such Note. In addition, a Note issued at a discount may,
for United States federal income tax purposes, be considered an original issue
discount note, regardless of the amount payable upon redemption or
acceleration of Maturity of such Note.
If Notes which are reset annually are issued between a Regular Record Date
and the related Interest Payment Date, such Notes will be considered issued at
an original issue discount and, as a consequence, cash basis holders generally
will be required to report interest in respect of the Notes on an accrual
basis before the receipt of cash attributable thereto for Federal income tax
purposes. Additionally, if the Notes are issued with a variable interest rate
and do not satisfy certain requirements or if the Notes are otherwise subject
to original issue discount Federal income tax rules other than as discussed
below under "Certain Federal Income Tax Consequences", the applicable Pricing
Supplement will discuss any material Federal income tax consequences that
would apply.
INTEREST
Each interest-bearing Note will bear interest from and including its Issue
Date or from and including the most recent Interest Payment Date (or in the
case of a Floating Rate Note with weekly Interest Reset Dates, the day
following the most recent Regular Record Date) with respect to which interest
on such Note (or any predecessor Note) has been paid or duly provided for at
the fixed rate per annum, or at the rate per annum determined pursuant to the
interest rate formula, stated therein and in the applicable Pricing Supplement
until the principal thereof is paid or made available for payment. Interest
will be payable on each Interest Payment Date and at Maturity. Interest will
be payable generally to the person (which, in the case of a permanent Global
Note representing Book-Entry Notes, shall be the Depositary) in whose name a
Note (or any predecessor Note) is registered at the close of business on the
Regular Record Date next preceding each Interest Payment Date; provided,
however, that interest payable at Maturity will be payable to the person
(which, in the case of a permanent Global Note representing Book-Entry Notes,
shall be the Depositary) to whom principal shall be payable. Unless otherwise
indicated in the applicable Pricing Supplement, the first payment of interest
on any Note originally issued between a Regular Record Date and an Interest
Payment Date will be made on the second
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Interest Payment Date following the Issue Date of such Note to the registered
owner on the Regular Record Date immediately preceding such Interest Payment
Date. With respect to payments of interest on Book-Entry Notes, see
"Description of Notes--Book-Entry Notes".
Interest rates, or interest rate formulas, are subject to change by the
Company from time to time, but no such change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
FIXED RATE NOTES
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Note. Unless
otherwise indicated in the applicable Pricing Supplement, the Interest Payment
Dates with respect to Fixed Rate Notes shall be April 1 and October 1 of each
year and at Maturity and the Regular Record Dates for such Notes shall be the
next preceding March 15 and September 15, as the case may be. Unless otherwise
indicated in the applicable Pricing Supplement, interest payments for Fixed
Rate Notes shall be the amount of interest accrued to, but excluding, the
relevant Interest Payment Date, and interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
FLOATING RATE NOTES
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate formula for such Floating Rate Note. Such formula
may be: (a) the Commercial Paper Rate, in which case such Note will be a
Commercial Paper Rate Note, (b) the Prime Rate, in which case such Note will
be a Prime Rate Note, (c) the CD Rate, in which case such Note will be a CD
Rate Note, (d) the Federal Funds Effective Rate, in which case such Note will
be a Federal Funds Rate Note, (e) LIBOR, in which case such Note will be a
LIBOR Note, (f) the Treasury Rate, in which case such Note will be a Treasury
Rate Note, (g) the CMT Rate, in which case such Note will be a CMT Rate Note,
(h) the 11th District Cost of Funds Rate, in which case such Note will be an
11th District Cost of Funds Rate Note, (i) the J.J. Kenny Rate, in which case
such Note will be a J.J. Kenny Rate Note, or (j) such other interest rate
formula as is set forth in such Pricing Supplement. The applicable Pricing
Supplement for a Floating Rate Note also will specify the Spread or Spread
Multiplier, if any, and the maximum or minimum interest rate limitation, if
any, applicable to each Note. In addition, such Pricing Supplement will define
or particularize for each Floating Rate Note the following terms, if
applicable: Initial Interest Rate, Interest Payment Dates, Regular Record
Dates, Index Maturity, Interest Determination Dates and Interest Reset Dates
with respect to such Note. See "Glossary" for definitions of certain terms
used in this Prospectus Supplement.
The rate of interest on a Floating Rate Note in effect on any day will be
(a) if such day is an Interest Reset Date with respect to such Floating Rate
Note, the interest rate on such Floating Rate Note on such Interest Reset
Date, or (b) if such day is not an Interest Reset Date with respect to such
Floating Rate Note, the interest rate on such Floating Rate Note on the
immediately preceding Interest Reset Date with respect to such Floating Rate
Note; provided, however, that the interest rate in effect from the Issue Date
of a Floating Rate Note (or that of a predecessor Note) to but excluding the
first Interest Reset Date with respect to such Floating Rate Note will be the
Initial Interest Rate (as set forth in the applicable Pricing Supplement).
Subject to applicable provisions of law and except as described herein, the
rate of interest on a Floating Rate Note on any Interest Reset Date with
respect thereto will be the rate of interest determined with respect to the
Interest Determination Date pertaining to such Interest Reset Date as
determined in accordance with the applicable provisions described below.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each an "Interest Reset Date"),
as specified in the applicable Pricing Supplement. Unless otherwise specified
in the Pricing Supplement, the Interest Reset Date will be, in the case of
Floating Rate Notes which reset daily, each Market Day; in the case of
Floating Rate Notes (other than Treasury Rate Notes) which reset weekly, the
Wednesday of each week; in the case of Treasury Rate Notes which reset weekly,
except as provided in the following paragraph, the Tuesday of each week; in
the case of Floating Rate Notes which reset
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monthly (except for monthly reset 11th District Cost of Funds Rate Notes which
will reset the first calendar day of each month), the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semi-annually, the third Wednesday of two months of each
year, as indicated in the applicable Pricing Supplement; and in the case of
Floating Rate Notes which reset annually, the third Wednesday of one month of
each year, as indicated in the applicable Pricing Supplement. If any Interest
Reset Date for any Floating Rate Note would otherwise be a day that is not a
Market Day with respect to such Note, such Interest Reset Date shall be the
next succeeding Market Day with respect to such Note, except that if such Note
is a LIBOR Note and the next succeeding Market Day falls in the next
succeeding calendar month, such Interest Reset Date shall be the immediately
preceding Market Day.
Unless otherwise specified in the applicable Pricing Supplement, the
Interest Determination Date pertaining to an Interest Reset Date for (a) a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date"), (b) a CD Rate Note (the "CD Interest Determination Date"), (c) a
Federal Funds Rate Note (the "Federal Funds Interest Determination Date"), (d)
a Prime Rate Note (the "Prime Interest Determination Date"), (e) a CMT Rate
Note (the "CMT Interest Determination Date"), or (f) a J.J. Kenny Rate Note
(the "J.J. Kenny Interest Determination Date") will be the second Business Day
preceding such Interest Reset Date with respect to such Note. The Interest
Determination Date pertaining to an Interest Reset Date for an 11th District
Cost of Funds Rate Note (the "11th District Cost of Funds Interest
Determination Date") will be the last working day of the month of the Federal
Home Loan Bank of San Francisco (the "FHLB of San Francisco") preceding such
Interest Reset Date on which the FHLB of San Francisco publishes the monthly
11th District Cost of Funds Index. The Interest Determination Date pertaining
to an Interest Reset Date for a LIBOR Note (the "LIBOR Interest Determination
Date") will be the second London Business Day preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for
a Treasury Rate Note (the "Treasury Interest Determination 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 usually 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
Interest Determination Date pertaining to the Interest Reset Date occurring in
the next succeeding week. If an auction date shall fall on any Interest Reset
Date for a Treasury Rate Note, then such Interest Reset Date shall instead be
the first Business Day immediately following such auction date. The Commercial
Paper Interest Determination Date, the CD Interest Determination Date, the
Federal Funds Interest Determination Date, the Prime Interest Determination
Date, the Treasury Interest Determination Date, the 11th District Cost of
Funds Interest Determination Date, the CMT Interest Determination Date, and
the J.J. Kenny Interest Determination Date are collectively referred to herein
as the "Interest Determination Dates."
The "Calculation Date", where applicable, pertaining to an Interest
Determination Date will be the first to occur of either (a) the tenth calendar
day after such Interest Determination Date or, if such day is not a Business
Day, the next succeeding Business Day or (b) the Business Day preceding the
date any payment is required to be made for any period following the
applicable Interest Reset Date or Maturity Date (or the date of redemption or
repayment).
Unless otherwise specified in the applicable Pricing Supplement, The First
National Bank of Boston shall be the calculation agent (in such capacity, the
"Calculation Agent") with respect to Floating Rate Notes. Upon 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 that will
become effective on the next Interest Reset Date with respect to such Floating
Rate Note.
A Floating Rate Note may have either or both of the following: (a) a maximum
numerical interest rate limitation, or ceiling, on the rate of interest which
may accrue during any interest period; and (b) a minimum numerical interest
rate limitation, or floor, on the rate of interest which may accrue during any
interest period. In
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addition to any maximum interest rate which may be applicable to any Floating
Rate Note, the interest rate on the Floating Rate Notes will in no event be
higher than the maximum rate permitted under the Order of the Massachusetts
Department of Public Utilities pertaining to the Notes as then in effect.
Under such Order as currently in effect, the maximum interest rate on the
Notes (including Floating Rate Notes) is 12% per annum. The interest rate on
the Floating Rate Notes will also 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 current New York law the maximum rate of interest
is 25% per annum on a simple interest basis. This limitation under New York
law does not apply to Notes in which $2,500,000 or more has been invested.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate
Notes which reset daily or weekly, on the third Wednesday of March, June,
September and December of each year; in the case of Floating Rate Notes which
reset monthly, on the third Wednesday of each month or on the third Wednesday
of March, June, September and December of each year (as indicated in the
applicable Pricing Supplement); in the case of Floating Rate Notes which reset
quarterly, on the third Wednesday of March, June, September and December of
each year; in the case of Floating Rate Notes which reset semi-annually, on
the third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset
annually, on the third Wednesday of the month specified in the applicable
Pricing Supplement (each an "Interest Payment Date"), and in each case, at
Maturity. If, pursuant to the preceding sentence, an Interest Payment Date
with respect to any Floating Rate Note would otherwise be a day that is not a
Market Day with respect to such Note, such Interest Payment Date shall be the
next succeeding Market Day with respect to such Note, except that if such Note
is a LIBOR Note and the next succeeding Market Day falls in the next
succeeding calendar month, such Interest Payment Date shall be the immediately
preceding Market Day. Unless otherwise indicated in the applicable Pricing
Supplement, the Regular Record Date with respect to Floating Rate Notes shall
be the date 15 calendar days prior to each Interest Payment Date, whether or
not such date shall be a Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, interest
payments for a Floating Rate Note shall be the amount of interest accrued to
but excluding the Interest Payment Date; provided, however, that if the
Interest Reset Dates with respect to any Floating Rate Note are daily or
weekly, interest payable on any Interest Payment Date, other than interest
payable on any date on which principal on any such Note is payable, will
include interest accrued to and including the Regular Record Date next
preceding such Interest Payment Date.
