<PAGE>
As Filed Pursuant to Rule 424(b)(5)
Registration No. 333-86615
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 6, 1999)
IBM Credit Corporation
North Castle Drive, Armonk, New York 10504--(914)765-1900
$10,898,150,000
Medium-Term Notes
Due Nine Months or More from Date of Issue
We may offer our Medium-Term Notes at one or more times. The specific terms of
the particular notes being offered will be contained in a pricing supplement.
The following terms may apply to particular notes being offered:
- - They may mature nine months or more after issuance.
- - They may bear interest at a fixed or floating rate (or both). Certain notes
issued at a discount may not bear interest. Floating interest rates may be
based on any of the following formulas or on other interest rate formulas
specified in the pricing supplement:
<TABLE>
<S> <C> <C> <C>
- CD Rate - LIBOR
- Federal Funds Rate - Prime Rate
- Treasury Rate - CMT Rate
- Commercial Paper Rate
</TABLE>
- - Any floating interest rate may be adjusted by adding or subtracting a
specified spread or margin or by applying a spread multiplier.
- - Each fixed rate note will pay interest on March 1 and September 1 of each
year unless otherwise specified in the pricing supplement. Each floating
rate note will pay interest on the dates specified in the pricing
supplement.
- - They may be denominated in foreign or composite currencies, if specified in
the pricing supplement.
- - They will not be redeemable prior to maturity and will not be subject to a
sinking fund, unless otherwise specified in the pricing supplement.
- - They may be issued in certificated or book-entry form.
Generally, we will not list the notes on any securities exchange. We may,
however, from time to time do so.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-3 TO READ ABOUT CERTAIN FACTORS YOU OUGHT TO CONSIDER BEFORE BUYING THE
NOTES.
<TABLE>
<CAPTION>
Price to Public Agents' Commissions Proceeds to Company
Per
Note... 100% .125%-.750% 99.250%-99.875%
<S> <C> <C> <C>
Total.... $10,898,150,000 $13,622,687-$81,736,125 $10,816,413,875-$10,884,527,313
</TABLE>
We may offer the notes as follows:
- - Through agents who have agreed to use reasonable efforts to solicit offers
to purchase the notes. Unless otherwise specified in the pricing supplement,
we will pay the agents commissions ranging from 0.125% to 0.750% of the
principal amount of the notes offered.
- - Through one or more agents purchasing the notes as principal and acting as
underwriter or dealer. We will pay those agents an underwriting discount or
commission to be negotiated at the time of sale.
- - Directly to investors. We will not pay a discount or commission to any agent
if we sell the notes directly to investors.
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Chase Securities Inc.
Credit Suisse First Boston
Goldman, Sachs & Co.
Lehman Brothers
Merrill Lynch & Co.
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Morgan Stanley Dean Witter
Salomon Smith Barney
The date of this prospectus supplement is October 6, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
About this Prospectus Supplement;
Pricing Supplements................ S-3
Risk Factors......................... S-3
Description of the Notes............. S-5
Certain United States Federal Income
Tax Consequences................... S-17
U.S. Holders......................... S-18
Non-U.S. Holders..................... S-23
Backup Withholding and Information
Reporting.......................... S-24
Plan of Distribution................. S-25
Legal Opinions....................... S-26
Glossary............................. S-26
PROSPECTUS
Summary.............................. 2
Ratio of Earnings to Fixed Charges... 3
Where You Can Find More Information.. 3
The Company.......................... 4
Use of Proceeds...................... 4
Description of the Debt Securities... 4
Plan of Distribution................. 13
Legal Opinions....................... 14
Experts.............................. 14
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
CONTAINED IN THIS PROSPECTUS SUPPLEMENT, THE ATTACHED PROSPECTUS AND THE
APPLICABLE PRICING SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION AND IF YOU RECEIVE ANY UNAUTHORIZED INFORMATION YOU SHOULD
NOT RELY ON IT. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY PLACE
WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE
ATTACHED PROSPECTUS OR ANY PRICING SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE ON THE FRONT OF THE APPLICABLE DOCUMENT.
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ABOUT THIS PROSPECTUS SUPPLEMENT; PRICING SUPPLEMENTS
We may use this prospectus supplement, together with the attached prospectus
and a pricing supplement, to offer our Medium-Term Notes from time to time. The
total initial public offering price of notes that may be offered by use of this
prospectus supplement is $10,898,150,000 or the equivalent in foreign or
composite currencies. That amount will be reduced by the amount of any other
securities issued under our shelf registration statement (No. 333-86615).
This prospectus supplement sets forth terms of the notes that we may offer.
It supplements the description of the debt securities contained in the attached
prospectus. If information in this prospectus supplement is inconsistent with
the prospectus, this prospectus supplement will apply and will supersede that
information in the prospectus.
Each time we issue notes, we will attach a pricing supplement to this
prospectus supplement. The pricing supplement will contain the specific
description of the notes being offered and the terms of the offering. The
pricing supplement may also add, update or change information in this prospectus
supplement or the attached prospectus. Any information in the pricing
supplement, including any changes in the method of calculating interest on any
note, that is inconsistent with this prospectus supplement or prospectus will
apply and will supersede that information in this prospectus supplement or
prospectus.