Except as otherwise specified in the applicable Pricing Supplement, each
Floating Rate Note will accrue interest on an "Actual/360" basis, an
"Actual/Actual" basis or a "30/360" basis, in each case as specified in the
applicable Pricing Supplement. Accrued interest on the Floating Rate Notes
will be calculated by multiplying the principal amount thereof by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factor calculated for each day in the period for which interest is
being calculated. The interest factor for each such day will be computed by
(i) dividing the interest rate applicable to such day by 360 if the day count
convention specified in the applicable Pricing Supplement is "Actual/360,"
(ii) dividing the interest rate applicable to such day by the actual number of
days in the year if the day count convention specified in the applicable
Pricing Supplement is "Actual/Actual" or (iii) multiplying the interest rate
for that day by the result of 30 divided by 360 and then dividing that number
by the actual number of days in the month in which such day falls if the day
count convention specified in the applicable Pricing Supplement is "30/360."
Unless otherwise specified in a Pricing Supplement, all percentages
resulting from any calculation on Floating Rate Notes will be rounded, if
necessary, to the nearest one-hundred thousandth of a percentage point, with
five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) being rounded to 9.87655% (or .0987655) and 9.876544% (or
.09876544) being rounded to 9.87654% (or .0987654)), 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 or unit being rounded
upwards).
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COMMERCIAL PAPER RATE NOTES
Each Commercial Paper Rate Note will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread or
Spread Multiplier, if any) specified on the face of such Commercial Paper Rate
Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Commercial Paper Interest Determination
Date, the Money Market Yield (calculated as described below) of the rate on
such date for commercial paper having the Index Maturity specified in the
applicable Pricing Supplement as published in H.15(519) under the heading
"Commercial Paper". In the event that such rate is not published prior to 9:00
A.M., New York City time, on the Calculation Date pertaining to such
Commercial Paper Interest Determination Date, then the Commercial Paper Rate
shall be the Money Market Yield of the rate on such Commercial Paper Interest
Determination Date for commercial paper having the Index Maturity specified in
the applicable Pricing Supplement as published in 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
Composite Quotations, the Commercial Paper Rate for that Commercial Paper
Interest Determination Date shall be the Money Market Yield of the arithmetic
mean, as calculated by the Calculation Agent on such Calculation Date, of the
offered rates, as of 11:00 A.M., New York City time, on that 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
having the Index Maturity specified in the applicable Pricing Supplement
placed for an industrial issuer whose bond rating is "AA", or the equivalent,
from a nationally recognized rating agency; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Commercial Paper Rate will be the Commercial
Paper Rate in effect on such Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage rounded
upwards, if necessary, to the next higher one-hundred thousandth of a
percentage point) calculated in accordance with the following formula:
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
PRIME RATE NOTES
Each Prime Rate Note will bear interest at the interest rate (calculated
with reference to the Prime Rate and the Spread or Spread Multiplier, if any)
specified on the face of such Prime Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Prime Interest Determination Date, the rate
set forth on such date in H.15(519) under the heading "Bank Prime Loan". In
the event that such rate is not published prior to 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Prime Interest Determination
Date, then the Prime Rate will be the arithmetic mean (rounded upwards, if
necessary, to the next higher one-hundred thousandth of a percentage point) of
the rates of interest publicly announced by each bank that appears on the
Reuters Screen NYMF Page as such bank's prime rate or base lending rate as in
effect for that Prime Interest Determination Date. If fewer than four such
rates but more than one such rate appear on the Reuters Screen NYMF Page for
that Prime Interest Determination Date, the Prime Rate will be the arithmetic
mean (rounded upwards, if necessary, to the next higher one-hundred thousandth
of a percentage point), as calculated by the Calculation Agent on such
Calculation Date, of the prime rates quoted on the basis of the actual number
of days in the year divided by a 360-day year as of the close of business on
such Prime Interest Determination Date by at least two of three major money
center banks in The
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City of New York selected by the Calculation Agent. If fewer than two
quotations are provided, the Prime Rate shall be determined utilizing the
announced prime rates quoted on the basis of the actual number of days in the
year divided by a 360-day year as of the close of business 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, having total equity capital of at least $500 million and being
subject to supervision or examination by Federal or State authority, selected
by the Calculation Agent to provide such rate or rates; provided, however,
that if an appropriate number of such substitute banks or trust companies are
not quoting as mentioned in this sentence, the Prime Rate will be the Prime
Rate in effect on such Prime Interest Determination Date.
CD RATE NOTES
Each CD Rate Note will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any)
specified on the face of such CD Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any CD Interest Determination Date, the rate on such
date for negotiable certificates of deposit having the Index Maturity
specified in the applicable Pricing Supplement as published in H.15(519) under
the heading "CDs (Secondary Market)". In the event that such rate is not
published prior to 3:00 P.M., New York City time, on the Calculation Date
pertaining to such CD Interest Determination Date, then the CD Rate shall be
the rate on such CD Interest Determination Date for negotiable certificates of
deposit having the Index Maturity specified in the applicable Pricing
Supplement as published in Composite Quotations under the heading
"Certificates of Deposit". 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
Composite Quotations, the CD Rate for that CD Interest Determination Date
shall be calculated by the Calculation Agent and shall be the arithmetic mean
(rounded upwards, if necessary, to the next higher one-hundred thousandth of a
percentage point) of the secondary market offered rates, as of 10:00 A.M., New
York City time, on that CD Interest Determination Date, of three leading
nonbank dealers of negotiable U.S. dollar certificates of deposit in The City
of New York selected by the Calculation Agent for negotiable certificates of
deposit of major United States money market banks with a remaining maturity
closest to the Index Maturity specified in the applicable Pricing Supplement
in a denomination of $5,000,000; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate will be the CD Rate in effect on such CD Interest
Determination Date.
FEDERAL FUNDS RATE NOTES
Each Federal Funds Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Effective Rate and the Spread
or Spread Multiplier, if any) specified on the face of such Federal Funds Rate
Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Effective Rate" means, with respect to any Federal Funds Interest
Determination Date, the rate on such date for Federal Funds having the Index
Maturity specified in the applicable Pricing Supplement as published in
H.15(519) under the heading "Federal Funds (Effective)". In the event that
such rate is not published prior to 3:00 P.M., New York City time, on the
Calculation Date pertaining to such Federal Funds Interest Determination Date,
then the Federal Funds Effective Rate will be the rate on such Federal Funds
Interest Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". 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
Composite Quotations, the Federal Funds Effective Rate for that Federal Funds
Interest Determination Date shall be the arithmetic mean, as calculated by the
Calculation Agent on such Calculation Date, of the rates, as of 11:00 A.M.,
New York City time, on that Federal Funds Interest Determination Date, for the
last transaction in overnight Federal Funds arranged by three leading brokers
of Federal Funds transactions in The City of New York selected by the
Calculation Agent; provided, however, that if the brokers selected as
aforesaid by the Calculation Agent are not
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quoting as mentioned in this sentence, the Federal Funds Effective Rate will
be the Federal Funds Effective Rate in effect on such Federal Funds Interest
Determination Date.
LIBOR NOTES
Each LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) specified on
the face of such LIBOR Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR will
be determined by the Calculation Agent in accordance with the following
provisions:
(a) With respect to any LIBOR Interest Determination Date, LIBOR will be,
as specified in the applicable LIBOR Note and Pricing Supplement, either:
(i) the offered rate for deposits in U.S. dollars having the Index Maturity
designated in the applicable LIBOR Note and Pricing Supplement, commencing
on the second London Business Day immediately following that LIBOR Interest
Determination Date, that appears on the Telerate Page 3750, as of 11:00
A.M., London time, on that LIBOR Interest Determination Date ("LIBOR
Telerate"), or (ii) the arithmetic mean of the offered rates for deposits
in U.S. dollars having the Index Maturity designated in the applicable
LIBOR Note and Pricing Supplement, commencing on the second London Business
Day immediately after that LIBOR Interest Determination Date, that appear
on the Reuters Screen LIBO Page as of 11:00 A.M., London time, on that
LIBOR Interest Determination Date, if at least two such offered rates
appear on the Reuters Screen LIBO Page ("LIBOR Reuters"). "Telerate Page
3750" means the display designated as page "3750" on the Telerate Service
(or such other page as may replace the 3750 page on that service or such
other services as may be nominated by the British Bankers' Association for
the purpose of displaying London interbank offered rates for U.S. dollar
deposits). "Reuters Screen LIBO Page" means the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other page as
may replace the LIBO page on that service for the purpose of displaying
London interbank offered rates of major banks). If neither LIBOR Telerate
nor LIBOR Reuters is specified in the applicable LIBOR Note and Pricing
Supplement, LIBOR will be determined as if LIBOR Telerate had been
specified. If no rate appears on the Telerate Page 3750, or if fewer than
two offered rates appear on the Reuters Screen LIBO Page, as applicable,
LIBOR in respect of that LIBOR Interest Determination Date will be
determined as if the parties had specified the rate described in (b) below.
(b) With respect to a LIBOR Interest Determination Date on which no rate
appears on Telerate Page 3750, as specified in (a)(i) above, or on which
fewer than two offered rates appear on the Reuters Screen LIBO Page, as
specified in (a)(ii) above, as applicable, LIBOR will be determined on the
basis of the rates at which deposits in U.S. dollars having the Index
Maturity designated in the applicable LIBOR Note are offered at
approximately 11:00 A.M., London time, on that LIBOR Interest Determination
Date by four major banks in the London interbank market selected by the
Calculation Agent ("Reference Banks") as prime banks in the London
interbank market, commencing on the second London Business Day immediately
following that LIBOR Interest Determination Date and in a principal amount
of not less than $1,000,000 that is representative for a single transaction
in such market at such time. The Calculation Agent will request the
principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, LIBOR
in respect of that LIBOR Interest Determination Date will be the arithmetic
mean of such quotations. If fewer than two quotations are provided, LIBOR
in respect of that LIBOR Interest Determination Date will be the arithmetic
mean of the rates quoted at approximately 11:00 A.M., New York City time,
on that LIBOR Interest Determination Date by three major banks in The City
of New York selected by the Calculation Agent (which may include any Agent
or its affiliates) for loans in U.S. dollars to leading European banks
having the Index Maturity designated in the applicable LIBOR Note and
Pricing Supplement commencing on the second London Business Day following
that LIBOR Interest Determination Date and in a principal amount of not
less than $1,000,000 that is representative for a single transaction in
such market at such time; provided, however, that if the banks selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, LIBOR with respect to such LIBOR Interest Determination Date will
be LIBOR determined on the immediately
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preceding LIBOR Interest Determination Date or, in the case of the first
LIBOR Interest Determination Date, the initial Interest Rate specified in
the applicable LIBOR Note and Pricing Supplement.
TREASURY RATE NOTES
Each Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if
any) specified on the face of such Treasury Rate Note and in the applicable
Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Treasury Interest Determination Date, the
rate for the most recent auction of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable
Pricing Supplement as published in H.15(519) under the heading, "U.S.
Government Securities--Auction Average (Investment)" or, if not so published
by 3:00 P.M., New York City time, on the Calculation Date pertaining to such
Treasury Interest 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) for such auction as otherwise announced by the
United States Department of the Treasury. In the event that the results of the
auction of Treasury bills having the Index Maturity specified in the
applicable Pricing Supplement are not published or reported as provided above
by 3:00 P.M., New York City time, on such date, or if no such auction is held
in a particular week, then the Treasury Rate 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, as
calculated by the Calculation Agent on such Calculation Date, of the secondary
market bid rates as of approximately 3:30 P.M., New York City time, on such
Treasury Interest Determination Date, of three leading primary United States
government securities dealers selected by the Calculation Agent, for the issue
of Treasury bills with a remaining maturity closest to the specified Index
Maturity; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified on the face of such CMT Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Interest Determination Date, the rate displayed
on the Designated CMT Telerate Page (as defined below) under the caption
"Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . .
Mondays Approximately 3:45 P.M.," under the column for the Designated CMT
Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page
is 7055, the rate on such CMT 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 Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Interest Determination Date
will be such treasury constant maturity rate for the Designated CMT Maturity
Index as published in the relevant H.15(519). If such rate is no longer
published, or if not published by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for such CMT 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) as may then be published by either the Federal
Reserve Board 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 available by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for such CMT 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 Interest Determination Date
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reported, according to their written records, by three leading primary United
States government securities dealers (each, a "Reference Dealer") in The City
of New York (which may include any Agent or its affiliates) selected by the
Calculation Agent (from five such Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an
original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury
Note quotations, the CMT Rate for such CMT 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 Interest Determination
Date of three Reference Dealers in The City of New York (from five such
Reference Dealers selected by the Calculation Agent and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury Notes with an original maturity of the number of years that is the
next highest to the Designated CMT Maturity Index and a remaining term of
maturity closest to the Designated CMT Maturity Index and in an amount of at
least $100 million. If three or four (and not five) of such Reference Dealers
are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of all the offer prices so obtained and neither the highest
nor lowest of such quotes will be eliminated; provided, however, that if fewer
than three Reference Dealers selected by the Calculation Agent are quoting as
described herein, the CMT Rate for such CMT Interest Determination Date will
be the CMT Rate determined on the immediately preceding CMT Interest
Determination Date or, in the case of the first CMT Interest Determination
Date, the initial Interest Rate specified in the applicable CMT Rate Note and
Pricing Supplement. If two Treasury Notes with an original maturity as
described in the third preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, the quotes for the
Treasury Note with the shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable Pricing Supplement and CMT
Rate Note (or any other page that 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
and CMT Rate Note, 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
Treasury Notes (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified in the
applicable Pricing Supplement and CMT Rate Note with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement and CMT Rate Note, the Designated CMT Maturity Index shall
be 2 years.
11TH DISTRICT COST OF FUNDS RATE NOTES
Each 11th District Cost of Funds Rate Note will bear interest at the
interest rate (calculated with reference to the 11th District Cost of Funds
Rate and the Spread and/or Spread Multiplier, if any) specified on the face of
such 11th District Cost of Funds Rate Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "11th
District Cost of Funds Rate" means, with respect to any 11th District Cost of
Funds Interest Determination Date, the rate equal to the monthly weighted
average cost of funds for the calendar month immediately preceding the month
in which such 11th District Cost of Funds Interest Determination Date falls,
as set forth under the caption "11th District" on Telerate Page 7058 as of
11:00 A.M., San Francisco time, on such 11th District Cost of Funds Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on any
related 11th District Cost of Funds Interest Determination Date, the 11th
District Cost of Funds Rate for such 11th District Cost of Funds Interest
Determination Date shall be the monthly weighted average cost of funds paid by
member institutions in the Eleventh Federal Home Loan Bank District that was
most recently announced (the "Index") by the FHLB of San Francisco as such
cost of funds for the calendar month immediately preceding such 11th District
Cost of
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Funds Interest Determination Date. If the FHLB of San Francisco fails to
announce such rate on such 11th District Cost of Funds Interest Determination
Date for the calendar month immediately preceding such 11th District Cost of
Funds Interest Determination Date, the 11th District Cost of Funds Rate for
such 11th District Cost of Funds Interest Determination Date will be the 11th
District Cost of Funds Rate for the immediately preceding 11th District Cost
of Funds Interest Determination Date or, in the case of the first 11th
District Cost of Funds Interest Determination Date, the Initial Interest Rate
specified in the applicable 11th District Cost of Funds Rate Note and Pricing
Supplement.
J.J. KENNY RATE NOTES
J.J. Kenny Rate Notes will bear interest at the interest rate (calculated
with reference to the J.J. Kenny Rate and the Spread and/or Spread Multiplier,
if any) on the face of such J.J. Kenny Rate Note and specified in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "J.J. Kenny
Rate" means, with respect to any J.J. Kenny Interest Determination Date, the
rate specified in the high grade weekly index (the "Weekly Index") on such
J.J. Kenny Interest Determination Date made available by Kenny Information
Systems ("Kenny") to the Calculation Agent. The Weekly Index shall be based on
a 30-day yield evaluations at par of bonds, the interest of which is exempt
from Federal income taxation under the Internal Revenue Code of 1986, as
amended (the "Code"), of not less than five high grade component issuers
selected by Kenny, which shall include, without limitation, issuers of general
obligation bonds. The specific issuers to be included among the component
issuers may be changed from time to time by Kenny at its discretion. The bonds
on which the Weekly Index is based shall not include any bonds on which the
Interest is subject to a minimum tax or similar tax under the Code unless all
tax-exempt bonds are subject to such tax. In the event Kenny ceases to make
available such Weekly Index, a successor indexing agent will be selected by
the Calculation Agent, such index to reflect the prevailing rate for bonds
rated in the highest short-term rating category by Moody's Investors Service,
Inc. and Standard & Poor's Ratings Group in respect of issuers most closely
resembling the high grade component issuers selected by Kenny for its Weekly
Index, the interest on which is (a) variable on a weekly basis, (b) exempt
from Federal income taxation under the Code and (c) not subject to a minimum
tax or similar tax under the Code, unless all tax-exempt bonds are subject to
such tax. If such a successor indexing agent is not available, the rate for
any J.J. Kenny Interest Determination Date will equal 67% of the rate
calculated using the methodology set forth above under "Treasury Rate Notes".
The Calculation Agent shall calculate the J.J. Kenny Rate in accordance with
the foregoing. At the request of a holder of a Floating Rate Note bearing
interest at the J.J. Kenny Rate, the Calculation Agent will provide such
holder with the interest rate that will become effective as of the next
Interest Reset Date.
AMORTIZING NOTES
The Company may from time to time offer Registered Notes ("Amortizing
Notes") on which a portion or all of the principal amount is payable prior to
Stated Maturity in accordance with a schedule or by application of a formula.
Further information concerning additional terms and conditions of any
Amortizing Notes, including terms for repayment thereof, will be set forth in
the applicable Pricing Supplement.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes of like tenor and having the same Issue
Date will be represented by a single permanent Global Note. Each Global Note
representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, as Depositary (the "Depositary"), located in the
Borough of Manhattan, The City of New York, and will be registered in the name
of the Depositary or a nominee of the Depositary.
Ownership of beneficial interests in a Global Note representing Book-Entry
Notes will be limited to institutions that have accounts with the Depositary
or its nominee ("participants") or persons that may hold
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interests through participants. In addition, ownership of beneficial interests
by participants in such a Global Note will only be evidenced by, and the
transfer of that ownership interest will only be effected through, records
maintained by the Depositary or its nominee for such Global Note. Ownership of
beneficial interests in such a Global Note by persons that hold through
participants will only be evidenced by, and the transfer of that ownership
interest within such participant will only be effected through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in such a Global Note.
The Company has been advised by the Depositary that upon the issuance of a
Global Note representing Book-Entry Notes, and the deposit of such Global Note
with the Depositary, the Depositary will immediately credit, on its book-entry
registration and transfer system, the respective principal amounts of the
Book-Entry Notes represented by such Global Note to the accounts of
participants. The accounts to be credited shall be designated by the
soliciting Agent or, to the extent that the Book-Entry Notes are offered and
sold directly, by the Company.
Payment of principal of and any premium and interest on Book-Entry Notes
represented by any Global Note registered in the name of or held by the
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered Holder of the Global Note representing such
Book-Entry Notes. None of the Company, the Trustee or any agent of the Company
or the Trustee will have any responsibility or liability for any aspect of the
Depositary's records or any participant's records relating to, or payments
made on account of, beneficial ownership interests in a Global Note
representing such Book-Entry Notes or for maintaining, supervising or
reviewing any of the Depositary's records or any participant's records
relating to such beneficial ownership interests.
The Company has been advised by the Depositary that upon receipt of any
payment of principal of or any premium or interest in respect of a Global
Note, the Depositary will immediately credit, on its book-entry registration
and transfer system, accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note as shown on the records of the Depositary. Payments by
participants to owners of beneficial interests in a Global Note 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 registered in "street name", and will be the sole responsibility of
such participants.