It is important for you to read and consider all information contained in
this prospectus supplement and the attached prospectus and pricing supplement in
making your investment decision. You should also read and consider the
information in the documents we have referred you to in "Where You Can Find More
Information" on page 3 of the attached prospectus.
RISK FACTORS
FOREIGN CURRENCY RISKS
- Exchange Rates and Exchange Controls
If you invest in notes that are denominated in a currency other than U.S.
dollars, your investment will be subject to significant risks that are not
associated with a similar investment in notes denominated in U.S. dollars. These
risks include:
- the possibility of significant changes in rates of exchange between U.S.
dollars and the specified currency;
- the possibility of significant changes in rates of exchange between U.S.
dollars and the currency resulting from official redenomination of the
currency; and
- the possibility that the United States or any foreign government will
impose or modify foreign exchange controls.
These risks generally depend on factors over which we have no control, such as
economic and political events, and on the supply and demand for the relevant
currencies. In recent years, rates of exchange between the U.S. dollar and
certain currencies have been highly volatile. This volatility may continue in
the future. Even if fluctuations have occurred in any particular exchange rate
in the past, fluctuations may not occur in the rate during the term of any note
denominated in the foreign currency. Depreciation of the currency specified for
a note against the U.S. dollar would result in a decrease in the effective yield
of that note below its coupon rate and, in certain circumstances, could result
in a substantial loss to you on a U.S. dollar basis.
Governments have imposed from time to time, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a foreign currency at the time of payment of amounts due on a note
denominated in that currency. There can be no assurances that exchange controls
will not restrict or prohibit payments in any designated currency. Even if there
are no actual exchange controls, a currency may not be available to us
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when payments on the notes are due because of circumstances beyond our control.
WE HAVE NOT DESCRIBED ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED
IN, OR THE PAYMENT OF WHICH IS RELATED TO, A CURRENCY OTHER THAN U.S. DOLLARS.
YOU SHOULD CONSULT YOUR OWN FINANCIAL AND LEGAL ADVISORS ABOUT THE RISKS OF AN
INVESTMENT IN NOTES DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. THESE
NOTES ARE NOT AN APPROPRIATE INVESTMENT IF YOU HAVE NOT HAD PRIOR EXPERIENCE
WITH FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this prospectus supplement is directed to
prospective purchasers of notes who are United States residents. We are not
advising prospective purchasers who are residents of countries other than the
United States on any matters that may affect the purchase or holding of, or
receipt of payments of principal, premium or interest in respect of, notes.
These persons should consult their own advisors about those matters.
If applicable, the pricing supplement will contain a description of any
material exchange controls affecting the currency in which the notes are
denominated, if other than U.S. dollars, and any other required information
concerning such currency.
- Payment Currency
If payment on a note is required to be made in a currency other than U.S.
dollars and that currency is unavailable due to the imposition of exchange
controls or other circumstances beyond our control or is no longer used by the
government of the country issuing that currency or for the settlement of
transactions by public institutions of or within the international banking
community, then all payments on that note will be made in U.S. dollars until
such currency is again available or used. The amounts payable on any date in
such currency will be converted into U.S. dollars on the basis of the most
recently available market exchange rate for such currency or as otherwise
indicated in the pricing supplement. Any payment on the note made under these
circumstances in U.S. dollars will not constitute an event of default under the
Indenture.
- Foreign Currency Judgments
The laws of the State of New York will govern the notes. Courts in the
United States have not customarily rendered judgments for money damages
denominated in any currency other than the U.S. dollar. The Judiciary Law of the
State of New York provides, for example, that a judgment granted in connection
with an obligation denominated in a currency other than U.S. dollars will be
granted in the foreign currency of the underlying obligation and converted into
U.S. dollars at a rate of exchange on the date of the entry of the judgment.
However, a state court outside the State of New York may not follow the same
rules and procedures on conversions of foreign currency judgments.
RISKS RELATING TO INDEXED NOTES
An investment in indexed notes presents certain significant risks not
associated with other types of securities. If we issue indexed notes, we will
describe certain risks associated with any such particular indexed note more
fully in the applicable pricing supplement. Indexed notes may present a high
level of risk, and you may lose your entire investment if you purchase indexed
notes. You really need to understand what your risks are before deciding to
invest in these notes. We are therefore cautioning you strongly now about
investing in these notes.
The treatment of indexed notes for United States federal income tax purposes
is often unclear due to the absence of any authority specifically addressing the
issues presented by any particular indexed note. Accordingly, you, or your tax
adviser, should, in general, be competent and capable of independently
evaluating the federal income tax consequences applicable in your particular
circumstances of purchasing an indexed note. If you are not fully capable of
doing so, you really shouldn't even be thinking of buying these notes.
- Loss of Principal or Interest
The principal amount of an indexed note payable at maturity, and/or the
amount of interest payable on an interest payment date, will
S-4
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be determined by reference to one or more of the following, each of which is an
index:
- currencies, including baskets of currencies;
- commodities, including baskets of commodities;
- securities, including baskets of securities; or
- any other index.
The direction and magnitude of the change in the value of the relevant index
will determine either or both the principal amount of an indexed note payable at
maturity or the amount of interest payable on an interest payment date. The
terms of a particular indexed note may or may not include a guaranteed return of
a percentage of the face amount at maturity or a minimum interest rate.
Accordingly, if you invest in an indexed note, you may lose all or a portion of
the principal invested in an indexed note and may receive no interest on the
note.
- Volatility
Certain indices are highly volatile. The expected principal amount payable
at maturity of, or the interest rate on, an indexed note based on a volatile
index may vary substantially from time to time. Because the principal amount
payable at the maturity of, or interest payable on, an indexed note is generally
calculated based on the value of the relevant index on a specified date or over
a limited period of time, volatility in the index increases the risk that the
return on the indexed notes may be adversely affected by a fluctuation in the
level of the relevant index.
The volatility of an index may be affected by political, economic or other
events, including governmental actions, or by the activities of participants in
the relevant markets. Any of these could adversely affect the value of an
indexed note. You need to keep all of this information in mind when deciding
whether to purchase notes.
- Availability and Composition of Indices
Certain indices reference several different currencies, commodities,
securities or other financial instruments. The compiler of such an index
typically reserves the right to alter the composition of the index and the
manner in which the value of the index is calculated. Such an alteration may
result in a decrease in the value of or return on an indexed note which is
linked to such index.
An index may become unavailable due to such factors as war, natural
disasters, pestilence, cessation of publication of the index, or suspension of
or disruption in trading in the currency or currencies, commodity or
commodities, security or securities or other financial instrument or instruments
comprising or underlying such an index. If an index becomes unavailable, the
determination of principal of or interest on an indexed note may be delayed or
an alternative method may be used to determine the value of the unavailable
index. Alternative methods of valuation are generally intended to produce a
value similar to the value resulting from reference to the relevant index.
However, it is unlikely that such alternative methods of valuation will produce
values identical to those which would be produced were the relevant index to be
used. An alternative method of valuation may result in a decrease in the value
of or return on an indexed note.
Certain indexed notes are linked to indices which are not commonly utilized
or have been recently developed. The lack of a trading history may make it
difficult to anticipate the volatility or other risks to which such a note is
subject. In addition, there may be less trading in such indices or instruments
underlying such indices, which could increase the volatility of such indices and
decrease the value of or return on indexed notes relating to them.
DESCRIPTION OF THE NOTES
GENERAL
The following is a summary of important terms of the notes. A complete copy
of the indenture under which the notes will be issued is filed an exhibit to the
registration statement. The definitions of capitalized terms used in this
prospectus supplement are provided in the Glossary beginning on page S-26.
S-5
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The notes will be "debt securities," as described in the attached prospectus
and will constitute one series of debt securities issued under the indenture.
They will have the same rank as all of our other debt securities.
The notes are being offered on a continuing basis. Each note will mature on
a Business Day nine months or more from its date of issue, as agreed between us
and the purchaser. Unless otherwise specified in the pricing supplement, the
notes will not be subject to redemption or repayment prior to maturity and will
not be subject to any sinking fund.
The notes may bear interest at a fixed or floating rate. Interest on
floating rate notes will be determined, and adjusted periodically, by reference
to an interest rate basis or formula, adjusted by a spread or spread multiplier,
if any. We may issue notes at prices less than their stated principal amount.
Certain of such discounted notes will be considered original issue discount
notes. Original issue discount notes may or may not bear periodic interest.
Unless otherwise specified in the pricing supplement, the amount payable to the
holder of an original issue discount note upon an acceleration of its maturity
will equal its adjusted issue price. This amount will be less than the amount
payable at maturity.
Unless otherwise specified in the pricing supplement:
- the notes will be denominated in U.S. dollars and payments of principal of
and interest on the notes will be made in U.S. dollars, and
- the authorized denominations of the notes denominated in U.S. dollars will
be U.S. $1,000 and integral multiples of U.S. $1,000 in excess of $1,000.
If specified in the pricing supplement, the amount of principal or interest
on the notes may be determined by reference to an index.
Each note will be issued in fully registered form without coupons. Each note
will be issued initially either in certificated form or in global form and
deposited with, or on behalf of, The Depository Trust Company, as depository.
Notes issued in global form will be "book-entry notes". Beneficial interests in
a book-entry note will be shown on, and transfers of those interests will be
effected only through, records maintained by DTC or its participants. Except
under limited circumstances, book-entry notes will not be issuable in
certificated form. Payments of principal and interest on book-entry notes will
be made to DTC or its nominee. Payments to beneficial owners of interests in
book-entry notes will be made through DTC and its participants. See "Description
of the Debt Securities-- Definitive Global Securities" in the attached
prospectus.
Certificated notes may be presented for registration of transfer or exchange
at the corporate trust office of the security registrar for the debt securities,
The Chase Manhattan Bank, located at 55 Water Street, Room 234, North Building,
New York, New York 10041. Unless otherwise specified in the pricing supplement,
regular interest payments on certificated notes will be payable by check to the
person in whose name a certificated note is registered at the close of business
on the applicable record date before each interest payment date. Interest
payable on certificated notes at maturity, or upon earlier redemption or
repayment of principal, will be payable to the person to whom principal is
payable. At maturity, or upon earlier redemption or repayment, payments of
principal and interest will be made only upon presentment of the certificated
note to the paying agent.
The U.S. dollar equivalent of the purchase price of a note having a
designated currency other than U.S. dollars will be determined on the basis of
the noon buying rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York for
the relevant currency on the issue date. This determination will be made by us
or our agent, as exchange rate agent for the notes.
The paying agent for the notes will initially be The Chase Manhattan Bank.