No Global Note described above may be transferred except as a whole by the
Depositary for such Global Note to a nominee of the Depositary or by a nominee
of the Depositary to the Depositary or another nominee of the Depositary.
A Global Note representing Book-Entry Notes is exchangeable for definitive
Notes in registered form, of like tenor and of an equal aggregate principal
amount, only if (x) the Depositary notifies the Company that it is unwilling
or unable to continue as Depositary for such Global Note or if at any time the
Depositary ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (y) the Company in its
sole discretion determines that such Global Note shall be exchangeable for
definitive Notes in registered form or (z) any event shall have happened and
be continuing which, after notice or lapse of time, or both, would be an Event
of Default with respect to the Notes. Any Global Note that is exchangeable
pursuant to the preceding sentence shall be exchangeable in whole for
definitive Notes in registered form, of like tenor and of an equal aggregate
principal amount, in denominations of $1,000 and integral multiples of $1,000.
Such definitive Notes shall be registered in the name or names of such person
or persons as the Depositary shall instruct the Trustee. It is expected that
such instructions may be based upon directions received by the Depositary from
its participants with respect to ownership of beneficial interests in such
Global Note.
Except as provided above, owners of beneficial interests in such Global Note
will not be entitled to receive physical delivery of Notes in definitive form
and will not be considered the Holders thereof for any purpose
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under the Indenture, and no Global Note representing Book-Entry Notes shall be
exchangeable, except for another Global Note of like denomination and tenor to
be registered in the name of the Depositary or its nominee. Accordingly, each
person owning a beneficial interest in such Global Note must rely on the
procedures of the Depositary and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a Holder under the Indenture. The Indenture provides
that the Depositary, as a Holder, may appoint agents and otherwise authorize
participants to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action which a Holder is entitled to give or
take under the Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of Holders or an
owner of a beneficial interest in such Global Note desires to give or take any
action that a Holder is entitled to give or take under the Indenture, the
Depositary would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instructions of beneficial owners owning
through them.
The Depositary has advised the Company that the Depositary is a limited-
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (including
the Agents), banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly.
DEFEASANCE
The provisions of the Indenture relating to defeasance described under the
caption "Description of Debt Securities--Defeasance" in the accompanying
Prospectus will apply to the Notes.
OPTIONAL REDEMPTION
If one or more Redemption Dates (or range of Redemption Dates) is specified
in the applicable Pricing Supplement, the Notes described therein will be
subject to redemption, in whole or in part, as specified in such Pricing
Supplement, on any such date (or during any such range of dates) at the option
of the Company upon not less than 30 days' or more than 60 days' notice, at
the Redemption Price or Prices specified in the applicable Pricing Supplement,
together with interest accrued to the Redemption Date; provided, however, that
interest installments due prior to the date fixed for redemption will be
payable to the Holder of record at the close of business on the Regular Record
Date. If less than the entire principal amount of a Note is redeemed, the
principal amount of such Note that remains outstanding after such redemption
shall not be less than the minimum denomination of such Note.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of ownership of Notes. It deals only with Notes held as capital
assets by initial purchasers, and not with special classes of holders, such as
dealers in securities or currencies, banks, tax-exempt organizations, life
insurance companies, persons that hold Notes that are a hedge or that are
hedged against currency risks or that are part of a straddle or conversion
transaction, or persons whose functional currency is not the U.S. dollar.
Moreover, the summary deals only with Notes that are due to mature 30 years or
less from the date on which they are issued. The United States federal income
tax consequences of ownership of Notes that are due to mature more than 30
years from
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their date of issue will be discussed in the applicable Pricing Supplement.
The summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change at any time, perhaps with retroactive effect.
Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of ownership of Notes.
UNITED STATES HOLDERS
Payments of Interest
Interest on a Note, other than interest on a "Discount Note" that is not
"qualified stated interest" (each as defined below under "Original Issue
Discount--General"), will be taxable to the Note's United States Holder as
ordinary income at the time it is received or accrued, depending on the
holder's method of accounting for tax purposes. A United States Holder of a
Note is the Note's beneficial owner that is a citizen or resident of the
United States, a corporation, a partnership or other entity created or
organized in or under the laws of the United States or political subdivision
thereof, or an estate or trust, the income of which is subject to United
States federal income taxation regardless of its source.
Original Issue Discount
General. A Note, other than a Note with a term of one year or less (a
"short-term Note"), will be treated as issued at an original issue discount (a
"Discount Note") if the excess of the Note's "stated redemption price at
maturity" over its issue price is more than a "de minimis amount" (as defined
below). Generally, the issue price of a Note will be the first price at which
a substantial amount of Notes included in the issue of which the Note is a
part is sold to other than bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents, or
wholesalers. The stated redemption price at maturity of a Note is the total of
all payments provided by the Note that are not payments of "qualified stated
interest". Qualified stated interest is generally stated interest that is
unconditionally payable at least annually at a single fixed rate (with certain
exceptions for lower rates paid during some periods) applied to the
outstanding principal amount of the Note. Special rules for "Variable Rate
Notes" (as defined below under "Original Issue Discount--Variable Rate Notes")
are described below under "Original Issue Discount--Variable Rate Notes".
In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity (the "de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. Unless
the election described below under "Election to Treat All Interest as Original
Issue Discount" is made, a United States Holder of a Note with de minimis
original issue discount must include such de minimis original issue discount
in income as stated principal payments on the Note are made. The includible
amount with respect to each such payment will equal the product of the total
amount of the Note's de minimis original issue discount and a fraction, the
numerator of which is the amount of the principal payment made and the
denominator of which is the stated principal amount of the Note.
United States Holders of Discount Notes must, generally, include original
issue discount ("OID") in income calculated on a constant-yield method before
the receipt of cash attributable to such income, and generally will have to
include in income increasingly greater amounts of OID over the life of the
Note. The amount of OID includible in income by a United States Holder of a
Discount Note is the sum of the daily portions of OID with respect to the
Discount Note for each day during the taxable year or portion of the taxable
year on which the United States Holder holds such Discount Note ("accrued
OID"). The daily portion is determined by allocating to each day in any
"accrual period" a pro rata portion of the OID allocable to that accrual
period. Accrual periods with respect to a Note may be of any length and may
vary in length over the term of the Note as long as (i) no accrual period is
longer than one year and (ii) each scheduled payment of
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interest or principal on the Note occurs on either the final or first day of
an accrual period. The amount of OID allocable to an accrual period equals the
excess of (a) the product of the Discount Note's adjusted issue price at the
beginning of the accrual period and such Note's yield to maturity (determined
on the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over (b) the sum of the
payments of qualified stated interest on the Note allocable to the accrual
period. The "adjusted issue price" of a Discount Note at the beginning of any
accrual period is the issue price of the Note increased by (x) the amount of
accrued OID for each prior accrual period and decreased by (y) the amount of
any payments previously made on the Note that were not qualified stated
interest payments. For purposes of determining the amount of OID allocable to
an accrual period, if an interval between payments of qualified stated
interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual
period immediately following the interval) is allocated pro rata on the basis
of relative lengths to each accrual period in the interval, and the adjusted
issue price at the beginning of each accrual period in the interval must be
increased by the amount of any qualified stated interest that has accrued
prior to the first day of the accrual period but that is not payable until the
end of the interval. The amount of OID allocable to an initial short accrual
period may be computed using any reasonable method if all other accrual
periods other than a final short accrual period are of equal length. The
amount of OID allocable to the final accrual period is the difference between
(x) the amount payable at the maturity of the Note (other than any payment of
qualified stated interest) and (y) the Note's adjusted issue price as of the
beginning of the final accrual period.
Acquisition Premium. A United States Holder that purchases a Note for an
amount less than or equal to the sum of all amounts payable on the Note after
the purchase date other than payments of qualified stated interest but in
excess of its adjusted issue price (any such excess being "acquisition
premium") and that does not make the election described below under "Election
to Treat All Interest as Original Issue Discount" is permitted to reduce the
daily portions of OID by a fraction, the numerator of which is the excess of
the United States Holder's adjusted basis in the Note immediately after its
purchase over the adjusted issue price of the Note, and the denominator of
which is the excess of the sum of all amounts payable on the Note after the
purchase date, other than payments of qualified stated interest, over the
Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") by an initial
purchaser that is a United States Holder if (i) the amount for which the
United States Holder purchased the Note is less than the Note's issue price
(as determined above under "Original Issue Discount--General") and (ii) the
Note's stated redemption price at maturity or, in the case of a Discount Note,
the Note's "revised issue price", exceeds the amount for which the United
States Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount". The Code provides that,
for these purposes, the "revised issue price" of a Note generally equals its
issue price, increased by the amount of any OID that has accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount Note
will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a United
States Holder of a Market Discount Note may elect to include market discount
in income currently over the life of the Note. Such an election shall apply to
all debt instruments with market discount acquired by the electing United
States Holder on or after the first day of the first taxable year to which the
election applies. This election may not be revoked without the consent of the
Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on
a constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A United States Holder of
a Market Discount Note that does not elect to include market discount in
income currently generally will be required to defer deductions for interest
on borrowings allocable to such Note in an amount not exceeding the accrued
market discount on such Note until the maturity or disposition of such Note.
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Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the
first stated interest payment on the Note is to be made within one year of the
Note's issue date and (iii) the payment will equal or exceed the amount of
pre-issuance accrued interest, then the United States Holder may elect to
decrease the issue price of the Note by the amount of pre-issuance accrued
interest. In that event, a portion of the first stated interest payment will
be treated as a return of the excluded pre-issuance accrued interest and not
as an amount payable on the Note.
Notes Subject to Contingencies Including Optional Redemption. In general, if
a Note provides for an alternative payment schedule or schedules applicable
upon the occurrence of a contingency or contingencies and the timing and
amounts of the payments that comprise each payment schedule are known as of
the issue date, the yield and maturity of the Note are determined by assuming
that the payments will be made according to the Note's stated payment
schedule. If, however, based on all the facts and circumstances as of the
issue date, it is more likely than not that the Note's stated payment schedule
will not occur, then, in general, the yield and maturity of the Note are
computed based on the payment schedule most likely to occur.
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company or the Holder has an
unconditional option or options that, if exercised, would require payments to
be made on the Note under an alternative payment schedule or schedules, then
(i) in the case of an option or options of the Company, the Company will be
deemed to exercise or not exercise an option or combination of options in the
manner that minimizes the yield on the Note and (ii) in the case of an option
or options of the Holder, the Holder will be deemed to exercise or not
exercise an option or combination of options in the manner that maximizes the
yield on the Note. For purposes of those calculations, the yield on the Note
is determined by using any date on which the Note may be redeemed or
repurchased as the maturity date and the amount payable on such date in
accordance with the terms of the Note as the principal amount payable at
maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the
Note is repaid as a result of the change in circumstances and solely for
purposes of the accrual of OID, the yield and maturity of the Note are
redetermined by treating the Note as reissued on the date of the change in
circumstances for an amount equal to the Note's adjusted issue price on that
date.
Election to Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a
Note using the constant-yield method described above under the heading
"Original Issue Discount--General", with the modifications described below.
For purposes of this election, interest includes stated interest, OID, de
minimis original issue discount, market discount, de minimis market discount
and unstated interest, as adjusted by any amortizable bond premium (described
below under "Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing United States Holder, and no payments on the Note will be treated
as payments of qualified stated interest. This election will generally apply
only to the Note with respect to which it is made and may not be revoked
without the consent of the Service. If this election is made with respect to a
Note with amortizable bond premium, then the electing United States Holder
will be deemed to have elected to apply amortizable bond premium against
interest with respect to all debt instruments with amortizable bond premium
(other than debt instruments the interest on which is excludible from gross
income) held by the electing United States Holder as of the beginning of the
taxable year in which the Note with respect to which the election is made is
acquired or thereafter acquired. The deemed election with respect to
amortizable bond premium may not be revoked without the consent of the
Service.
If the election to apply the constant-yield method to all interest on a Note
is made with respect to a Market Discount Note, the electing United States
Holder will be treated as having made the election discussed above
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under "Original Issue Discount--Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an issue
price that does not exceed the total noncontingent principal payments by more
than the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity from the issue date and
(z) .015, or (2) 15 percent of the total noncontingent principal payments, and
(ii) provides for stated interest compounded or paid at least annually at (1)
one or more "qualified floating rates", (2) a single fixed rate and one or
more qualified floating rates, (3) a single "objective rate" or (4) a single
fixed rate and a single objective rate that is a "qualified inverse floating
rate".
A qualified floating rate or objective rate in effect at any time during the
term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no
earlier than 3 months prior to the first day on which that value is in effect
and no later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Note is denominated or (ii) it is equal to the product of such a rate and
either (a) a fixed multiple that is greater than zero but not more than 1.35,
or (b) a fixed multiple greater than zero but not more than 1.35, increased or
decreased by a fixed rate. A rate is not a qualified floating rate, however,
if the rate is subject to certain restrictions (including caps, floors,
governors, or other similar restrictions) unless such restrictions are fixed
throughout the term of the Note or are not reasonably expected to
significantly affect the yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that is
determined using a single, fixed formula and that is based on (i) one or more
qualified floating rates, (ii) one or more rates each of which would be
qualified floating rate for a debt instrument denominated in a currency other
than the currency in which the debt instrument is denominated, (iii) the yield
or changes in the price of one or more actively traded items of personal
property other than stock or debt of the issuer or a related party, or (iv) a
combination of objective rates. A variable rate is not an objective rate,
however, if 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. An objective rate is a "qualified inverse
floating rate" if (i) the rate is equal to a fixed rate minus a qualified
floating rate, and (ii) the variations in the rate can reasonably be expected
to inversely reflect contemporaneous variations in the cost of newly borrowed
funds. Under these rules, Commercial Paper Rate Notes, Prime Rate Notes, LIBOR
Notes, Treasury Rate Notes, CD Rate Notes, Federal Funds Rate Notes, CMT Rate
Notes, 11th District Cost of Funds Rate Notes, and J.J. Kenny Rate Notes will
generally be treated as Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a single
qualified floating rate or objective rate, all stated interest on the Note is
qualified stated interest and the amount of OID, if any, is determined by
using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or
qualified inverse floating rate, or, in the case of any other objective rate,
a fixed rate that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or objective rate, the amount of interest and OID
accruals on the Note are generally determined by (i) determining a fixed rate
substitute for each variable rate provided under the Variable Rate Note
(generally, the value of each variable rate as of the issue date or, in the
case of an objective rate that is not a qualified inverse floating rate, a
rate that reflects the reasonably expected yield on the Note), (ii)
constructing the equivalent fixed rate debt instrument (using the fixed rate
substitute described above), (iii) determining the amount of qualified stated
interest and OID with respect to the equivalent fixed rate debt instrument,
and (iv) making the appropriate adjustments for actual variable rates during
the applicable accrual period.
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If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than
the fixed rate. The qualified floating rate (or qualified inverse floating
rate) replacing the fixed rate must be such that the fair market value of the
Variable Rate Note as of the issue date would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
the qualified floating rate (or qualified inverse floating rate) rather than
the fixed rate.
Short-Term Notes. In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis
United States Holders and certain other United States Holders, including
banks, regulated investment companies, dealers in securities, common trust
funds, United States Holders who hold Notes as part of certain identified
hedging transactions, certain pass-thru entities and cash basis United States
Holders who so elect, are required to accrue OID on short-term Notes on either
a straight-line basis or under the constant-yield method (based on daily
compounding), at the election of the United States Holder. In the case of a
United States Holder not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of the short-term Note
will be ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States Holders who are
not required and to not elect to accrue OID on short-term Notes will be
required to defer deductions for interest on borrowings allocable to short-
term Notes in an amount not exceeding the deferred income until the deferred
income is realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest, are
included in the short-term Note's stated redemption price at maturity.
Notes Purchased at a Premium
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium",
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. Any election to amortize bond premium shall apply to
all bonds (other than bonds the interest on which is excludible from gross
income) 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 is irrevocable without the consent of the Service. See also
"Original Issue Discount--Election to Treat All Interest as Original Issue
Discount".
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note will generally be its cost,
increased by the amount of any OID or market discount included in the United
States Holder's income with respect to the Note and the amount, if any, of
income attributable to de minimis original issue discount and de minimis
market discount included in the United States Holder's income with respect to
the Note, and reduced by (i) the amount of any payments that are not qualified
stated interest payments, and (ii) the amount of any amortizable bond premium
applied to reduce interest on the Note.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on
the sale or retirement and the tax basis of the Note. Except to the extent
described above under "Original Issue Discount--Short-Term Notes" or "Original
Issue Discount--Market Discount" or attributable to accrued but unpaid
interest, gain or loss recognized on the sale or retirement
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of a Note will be capital gain or loss and will be long-term capital gain or
loss if the Note was held for more than one year.
Indexed Notes, Amortizing Notes and Certain Notes Which are Reset Annually
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to (i) Notes that are not
subject to the rules governing Variable Rates Notes payments on which are
determined by reference to any index (ii) Amortizing Notes, and (iii) certain
variable rate notes which reset annually.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder of a Note that is not a United States Holder, as defined above. This
discussion assumes that the Note is not subject to the rules of Section
871(h)(4)(A) of the Code (relating to interest payments that are determined by
reference to the income, profits, changes in the value of property or other
attributes of the debtor or a related party). This discussion also does not
address the tax consequences to nonresident aliens or foreign corporations
that are subject to United States federal income tax on a net basis on income
realized with respect to a Note because such income is effectively connected
with the conduct of a U.S. trade or business. Such holders are generally taxed
in a similar manner to United States Holders; however, certain special rules
apply, and such Holders are urged to consult with their tax advisors regarding
these rules.
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest, including OID,
by the Company or any of its paying agents to any holder of a Note that is
a United States Alien Holder will not be subject to United States federal
withholding tax if, in the case of interest or OID, (a) the beneficial
owner of the Note does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company
entitled to vote, (b) the beneficial owner of the Note is not a controlled
foreign corporation that is related to the Company through stock ownership,
and (c) either (A) the beneficial owner of the Note certifies to the
Company or its agent, under penalties of perjury, that it is not a United
States Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Note certifies to the Company or its
agent under penalties of perjury that such statement has been received from
the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof;
(ii) a United States Alien Holder of a Note will not be subject to United
States federal withholding tax on any gain realized on the sale or exchange
of a Note; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States federal estate tax as a
result of the individual's death if (a) the individual did not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and (b) the income on the
Note would not have been effectively connected with a United States trade
or business of the individual at the individual's death.
BACKUP WITHHOLDING AND INFORMATION REPORTING
United States Holders
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of
a Note before maturity within the United States to, and to the accrual of OID
on a Discount Note with respect to, non-corporate United States Holders, and
"backup
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withholding" at a rate of 31% will apply to such payments and to payments of
OID if the United States Holder (i) is not an exempt recipient and (ii) fails
to provide an accurate taxpayer identification number or to report all
interest and dividends required to be shown on its federal income tax returns.
United States Alien Holders
Information reporting and backup withholding will not apply to payments of
principal, premium (if any) and interest (including OID) made by the Company
or a paying agent to a United States Alien Holder on a Note if the
certification described in clause (i)(c) under "United States Alien Holders"
above is received, provided that the payor does not have actual knowledge that
the holder is a United States person.
Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is 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 a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES RELATING TO THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE DEBT SECURITIES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
PLAN OF DISTRIBUTION OF NOTES
Under the terms of an Agency Agreement dated July 19, 1995 (the "Agency
Agreement"), the Notes are offered on a continuing basis by the Company
through the Agents, each of which has agreed to use reasonable efforts to
solicit purchases of the Notes. Unless otherwise specified in the applicable
Pricing Supplement, the Company will pay each Agent a commission of from .125%
to .750% of the principal amount of each Note, depending on its Stated
Maturity, sold through such Agent. Commissions on Notes with maturities
greater than 30 years will be negotiated at the time of sale.
The Company may also sell Notes at a discount to an Agent as principal for
resale to one or more investors or other purchasers at varying prices related
to prevailing market prices at the time of resale or, if set forth in the
applicable Pricing Supplement, at a fixed public offering price, as determined
by such Agent. After any initial public offering of Notes to be resold to
investors and other purchasers, the public offering price (in the case of
Notes to be resold at a fixed public offering price), the concession and the
discount may be changed. In addition, an Agent may offer Notes purchased by it
as principal to other dealers. Notes sold by an Agent to a dealer may be sold
at a discount and, unless otherwise specified in the applicable Pricing
Supplement, such discount allowed will not be in excess of the discount
received by such Agent from the Company. Unless otherwise specified in the
applicable Pricing Supplement, any Note purchased by an Agent as principal
will be purchased at 100% of the principal amount thereof less a percentage
equal to the commission applicable to an agency sale of a Note of identical
maturity.