S-6
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PAYMENT OF PRINCIPAL AND INTEREST PAYABLE IN A CURRENCY OTHER THAN U.S. DOLLARS
The principal, premium and interest on each note are payable by us in the
currency specified for that note. Generally, if the note requires payment in a
currency other than U.S. dollars, we will convert all payments in respect of
that note into U.S. dollars. The holder of the note may, however, elect to
receive all payments on the note in the specified currency if the pricing
supplement and the note so indicate, except under the circumstances described
under "Foreign Currency Risks--Payment Currency" above. This election may be
made by delivering a written notice to the trustee at least fifteen calendar
days before the applicable payment date. The election will remain in effect
until revoked by written notice to the trustee received at least fifteen
calendar days before the applicable payment date.
In the case of a note requiring payment in a currency other than U.S.
dollars, the amount of any U.S. dollar payment on the note will be determined by
the exchange rate agent. The determination will be based on the highest firm bid
quotation expressed in U.S. dollars received by the exchange rate agent at
approximately 11:00 a.m., New York City time, on the second Business Day before
the applicable payment date, or, if no such rate is quoted on such date, the
last date on which such rate was quoted. Quotes must be received from three
recognized foreign exchange dealers in The City of New York selected by the
exchange rate agent. If three quoting dealers are not available, then two
dealers will be used. These dealers may include the agent and the exchange rate
agent. The quotes must be based on the purchase by the quoting dealer, for
settlement on the payment date, of the aggregate amount of the currency payable
on the payment date for all notes denominated in that currency. All currency
exchange costs will be borne by the registered holders of the notes by
deductions from the payments. If no bid quotations are available, payment will
be made in the specified currency, unless that currency is unavailable due to
the imposition of exchange controls or to other circumstances beyond our
control, in which case such payments will be made as described under "Foreign
Currency Risks--Payment Currency" above.
PAYMENTS AT MATURITY
Payments of principal and interest at maturity and upon redemption will be
made in immediately available funds at the office of the paying agent at the
Money Market Operations Department of The Chase Manhattan Bank, Corporate Trust
Securities Window, 55 Water Street, Room 234, North Building, New York, NY
10041. The note must be presented at that office in sufficient time for the
paying agent to make the payment under its usual procedures. The notes may also
be presented at that office for registration of transfer and exchange.
INTEREST AND INTEREST RATES
Unless otherwise specified in the pricing supplement, each note will accrue
interest from and including its date of issue. The pricing supplement will
designate whether a particular note bears interest at a fixed or floating rate.
In the case of a floating rate note, the pricing supplement will also specify
whether the note will bear interest based on the CD Rate, the Commercial Paper
Rate, the Federal Funds Rate, LIBOR, the Treasury Rate, the Prime Rate, the CMT
Rate or on another interest rate basis we set forth in the pricing supplement.
The rate of interest on floating rate notes will reset daily, weekly,
monthly, quarterly, semi-annually or annually. The reset dates will be specified
in the pricing supplement and on the face of each note. In addition, the pricing
supplement will specify the spread or spread multiplier, if any, and the maximum
interest rate or minimum interest rate, if any, applicable to each floating rate
note. The pricing supplement relating to an offering of notes may also specify,
to the extent applicable for each note:
- the calculation agent,
- Calculation Dates,
- the Index Maturity,
- the initial interest rate,
- Interest Determination Dates,
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- interest payment dates, and
- record dates.
The interest rate on the notes will in no event be higher than the maximum
rate permitted by applicable law. Under New York law as in effect on the date of
this prospectus supplement, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit does not apply to notes in a principal amount
of $2,500,000 or more.
Interest on a note will be payable on the first interest payment date
following its date of issue. However, if the date of a note's issue is on or
after the record date for that interest payment date, interest will be payable
beginning on the second interest payment date following the note's issue.
If any interest payment date for any floating rate note, other than an
interest payment date that is also the maturity date of that note, falls on a
day that is not a Business Day or, in the case of a LIBOR note, a day that is
not a LIBOR Business Day, that interest payment date will be postponed to the
next day that is a Business Day or LIBOR Business Day, as the case may be and
interest will continue to accrue. However, in the case of a LIBOR Note, if the
next LIBOR Business Day is in the following calendar month, the interest payment
date will be the preceding LIBOR Business Day. If the maturity date of any
floating or fixed rate note or an interest payment date for any fixed rate note
falls on a day that is not a Business Day or LIBOR Business Day, in the case of
the maturity date of a LIBOR note, payment of principal, premium, if any, and
interest for that note will be paid on the next Business Day or LIBOR Business
Day, as the case may be. No interest on that payment will accrue from and after
that maturity date or interest payment date.
FIXED RATE NOTES
The pricing supplement relating to an offering of fixed rate notes will
designate a fixed rate of interest per year payable on the notes. The rate of
interest may be zero. Fixed rate notes may bear one or more annual rates of
interest as specified in the pricing supplement. Unless otherwise specified in
the pricing supplement:
- the interest payment dates for fixed rate notes will be March 1 and
September 1 of each year and upon maturity, or if applicable upon
redemption;
- the regular record dates for payment of interest will be February 15 and
August 15 of each year; and
- interest, if any, on fixed rate notes will be computed on the basis of a
360-day year of twelve 30-day months.