Unless otherwise indicated in the applicable Pricing Supplement, payment of
the purchase price of Notes will be required to be made in funds immediately
available in The City of New York.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Act"). The Company has agreed to indemnify the
Agents against certain liabilities, including civil liabilities under the Act,
or contribute to payments which the Agents may be required to make in respect
thereof. The Company has agreed to reimburse the Agents for certain expenses.
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Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation
and J.P. Morgan Securities Inc. and their affiliates engage in transactions
with and perform investment banking, commercial banking and advisory services
for the Company and its affiliates in the ordinary course of business.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by Ropes &
Gray, One International Place, Boston, Massachusetts, and for the Agents by
Sullivan & Cromwell, except that proceedings before the Massachusetts
Department of Public Utilities will be passed upon by J.L. Miller, Esq.,
General Counsel, Boston Gas Company, One Beacon Street, Boston, Massachusetts.
In rendering their opinion, Sullivan & Cromwell will rely as to matters of
Massachusetts law on Ropes & Gray and J.L. Miller, Esq. The opinions of Ropes
& Gray and Sullivan & Cromwell will be conditioned upon, and subject to
certain assumptions regarding, future action required to be taken by the
Company and the Trustee in connection with the issuance and sale of any
particular Note, the specific terms of Notes and other matters which may
affect the validity of Notes but which cannot be ascertained on the date of
such opinions.
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GLOSSARY
Set forth below are definitions, or the locations elsewhere of definitions,
of some of the terms used in this Prospectus Supplement.
The Notes are referred to in the accompanying Prospectus as the "Debt
Securities." For a description of the rights attaching to different series of
Debt Securities under the Indenture, see "Description of Debt Securities" in
the Prospectus.
"Business Day" means any day other than a Saturday or a Sunday that is not a
day on which banking institutions are authorized or required by law to be
closed in either The City of New York or The City of Boston.
"Calculation Agent" means the agent appointed by the Company to calculate
interest rates for Floating Rate Notes.
"Calculation Date" means the date on which the Calculation Agent is to
calculate an interest rate for a Floating Rate Note, which is the applicable
date set forth under the heading "Description of Notes--Floating Rate Notes."
"CD Rate" means the rate calculated as set forth under the heading
"Description of Notes--Floating Rate Notes--CD Rate Notes", unless otherwise
indicated in the applicable Pricing Supplement.
"Commercial Paper Rate" means the rate calculated as set forth under the
heading "Description of Notes--Floating Rate Notes--Commercial Paper Rate
Notes", unless otherwise indicated in the applicable Pricing Supplement.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 P.M. Quotations for U.S. Government Securities", or any
successor publication, published by the Federal Reserve Bank of New York.
"CMT Rate" means the rate calculated as set forth under the heading
"Description of Notes--Floating Rate Notes--CMT Rate Notes," unless otherwise
indicated in the applicable Pricing Supplement.
"11th District Cost of Funds Rate" means the rate calculated as set forth
under the heading "Description of Notes--Floating Rate Notes--11th District
Cost of Funds Rate Notes," unless otherwise indicated in the applicable
Pricing Supplement.
"Federal Funds Effective Rate" means the rate calculated as set forth under
the heading "Description of Notes--Floating Rate Notes--Federal Funds Rate
Notes", unless otherwise indicated in the applicable Pricing Supplement.
"Fixed Rate Note" shall have the meaning set forth on the cover page of this
Prospectus Supplement.
"Floating Rate Notes" shall have the meaning set forth on the cover page of
this Prospectus Supplement.
"H.15(519)" means the weekly statistical release entitled "Statistical
Release H.15(519), Selected Interest Rates", or any successor publication,
published by the Board of Governors of the Federal Reserve System.
"Index Maturity" means, with respect to a Floating Rate Note, the period to
maturity of the instrument or obligation on which the interest rate formula is
based, as indicated in the applicable Pricing Supplement.
"Initial Interest Rate" means the rate at which a Floating Rate Note will
bear interest from its Issue Date (or that of a predecessor Note) to the first
Reset Date, as indicated in the applicable Pricing Supplement.
S-23
<PAGE>
"Interest Determination Date" means the date as of which the interest rate
for a Floating Rate Note is to be calculated, to be effective as of the
following Reset Date and calculated on the related Calculation Date (except in
the case of Prime Rate and LIBOR, which are calculated on the related Prime
Rate Interest Determination Date and LIBOR Interest Determination Date,
respectively). See the fourth paragraph under the heading "Description of
Notes--Floating Rate Notes" for the Interest Determination Dates for Floating
Rate Notes. The Interest Determination Dates for any Floating Rate Note will
also be indicated in the applicable Pricing Supplement.
"Interest Reset Date" means the date on which a Floating Rate Note will
begin to bear interest at the variable interest rate determined as of any
Interest Determination Date. See the third paragraph under the heading
"Floating Rate Notes" for the applicable Reset Dates for such Notes. The Reset
Dates with respect to any Floating Rate Note will also be set forth in the
applicable Pricing Supplement and in such Note.
"J.J. Kenny Rate" means the rate calculated as set forth under the heading
"Description of Notes--Floating Rate Notes--J.J. Kenny Rate Notes," unless
otherwise indicated in the applicable Pricing Supplement.
"LIBOR" means the rate calculated as set forth under the heading
"Description of Notes--Floating Rate Notes--LIBOR Notes", unless otherwise
indicated in the applicable Pricing Supplement.
"London Market Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
"Market Day" means (a) with respect to any Note, any day that is not a
Saturday or Sunday and that, in The City of New York, is not a day on which
banking institutions generally are authorized or obligated by law or executive
order to close, and (b) with respect to LIBOR Notes only, any such day on
which dealings in deposits in U.S. dollars are transacted in the London
interbank market.
"Prime Rate" means the rate calculated as set forth under the heading
"Description of Notes--Floating Rate Notes--Prime Rate Notes", unless
otherwise indicated in the applicable Pricing Supplement.
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London interbank
offered rates of major banks).
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on
the Reuters Monitor Money Rates Service (or such other page as may replace the
NYMF page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
"Spread" means the number of basis points specified in the applicable
Pricing Supplement as being applicable to the interest rate for a particular
Floating Rate Note.
"Spread Multiplier" means the percentage specified in the applicable Pricing
Supplement as being applicable to the interest rate for a particular Floating
Rate Note.
"Treasury Rate" means the interest rate calculated as set forth under the
heading "Description of Notes--Floating Rate Notes--Treasury Rate Notes",
unless otherwise indicated in the applicable Pricing Supplement.
S-24
<PAGE>
PROSPECTUS
$100,000,000
[BOSTON GAS LOGO APPEARS HERE]
DEBT SECURITIES
Boston Gas Company (the "Company") from time to time may offer and sell its
debt securities in one or more series in an aggregate principal amount not to
exceed $100,000,000 (the "Debt Securities"). The Debt Securities may be offered
as separate series in amounts, at prices and on terms to be determined at the
time of sale. The specific designation, aggregate principal amount,
denominations, maturity, premium (if any), interest rate, time of payment of
any interest, terms for any redemption at the option of the Company or the
holder, terms for any sinking fund payments, the initial public offering price
and certain other terms of and in connection with the offering and sale of the
Debt Securities in respect of which this Prospectus is being delivered will be
set forth in an accompanying supplement to this Prospectus (each a "Prospectus
Supplement"). In addition, all or a portion of the Debt Securities may be
issued in permanent global form.
The Company may sell Debt Securities to or through underwriters or dealers, and
also may sell Debt Securities directly to other purchasers or through agents.
See "Plan of Distribution." Such underwriters may include Salomon Brothers Inc,
Donaldson, Lufkin & Jenrette Securities Corporation and/or J.P. Morgan
Securities Inc. or may be a group of underwriters represented by them or other
firms. Such firms may also act as agents. The Prospectus Supplement will set
forth the names of any underwriters or agents involved in the sale of the Debt
Securities and any applicable commissions or discounts.
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.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF DEBT SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this Prospectus is July 14, 1995
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus or
any Prospectus Supplement and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Company or any underwriter or agent. This Prospectus and any Prospectus
Supplement do not constitute an offer to sell or a solicitation of any offer
to buy any of the securities offered hereby and thereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
Neither the delivery of this Prospectus or any Prospectus Supplement nor any
sale made hereunder and thereunder shall, under any circumstances, create any
implication that the information herein or therein is correct as of any time
subsequent to their respective dates.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copied at the public reference facilities of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
7 World Trade Center, 13th Floor, New York, New York 10048, and copies of such
material may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), with respect to the Debt
Securities offered hereby. For further information with respect to the Company
and the Debt Securities offered hereby, reference is made to such Registration
Statement and to the exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1994 and the Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, each heretofore filed with the Commission pursuant to the 1934 Act, are
hereby incorporated by reference in this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act after the date of this Prospectus and prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed incorporated document modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated by reference in this Prospectus,
other than exhibits to such documents (unless such exhibits have been
specifically incorporated by reference therein). Requests for such copies
should be directed to J. L. Miller, Esq., General Counsel, Clerk and
Secretary, Boston Gas Company, One Beacon Street, Boston, Massachusetts 02108,
phone (617) 742-8400.
The Company does not prepare annual or quarterly reports for shareholders
and no such reports will be furnished to holders of Debt Securities.
2
<PAGE>
SUMMARY INFORMATION
The following summary information is qualified in its entirety by the
information appearing elsewhere in this Prospectus and in the documents,
financial statements and information incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Issuer................................ Boston Gas Company
Securities Offered.................... $100,000,000 of unsecured Debt Securities
Use of Proceeds....................... Financing of capital expenditures and payment of
obligations incurred in connection therewith, and
other general corporate purposes, which may include
the refinancing of outstanding indebtedness.