FLOATING RATE NOTES
Unless otherwise specified in the pricing supplement, The Chase Manhattan
Bank will be the calculation agent for the calculation of rates of interest
payable on floating rate notes. Upon the request of a registered holder of a
floating rate note, the calculation agent will provide the interest rate then in
effect and, if different, the interest rate which will become effective as a
result of a determination made on the most recent Interest Determination Date
for that floating rate note.
Unless otherwise specified in the pricing supplement:
- the regular record date for payment of interest will be the fifteenth day
before the day on which interest will be paid, whether or not such day is
a Business Day or a LIBOR Business Day; and
- each interest payment on any floating rate note will include interest
accrued from and including the date of issue or the last date to which
interest has been paid, as the case may be, to but excluding the
applicable interest payment date or the date of maturity, as the case may
be.
Accrued interest on a floating rate note will be calculated by multiplying
the principal amount of the note by an accrued interest factor. The accrued
interest factor will be computed by adding the interest factors calculated for
each day in the period for which accrued interest is being calculated. Unless
otherwise specified in the pricing supplement, the interest factor for
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each day is computed by dividing the interest rate in effect on that day by:
- the actual number of days in the year, in the case of Treasury Rate notes,
or
- 360, in the case of all other floating rate notes.
The interest rate on a floating rate note in effect on any day will be:
- if the day is a Interest Reset Date, the interest rate on the Interest
Determination Date relating to that Interest Reset Date, or
- if the day is not a Interest Reset Date, the interest rate on the Interest
Determination Date relating to the preceding Interest Reset Date.
The interest rate is subject to adjustment by a spread or a spread
multiplier, if any, and to any maximum interest rate or minimum interest rate
limitation. However, the interest rate in effect for the period from the date of
issue to, but excluding, the first Interest Reset Date will be the initial
interest rate specified in the pricing supplement.
Except as otherwise specified in the pricing supplement, all percentages and
decimals resulting from any calculation of interest 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. For
example, 9.876545% (or .09876545) will be rounded to 9.87655% (or .0987655) and
9.876544% (or .09876544) will be rounded to 9.87654% (or .0987654). All dollar
amounts used in or resulting from any such calculation will be rounded to the
nearest cent (with one-half cent being rounded upwards).
CD RATE NOTES
A CD Rate note will bear interest at an interest rate calculated with
reference to the CD Rate and the spread or spread multiplier, if any, as
specified in the CD Rate note and the pricing supplement.
Unless otherwise specified in the pricing supplement, the "CD Rate" for any
Interest Determination Date is the rate on that date for negotiable certificates
of deposit having the Index Maturity specified in the pricing supplement, as
published in H.15(519) prior to 3:00 P.M., New York City time, on the
Calculation Date pertaining to that Interest Determination Date under the
heading "CDs (Secondary Market)".
The following procedures will be followed if the CD Rate cannot be
determined as described above:
- If the above rate is not published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date, the CD Rate will be the rate on that
Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the pricing supplement as set forth in H.15
Daily Update for that day for certificates of deposit having the Index
Maturity specified in the pricing supplement under the caption "CDs
(secondary market)".
- If that rate is not published in H.15 Daily Update by 3:00 P.M., New York
City time, on the Calculation Date, then the calculation agent will
determine the CD Rate to be the average of the secondary market offered
rates as of 10:00 A.M., New York City time, on that Interest Determination
Date, quoted by three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in New York City for negotiable certificates of
deposit in a denomination of $5,000,000 of major United States
money-center banks of the highest credit standing with a remaining
maturity closest to the Index Maturity designated in the pricing
supplement. The calculation agent, after consultation with us, will select
the three dealers referred to above.
- If fewer than three dealers are quoting as mentioned above, the CD Rate
will be the CD Rate in effect on that Interest Determination Date.
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COMMERCIAL PAPER RATE NOTES
A Commercial Paper Rate note will bear interest at an interest rate
calculated with reference to the Commercial Paper Rate and the spread or spread
multiplier, if any, as specified in the Commercial Paper Rate note and the
pricing supplement.
Unless otherwise specified in the pricing supplement, the "Commercial Paper
Rate" for any Interest Determination Date is the Money Market Yield of the rate
on that date for commercial paper having the Index Maturity specified in the
pricing supplement, as published in H.15(519) prior to 3:00 P.M., New York City
time, on the Calculation Date pertaining to that Interest Determination Date
under the heading "Commercial Paper--Nonfinancial".
The following procedures will be followed if the Commercial Paper Rate
cannot be determined as described above:
- If the above rate is not published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date, the Commercial Paper Rate will be the
Money Market Yield of the rate on that Interest Determination Date for
commercial paper having the Index Maturity designated in the pricing
supplement, as published in H.15 Daily Update under the heading
"Commercial Paper--Nonfinancial".
- If that rate is not published in H.15 Daily Update by 3:00 P.M., New York
City time, on the Calculation Date, then the calculation agent will
determine the Commercial Paper Rate to be the Money Market Yield of the
average of the offered rates of three leading dealers of commercial paper
in New York City as of 11:00 A.M., New York City time, on that Interest
Determination Date for commercial paper having the Index Maturity
specified in the pricing supplement placed for an industrial issuer whose
bond rating is "AA", or the equivalent, from a nationally recognized
rating agency. The calculation agent, after consultation with us, will
select the three dealers referred to above.
- If fewer than three dealers selected by the calculation agent are quoting
as mentioned above, the Commercial Paper Rate will be the Commercial Paper
Rate in effect on that Interest Determination Date.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate notes will bear interest at an interest rate calculated
with reference to the Federal Funds Rate and the spread or spread multiplier, if
any, as specified in the Federal Funds Rate note and the pricing supplement.
Unless otherwise specified in the pricing supplement, the "Federal Funds
Rate" for any Interest Determination Date is the rate on that date for Federal
Funds, as published in H.15(519) prior to 3:00 P.M., New York City time, on the
Calculation Date pertaining to that Interest Determination Date under the
heading "Federal Funds (Effective)".
The following procedures will be followed if the Federal Funds Rate cannot
be determined as described above:
- If the above rate is not published in H.15(519) by 3:00 P.M., New York
City time, on the Calculation Date, the Federal Funds Rate will be the
rate on that Interest Determination Date, as published in H.15 Daily
Update under the heading "Federal Funds (Effective)".
- If that rate is not published in H.15 Daily Update by 3:00 P.M., New York
City time, on the Calculation Date, then the Calculation Agent will
determine the Federal Funds Rate to be the average of the rates for the
last transaction in overnight Federal funds arranged by three leading
brokers of Federal funds transactions in New York City as of 11:00 A.M.,
New York City time, on that Interest Determination Date. The calculation
agent, after consultation with us, will select the three brokers referred
to above.
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- If fewer than three brokers selected by the calculation agent are quoting
as mentioned above, the Federal Funds Rate will be the Federal Funds Rate
in effect on that Interest Determination Date.
LIBOR NOTES
A LIBOR note will bear interest at an interest rate, calculated with
reference to LIBOR and the spread or spread multiplier, if any, as specified in
the LIBOR note and the pricing supplement.
Unless otherwise specified in the pricing supplement, the calculation agent
will determine LIBOR as follows:
On each Interest Determination Date:
- If "LIBOR Telerate" is specified in the pricing supplement, LIBOR will be
the rate for deposits in the Index Currency having the Index Maturity
specified in the pricing supplement, as that rate appears on the
Designated LIBOR Page as of 11:00 a.m., London time, on that Interest
Determination Date.
- If "LIBOR Reuters" is specified in the pricing supplement, LIBOR will be
the average of the offered rates for deposits in the Index Currency having
the Index Maturity specified in the pricing supplement, as those rates
appear on the Designated LIBOR Page as of 11:00 a.m., London time, on that
Interest Determination Date, if at least two such offered rates appear on
the Designated LIBOR Page.
If neither LIBOR Reuters or LIBOR Telerate is specified, LIBOR Telerate will
be used.
If the Designated LIBOR Page by its terms provides only for a single rate,
that single rate will be used regardless of the foregoing provisions requiring
more than one rate.
On any Interest Determination Date on which fewer than the required number
of applicable rates appear or no rate appears on the applicable Designated LIBOR
Page, the calculation agent will determine LIBOR as follows:
- LIBOR will be determined on the basis of the offered rates at which
deposits in the Index Currency having the Index Maturity designated in the
pricing supplement and in a principal amount equal to an amount of not
less than U.S. $1 million that is representative of a single transaction
in that market at that time are offered by four major banks in the London
interbank market at approximately 11:00 A.M., London time, on the Interest
Determination Date to prime banks in the London interbank market. The
calculation agent will select the four banks after consultation with us
and request the principal London office of each of those banks to provide
a quotation of its rate. If at least two quotations are provided, LIBOR
for that Interest Determination Date will be the average of those
quotations.
- If fewer than two quotations are provided as mentioned above, LIBOR will
be the average of the rates quoted by three major banks in New York City
at approximately 11:00 A.M., New York City time, on the Interest
Determination Date for loans to leading European banks in the Index
Currency having the Index Maturity designated in the pricing supplement
and in a principal amount equal to an amount not less than U.S. $1 million
that is representative for a single transaction in that market at that
time. The calculation agent, after consultation with us, will select the
three banks referred to above.
- If fewer than three banks selected by the calculation agent are quoting as
mentioned above, LIBOR will be LIBOR in effect on the Interest
Determination Date.
TREASURY RATE NOTES
A Treasury Rate note will bear interest at an interest rate calculated with
reference to the Treasury Rate and the spread or spread
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multiplier, if any, as specified in the Treasury Rate note and the pricing
supplement.
Unless otherwise specified in the pricing supplement, the "Treasury Rate"
for any Interest Determination Date is the rate set at the most recent auction
of direct obligations of the United States ("Treasury bills") having the Index
Maturity designated in the pricing supplement, as that rate appears on either
Telerate Page 56 or Telerate Page 57 under the heading "AVGE INVEST YIELD".
The following procedures will be followed if the Treasury Rate cannot be
determined as described above:
- If the above rate is not published on Telerate Page 56 or Telerate Page 57
by 3:00 P.M., New York City time, on the Calculation Date, the Treasury
Rate will be the auction average rate, expressed as a Bond Equivalent
Yield, as otherwise announced by the United States Department of the
Treasury.
- If the results of the most recent auction of Treasury bills having the
Index Maturity designated in the pricing supplement are not published or
announced as described above by 3:00 P.M., New York City time, on the
Calculation Date, or if no auction is held in a particular week, the
Treasury Rate will be the Bond Equivalent Yield of the rate set forth in
H.15(519) for that day opposite the Index Maturity under the caption "U.S.