<CAPTION>
THE COMPANY
<S> <C>
Founded............................... 1822
Franchise area........................ Boston and 73 additional Massachusetts communities
Area served........................... 1,656 square miles
Area population....................... 2,335,000
Employees............................. 1,700
Sole Common Stockholder............... Eastern Enterprises
</TABLE>
SUMMARY OF FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------
MARCH 31, 1995 1994 1993 1992
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues.................................. $640,097 $660,158 $614,294 $594,330
Net Earnings Applicable to Common Stock............. $ 19,614 $ 25,222 $ 18,025 $ 27,303
Ratio of Earnings to Fixed Charges (A).............. 2.29 2.69 2.40 3.07
<CAPTION>
MARCH 31, 1995
--------------
<S> <C>
Long-term obligations (excluding current portion)... $216,041
Variable term preferred stock....................... 29,237
Common stockholder's investment..................... 216,589
--------
Total capitalization.............................. 461,867
========
Notes payable....................................... $ 9,000
</TABLE>
- --------
(A) Ratios of Earnings to Fixed Charges for the years ended December 31, 1990
and 1991 were 2.23 and 2.13, respectively. Fixed charges include the
financing costs of the Company's gas inventories which the Massachusetts
Department of Public Utilities allows to be fully recovered through the
Cost of Gas Adjustment Clause and which are reported in the Company's
consolidated statement of earnings as cost of gas sold. Fuel financing
costs were $2,329, $2,061, $1,532, $1,465, $1,611 and $2,274 for the twelve
months ended March 31, 1995 and for the years ended December 31, 1994,
1993, 1992, 1991 and 1990, respectively.
3
<PAGE>
OPERATING STATISTICS
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------
MARCH 31, 1995 1994 1993 1992
-------------- ------- ------- -------
<S> <C> <C> <C> <C>
Gas Sales and Transportation
(Millions of Cubic
Feet @ 1,000 B.T.U.)
Firm:Sales........................... 76,173 81,716 82,907 78,918
Transportation.................. 14,083 13,791 12,351 7,369
------- ------- ------- -------
Total Firm Throughput........... 90,256 95,507 95,258 86,287
Non-Firm:Sales....................... 17,225 14,001 10,189 18,702
Transportation.................. 26,139 34,919 39,304 27,270
------- ------- ------- -------
Total Non-Firm Throughput....... 43,364 48,920 49,493 45,972
Total Throughput..................... 133,620 144,427 144,751 132,259
======= ======= ======= =======
Actual Billing Degree Days as a
Percentage of
Normal (B).......................... 91% 101% 99% 104%
Average Number of Customers.......... 512,329 511,493 507,196 501,912
Average Annual Firm Gas Use per
Customer (MCF)...................... 176 187 188 172
</TABLE>
- --------
Notes:
(B) Normal Billing Degree Days represent the difference between 65 degrees and
the 20 year average of Boston temperatures adjusted for the current year's
meter reading schedule.
4
<PAGE>
THE COMPANY
The Company is engaged in the distribution, sale and transportation of
natural gas to residential, commercial and industrial customers in its service
area, which includes the City of Boston, Massachusetts, and 73 other eastern
Massachusetts communities. The Company has been in business for 173 years and
is the second oldest gas company in the United States. The Company's principal
executive offices are located at One Beacon Street, Boston, Massachusetts
02108 and its telephone number is (617) 742-8400. Since 1929 all of the common
stock of the Company has been owned by Eastern Enterprises ("Eastern"),
headquartered in Weston, Massachusetts. Eastern is a Massachusetts voluntary
association and its common stock is listed on the New York, Boston and Pacific
stock exchanges. The Debt Securities offered hereby are not guaranteed by
Eastern.
RECENT DEVELOPMENTS
In response to increasing competition in energy markets, the Company has
initiated a comprehensive corporate reengineering project focused on improving
customer service and lowering operating costs over the longer term. The
Company expects to complete implementation of a new organizational structure
designed to achieve these objectives by the end of 1995. The Company completed
an early retirement offer to a group of employees in the second quarter of
1995 at a cost of $1.1 million, and expects that lower salary expense will
offset this cost by the end of 1995. Certain details of the reengineering have
not yet been determined and additional costs may be incurred. Such costs are
expected to be offset over time by corresponding lower expenditures.
USE OF PROCEEDS
The net proceeds from the sale of Debt Securities offered from time to time
hereby will be used to finance capital expenditures and for the payment of
obligations incurred in connection therewith, and for other general corporate
purposes, which may include the refinancing of outstanding indebtedness
including the Company's 8 3/4% Debentures due 2001 and the Company's 9%
Debentures due 2001.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement
and the extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating
to such Debt Securities.
The Debt Securities are to be issued under the Indenture dated as of
December 1, 1989 (the "Indenture"), between the Company and The Bank of New
York, as Trustee (the "Original Trustee"). On November 18, 1992, the Company
and the Original Trustee entered into an Agreement of Resignation, Appointment
and Acceptance with The First National Bank of Boston pursuant to which the
Company appointed The First National Bank of Boston (the "Trustee") as
successor Trustee under the Indenture and the Original Trustee assigned, and
the Trustee accepted, all rights, powers, duties and trusts of the Original
Trustee under the Indenture. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by express reference to, all the provisions of the
Indenture, including the definitions therein of certain terms. Certain terms
defined in the Indenture are capitalized herein. Particular section numbers
refer to sections in the Indenture.
GENERAL
The Debt Securities will be unsecured obligations of the Company and will
rank on a parity with all other unsecured and unsubordinated indebtedness of
the Company.
5
<PAGE>
The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that Debt Securities
may be issued thereunder from time to time in one or more series.
Reference is made to the Prospectus Supplement relating to the Debt
Securities offered thereby for the following terms thereof, among others: (1)
the title of the Debt Securities; (2) any limit on the aggregate principal
amount of the Debt Securities; (3) the person to whom any interest on the Debt
Securities shall be payable if other than the registered holder; (4) the date
or dates on which the principal of the Debt Securities will be payable; (5)
the rate or rates at which the Debt Securities will bear interest, if any, or
the method by which such rate or rates shall be determined; (6) the date or
dates from which any such interest shall accrue, or the method by which such
date or dates shall be determined and the date on which payment of any such
interest will be payable and the Record Dates for such interest payment dates;
(7) the place or places where the principal of, and premium (if any) and
interest on Debt Securities of the series shall be payable; (8) the period or
periods within which, the price or prices at which, and the terms and
conditions upon which, the Debt Securities may be redeemed in whole or in
part, at the option of the Company; (9) the obligation, if any, of the Company
to redeem, repay, or purchase such Debt Securities pursuant to any sinking
fund or analogous provision or at the option of a Holder thereof and the
period or periods within which, the price or prices at which, and the terms
and conditions upon which, such Debt Securities shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation; (10) whether the
provisions of the Indenture under "Defeasance" will not be applicable to the
Debt Securities; (11) whether any of the Debt Securities are to be issuable in
temporary or, in whole or in part, permanent global form; (12) any additional
restrictive covenants included for the benefit of Holders of the Debt
Securities; (13) any additional Events of Default with respect to the Debt
Securities; and (14) any other terms of the Debt Securities not inconsistent
with the provisions of the Indenture. (Sections 301 and 901)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
principal of, and any premium (if any) or interest on, the Debt Securities
will be payable and the Debt Securities will be exchangeable and transfers
thereof will be registerable, at the Corporate Trust Office of the Trustee at
150 Royall Street, Canton, Massachusetts or at the office of the New York
registrar and paying agent, BancBoston Trust Company of New York, 55 Broadway,
New York, New York, provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as it appears in the Security Register. (Sections 202, 305 and 1002)
Unless otherwise indicated in any Prospectus Supplement relating thereto,
the Debt Securities will be issued in fully registered form, without coupons,
in denominations of $1,000 or any integral multiple thereof. (Section 302) No
service charge will be made for any transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. (Section
305) The Indenture also provides that the Debt Securities of any series, if so
specified with respect to a particular series, may be issued in permanent
global form. See "Permanent Global Securities."
Debt Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a discount from the principal amount
thereof. Special federal income tax, accounting and other considerations
applicable to any such Original Issue Discount Securities and not described in
this Prospectus will be described in the Prospectus Supplement relating
thereto. "Original Issue Discount Security" is defined in the Indenture as any
security which provides for an amount less than the principal amount thereof
to be due and payable upon the declaration of acceleration of the Maturity
thereof upon the occurrence of an Event of Default and during the continuation
thereof. (Section 101)
Unless otherwise indicated in a Prospectus Supplement, the Indenture does
not restrict, or require the Company to redeem or permit Holders to cause a
redemption of Debt Securities in the event of, (i) a consolidation, merger,
sale of assets or other similar transaction that may adversely affect the
creditworthiness of the Company or the successor or combined entity, (ii) a
change in control of the Company or (iii) a highly leveraged transaction
involving the Company whether or not involving a change in control.
6
<PAGE>
PERMANENT GLOBAL SECURITIES
If any Debt Securities of a series are issuable in permanent global form,
the Prospectus Supplement relating thereto will describe the circumstances, if
any, under which beneficial owners of interest in any such permanent global
Debt Security may exchange such interests for Debt Securities of such series
and like tenor of any authorized form and denomination. A Person having a
beneficial interest in a permanent global Debt Security will, except with
respect to payment of principal of, and any premium and interest on, such
permanent global Debt Security, be treated as a holder of such principal
amount of Outstanding Debt Securities represented by such permanent global
Debt Security as shall be specified in a written statement of the Holder of
such permanent global Debt Security. Principal of and any premium and interest
on a permanent global Debt Security will be payable in the manner described in
the Prospectus Supplement relating thereto. (Section 204)
RESTRICTIVE COVENANTS
Limitations upon Liens.
The Indenture provides that, so long as any of the Debt Securities of any
series remain outstanding, the Company will not, and will not permit any
Subsidiary to, create or suffer to be created or to exist any mortgage on,
pledge of, or other lien on or security interest in, any of its properties or
assets now owned or hereafter acquired to secure any indebtedness, without
making effective provision whereby the Debt Securities shall be equally and
ratably secured with any and all such indebtedness and with any other
indebtedness similarly entitled to be equally and ratably secured; except that
this restriction does not apply to or prevent (a) the Indenture of First
Mortgage from the Company to The National Shawmut Bank of Boston, as Trustee,
dated as of September 1, 1971 (the "First Mortgage Indenture"), securing the
Company's First Mortgage Bonds issued prior to the date of the Indenture, or
any indenture supplemental to the First Mortgage Indenture subjecting any
property to the lien thereof or confirming the lien thereof upon any property,
whether owned before or acquired after the date of the Indenture; (b)
mortgages on property existing at the time of acquisition of such property,
whether by purchase, merger or otherwise (or on the property of a Subsidiary
at the date it became a Subsidiary), or to secure the payment of all or any
part of the purchase price thereof including the extension of any such
mortgages to repairs, renewals, replacements, substitutions, betterment,
additions, extensions and improvements then or thereafter made on the property
subject thereto; (c) any extensions, renewals or replacements (or successive
extensions, renewals or replacements), in whole or in part, of mortgages
permitted by the foregoing clauses (a) and (b); (d) the pledge of any bonds at
any time issued under any of the mortgages permitted by clauses (a), (b) and
(c) above; or (e) Permitted Encumbrances. (Section 1004) "Permitted
Encumbrances" includes, among other items, the pledge or assignment in the
ordinary course of business of accounts receivable, or customers' installment
paper, representing part or all of the purchase price of appliances or
equipment. (Section 101)
Limitation on First Mortgage Bonds.