Government Securities/ Treasury Bills/Secondary Market".
- If the above rate is not published in H.15(519) on the Calculation Date,
the rate for that day will be the rate set forth in H.15 Daily Update, or
another recognized electronic source used for the purpose of displaying
that rate, for that day for the Index Maturity under the caption "CDs
(secondary market)".
- If the above rate is not published in H.15(519), H.15 Daily Update or
another recognized source, then the calculation agent will determine the
Treasury Rate to be a yield to maturity, expressed as a Bond Equivalent
Yield, of the average of the secondary market bid rates, as of
approximately 3:30 P.M., New York City time, on the Interest Determination
Date of three leading primary United States government securities dealers
selected by the calculation agent after consultation with us for the issue
of Treasury bills with a remaining maturity closest to the Index Maturity
specified in the pricing supplement. If fewer than three dealers selected
by the calculation agent are quoting as mentioned above, the Treasury Rate
will be the Treasury Rate in effect on that Interest Determination Date.
PRIME RATE NOTES
A Prime Rate note will bear interest at an interest rate calculated with
reference to the Prime Rate and the spread or spread multiplier, if any, as
specified in the Prime Rate note and the pricing supplement.
Unless otherwise specified in the note and the pricing supplement, the
"Prime Rate" for any Interest Determination Date is the prime rate or base
lending rate on that date, as published in H.15(519) by 9:00 A.M., New York City
time, on the Calculation Date pertaining to the Interest Determination Date
under the heading "Bank Prime Loan".
The following procedures will be followed if the Prime Rate cannot be
determined as described above:
- If the above rate is not published in H.15(519) prior to 9:00 a.m., New
York City time, on the Calculation Date, then the Prime Rate will be the
rate on the Interest Determination Date as published in H.15 Daily Update
opposite the caption "Bank Prime Loan".
- If the above rate is not published in either H.15(519) or H.15 Daily
Update by 3:00 p.m., New York City time, on the Calculation Date, then the
calculation agent will determine the Prime Rate to be the average of the
rates of interest publicly announced by each bank that appears on the
Reuters Screen US Prime
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1 as that bank's prime rate or base lending rate as in effect for that
Interest Determination Date.
- If fewer than four rates appear on the Reuters Screen US Prime 1 on the
Interest Determination Date, then the Prime Rate will be the average of
the prime rates or base lending 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 the Interest Determination Date by four major banks in The
City of New York selected by the calculation agent from a list approved by
us.
- If fewer than two rates appear on the Reuters Screen US Prime 1 on the
Interest Determination Date, then the Prime Rate will be the average of
the prime rates or base lending rates furnished by the appropriate number
of substitute U.S. banks or trust companies in The City of New York that
have a total equity capital of U.S. $500,000,000 or more and are subject
to supervision or examination by federal or state authority. The
calculation agent will select the banks or trust companies referred to
above from a list approved by us.
- If the banks selected by the calculation agent are not quoting as
mentioned above, the Prime Rate will be the Prime Rate in effect on the
Interest Determination Date.
CMT RATE NOTES
A CMT Rate note will bear interest at an interest rate calculated with
reference to the CMT Rate and the spread or spread multiplier, if any, as
specified in the CMT Rate notes and the pricing supplement.
Unless otherwise specified in the pricing supplement, the "CMT Rate" for any
Interest Determination Date is the rate displayed on the Designated CMT Telerate
Page by 3:00 P.M., New York City time, on the Calculation Date pertaining to the
Interest Determination Date under the caption "... Treasury Constant
Maturities... Federal Reserve Board Release H.15... Mondays Approximately 3:45
P.M.," under the column for the Index Maturity specified in the pricing
supplement for:
- if the Designated CMT Telerate Page is 7051, such Interest Determination
Date; or
- if the Designated CMT Telerate Page is 7052, the week, or the month, as
applicable, ended immediately preceding the week in which the related
Interest Determination Date occurs.
The following procedures will be used if the CMT Rate cannot be determined
as described above:
- If the above rate is not displayed on the relevant page by 3:00 P.M., New
York City time, on the Calculation Date, then the CMT Rate will be the
Treasury constant maturity rate for the Index Maturity, as published in
H.15(519).
- If that rate is not published in H.15(519) by 3:00 P.M., New York City
time, on the Calculation Date, then the CMT Rate will be the Treasury
constant maturity rate, or other United States Treasury rate, for the
Index Maturity for the Interest Determination Date as may then be
published by either the Board of Governors of the Federal Reserve System
or the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the
Designated CMT Telerate Page and published in H.15(519).
- If that information is not provided by 3:00 P.M., New York City time, on
the Calculation Date, then the calculation agent will determine the CMT
Rate to be a yield to maturity based on the average of the secondary
market offered rates as of approximately 3:30 P.M., New York City time, on
the Interest Determination Date reported, according to their written
records, by three leading primary United States government securities
dealers in The City of New York selected by the
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calculation agent after consultation with us. The calculation agent will
select five leading primary United States government securities dealers
and will eliminate the highest and lowest quotations or, in the event of
equality, one of the highest and lowest quotations, for the most recently
issued direct noncallable fixed rate obligations of the United States with
an original maturity of approximately the Index Maturity and a remaining
term to maturity of not less than the Index Maturity minus one year.