The Indenture provides that, so long as any of the Debt Securities remain
outstanding, the Company will not issue any additional First Mortgage Bonds
under the First Mortgage Indenture or any indenture supplemental thereto,
except in connection with transfers, exchanges, replacements, substitutions or
reissues of First Mortgage Bonds of any series issued by the Company prior to
the date of the Indenture. (Section 1006)
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to Debt
Securities of any series: (a) failure to pay any interest on any Debt Security
of that series when due, and such failure has continued for 30 days; (b)
failure to pay principal of, or premium, if any, on any Debt Security of that
series when due; (c) failure to deposit any sinking fund payment in respect of
any Debt Security of that series when due, and such failure has continued for
30 days; (d) failure to perform any other covenant of the Company in the
Indenture (other than a covenant included in the Indenture solely for the
benefit of series of Debt Securities other than that
7
<PAGE>
series), and such failure has continued for 90 days after written notice as
provided in the Indenture; (e) certain events of bankruptcy, insolvency or
reorganization relating to the Company; and (f) any other Event of Default
provided with respect to Debt Securities of that series. (Section 501)
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding shall occur and be continuing, either the Trustee or the
Holders of at least 25% in principal amount of the Outstanding Debt Securities
of that series may declare the principal amount (or, if the Debt Securities of
that series are Original Issue Discount Securities, such portion of the
principal amount as may be specified in the terms of that series) to be due
and payable immediately. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration has been obtained, the
Holders of a majority in principal amount of Outstanding Debt Securities of
that series may, subject to certain conditions, rescind and annul such
acceleration. (Section 502) For information as to waiver of defaults, see
"Modification and Waiver." Reference is made to the Prospectus Supplement
relating to any series or portion of any series of Debt Securities which are
Original Issue Discount Securities for the particular provisions relating to
acceleration of the Maturity of a portion of the principal amount of such
Original Issue Discount Securities upon the occurrence of an Event of Default
and the continuation thereof.
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity. (Sections 601 and
603) Subject to such provisions for security or indemnification of the
Trustee, the Holders of a majority in principal amount of the Outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the
Debt Securities of that series. (Section 512)
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt
Securities of that series and unless also the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable security or indemnity, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not
have received from the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
(Section 507) However, the Holder of any Debt Security will have an absolute
right to receive payment of the principal of (and premium, if any) and any
interest on such Debt Security on or after the due dates expressed in such
Debt Security and to institute suit for the enforcement of any such payment.
(Section 508)
The Indenture requires the Company to furnish to the Trustee annually a
statement as to whether there is a default in the performance or observance of
certain covenants. (Section 1007)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture provides that when, among other things, all Debt Securities
not previously delivered to the Trustee for cancellation (i) have become due
and payable, or (ii) will become due and payable at their Stated Maturity
within one year, or (iii) are to be called for redemption within one year and
the Company deposits or causes to be deposited with the Trustee as trust funds
in trust for the purpose an amount in money or the equivalent in U.S.
Government Obligations (as defined) (or a combination thereof) sufficient to
pay and discharge the entire indebtedness on the Debt Securities not
previously delivered to the Trustee for cancellation, for the principal (and
premium, if any) and interest to the date of the deposit or to the Stated
Maturity or Redemption Date, as the case may be, then the Indenture will cease
to be of further effect (except as to the Company's obligations to compensate,
reimburse and indemnify the Trustee pursuant to the Indenture and certain
other obligations), and the Company will be deemed to have satisfied and
discharged the Indenture. (Section 401)
8
<PAGE>
DEFEASANCE
The Indenture also provides that the Company will be discharged from any and
all obligations in respect of the Debt Securities of any series (except for
certain obligations to register the transfer or exchange of Debt Securities of
such series, to replace stolen, lost or mutilated Debt Securities of such
series, to maintain paying agencies and to hold monies for payment in trust),
upon the deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations which through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of and each installment of interest on the
Debt Securities of such series on its Stated Maturity in accordance with the
terms of the Indenture and the Debt Securities of such series. (Section 1302)
Under current income tax law, defeasance would likely be treated as a
taxable exchange of such Debt Securities for interest in the defeasance trust.
As a consequence a Holder would recognize gain or loss equal to the difference
between the Holder's cost or other tax basis for such Debt Securities and the
value of the Holder's proportionate interest in the defeasance trust, and
thereafter would be required to include in income a proportionate share of the
income, gain and loss of the defeasance trust. Purchasers of Debt Securities
should consult their own advisors with respect to the more detailed tax
consequences to them of such defeasance, including the applicability and
effect of tax laws other than Federal income tax law.
The Prospectus Supplement relating thereto may further describe the
provisions, if any, applicable to defeasance with respect to the Debt
Securities of a particular series.
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of each series affected
thereby and 66 2/3% in aggregate principal amount of the Outstanding Debt
Securities of all series affected thereby; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby: (a) change the Stated Maturity of
the principal of, or any installment or principal of or interest on, any Debt
Security; (b) reduce the principal amount of, or any premium or interest on,
any Debt Security; (c) reduce the amount of principal of an Original Issue
Discount Security payable upon acceleration of the Maturity thereof; (d)
change the place or currency of payment of principal of, or premium, if any,
or interest on, any Debt Security; (e) impair the right to institute suit for
the enforcement of any payment on or with respect to any Debt Security after
the Stated Maturity (or, in the case of redemption, on or after the Redemption
Date); or (f) reduce the percentage in principal amount of Outstanding Debt
Securities of any series, the consent of the Holders of which is required for
modification or amendment of the Indenture, for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults.
(Section 902)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of each series and 66 2/3% in aggregate principal amount of the
Outstanding Debt Securities of all series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants of the Indenture.
(Section 1008) The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series may on behalf of the Holders of
all Debt Securities of that series waive any past default under the Indenture
with respect to that series of Debt Securities, except a default in the
payment of the principal of or premium, if any, or any interest on any Debt
Security of that series or in respect of a provision which under the Indenture
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security of that series affected. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Nothing in the Indenture or in the Debt Securities of any series shall
prevent the consolidation or merger of the Company with or into any other
Person, or the merger into the Company of any other Person, or the sale by the
Company of its property and assets as, or substantially as, an entirety, or
otherwise, provided, however, that
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(i) any consolidation, merger, sale or transfer shall be on terms that fully
preserve and do not impair the rights or powers of the Trustee or the Holders
of the Debt Securities; (ii) (x) the corporation resulting from such
consolidation, (y) any corporation other than the Company into which such
merger shall be made, or (z) the corporation to which such property and assets
shall be sold shall expressly assume the due and punctual payment of the
principal of, and interest on, all the Debt Securities then outstanding and
the performance and observance of all covenants and conditions of the
Indenture on the part of the Company to be performed or observed, to the same
extent that the Company is bound and liable; and (iii) certain other
conditions are met. (Section 801)
TRUSTEE
The Trustee is The First National Bank of Boston which has from time to time
and may continue to provide loans to the Company and its affiliates in the
ordinary course of business.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities (i) through underwriters or
dealers; (ii) through agents; (iii) directly to purchasers; or (iv) through a
combination of any such methods of sale. Any such underwriter, dealer or agent
may be deemed to be an underwriter within the meaning of the Securities Act.
The Prospectus Supplement relating to any Debt Securities will set forth their
offering terms, including the name or names of any underwriters, the purchase
price of such Debt Securities and the proceeds to the Company from such sale,
any underwriting discounts, commissions and other items constituting
underwriters' compensation, any initial public offering price and any
securities exchanges on which such Debt Securities may be listed.
If underwriters are used in the sale, the Debt Securities will be acquired
by the underwriters for their own accounts and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
price or prices, which may be changed, or at market prices prevailing at the
time of sale, or at prices related to such prevailing market prices, or at
negotiated prices. The Debt Securities may be offered to the public either
through underwriting syndicates represented by one or more managing
underwriters or directly by one or more of such firms. Unless otherwise set
forth in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase any Debt Securities will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all
such Debt Securities if any are purchased. Any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may
be changed from time to time, any such concession not to be in excess of the
discount received by the Agent from the Company unless otherwise specified in
the applicable Pricing Supplement.
Debt Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer
or sale of any Debt Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent will be set forth, in the Prospectus Supplement relating thereto. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a reasonable efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement relating thereto, the Company
will authorize underwriters, dealers or agents to solicit offers by certain
specified institutions to purchase Debt Securities from the Company at the
public offering price set forth in the Prospectus Supplement pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject to any conditions set forth
in the Prospectus Supplement and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts. The underwriters and
other persons soliciting such contracts will have no responsibility for the
validity or performance of any such contracts.
Underwriters, dealers and agents may be entitled to indemnification under
agreements entered into with the Company against civil liabilities, including
liabilities under the 1933 Act, or to contribution by the Company to payments
they may be required to make in respect thereof.
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VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities will be passed upon for the Company by
Ropes & Gray, One International Place, Boston, Massachusetts, and for any
Agents or Underwriters by Sullivan & Cromwell, 125 Broad Street, New York, New
York. Proceedings before the Massachusetts Department of Public Utilities will
be passed upon by J.L. Miller, Esq., General Counsel, Boston Gas Company, One
Beacon Street, Boston, Massachusetts. In rendering their opinion, Sullivan &
Cromwell will rely as to matters of Massachusetts law on Ropes & Gray and J.L.
Miller, Esq.
EXPERTS
The consolidated financial statements and schedules included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
incorporated by reference herein have been audited by Arthur Andersen, LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference in this Prospectus in reliance upon
the authority of said firm as experts in accounting and auditing in giving
said report.
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