- If the calculation agent cannot obtain three Treasury Note quotations, the
Calculation Agent will determine the CMT Rate to be a yield to maturity
based on the average of the secondary market offered rates as of
approximately 3:30 P.M., New York City time, on the Interest Determination
Date of three leading primary United States government securities dealers
in New York City, selected using the same method described above, for the
most recently issued direct noncallable fixed rate obligations of the
United States with an original maturity of the number of years that is the
next highest to the Index Maturity and a remaining term to maturity
closest to the Index Maturity and in an amount of at least U.S. $100
million.
- If three or four but not five Reference Dealers are quoting as described
above, then the CMT Rate will be based on the average of the offered rates
obtained and neither the highest nor the lowest of those quotations will
be eliminated.
- If fewer than three leading primary United States government securities
dealers selected by the calculation agent are quoting as described above,
the CMT Rate will be the CMT Rate in effect on the Interest Determination
Date.
AMORTIZING NOTES
We may from time to time offer notes on which a portion or all of the
principal amount is payable before the stated maturity in accordance with a
schedule, by application of a formula or by reference to an index. These notes
are referred to as "amortizing notes." Unless otherwise specified in the pricing
supplement, interest on each amortizing note will be computed on the basis of a
360-day year of twelve 30-day months. Payments on amortizing notes will be
applied first to interest and then to principal. Further information concerning
additional terms and provisions of amortizing notes, including repayment
information, will be specified in the pricing supplement.
INDEXED NOTES
Notes may be issued from time to time as notes of which the principal,
premium and/or interest will be determined with reference to specified
currencies, currency units, commodities, stock, other securities, interest or
other notes, financial or non-financial indices or other factors, in each case
as set forth in the pricing supplement. These notes are referred to as "indexed
notes." As we described earlier on pages S-4 and S-5, we think these notes are
risky. Holders of indexed notes may receive a principal amount on maturity that
is greater than or less than the face amount of the notes depending upon the
relative value of the specified index. Information as to the method for
determining the amount of principal, premium and/or interest payable in respect
of indexed notes, certain historical information with respect to the specified
index and material tax considerations will be set forth in the pricing
supplement.
WE AGAIN ARE WARNING YOU THAT AN INVESTMENT IN INDEXED NOTES ENTAILS
SIGNIFICANT RISKS THAT ARE NOT ASSOCIATED WITH SIMILAR INVESTMENTS IN A
CONVENTIONAL FIXED-RATE DEBT SECURITY. If the interest rate on a note is
indexed, it may result in an interest rate that is less than that payable on a
conventional fixed-rate debt security issued at the same time, including the
possibility that NO interest will be paid or that NEGATIVE interest will accrue.
If the principal amount of a note is indexed, the principal amount payable at
maturity may be less than the original purchase price of the note if allowed
pursuant to the terms of the note, including the possibility that no principal
will be paid. If the
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principal amount is used to offset accrued negative interest, the principal
amount payable at maturity may be less than the original purchase price of the
note if allowed pursuant to the terms of the note, including the possibility
that no principal will be paid. The value of the applicable index depends on a
number of interrelated factors, including economic, financial and political
events, over which we have no control. Additionally, if the formula used to
determine the principal amount or interest payable with respect to these notes
contains a multiple or leverage factor, the effect of any change in the
applicable index will be increased. The historical experience of the relevant
indices should not be taken as an indication of future performance of the
indices during the term of any note. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR
OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN
INDEXED NOTES. INDEXED NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO
HAVE NOT HAD PRIOR EXPERIENCE WITH FOREIGN CURRENCY, CURRENCY UNIT, COMMODITIES,
SECURITIES OR OTHER INDICES, OR ANY OTHER FORM OF INDEXED NOTES.
FLOATING RATE/FIXED RATE NOTES
A note may be a floating rate note for a portion of its term and a fixed
rate note for a portion of its term. In this event, the interest rate on the
note will be determined as if it were a floating rate note and a fixed rate note
for each specified period, as shall be set out in the pricing supplement.
OTHER PROVISIONS
Any provisions with respect to a note, including the specification and
determination of one or more interest rate bases, the calculation of the
interest and/or principal payable on the note, any redemption, extension or
repayment provisions, or any other provisions relating to a note, may be
modified or supplemented to the extent not inconsistent with the terms of the
indenture, so long as the provisions are specified in the note and in the
pricing supplement.
BOOK-ENTRY NOTES
Book-entry notes of any series will be issued in the form of one or more
registered global notes that will be deposited with, or on behalf of, DTC, as
depositary, and registered in the name of DTC's nominee. The global note may not
be transferred except as a whole to another nominee of DTC or to a successor
depositary or its nominee.
Upon the issuance of the global note, DTC will credit, on its book-entry
registration and transfer system, the principal amount of the notes represented
by the global note to accounts of institutions that have accounts with DTC.
Institutions that have accounts with DTC are referred to as "participants." The
accounts to be credited will be designated by the agents, or by us if we sell
the notes directly. Owners of beneficial interests in the global note that are
not participants or persons that may hold through participants but desire to
purchase, sell or otherwise transfer ownership of the notes by book-entry on the
records of DTC may do so only through participants and persons that may hold
through participants. Because DTC can only act on behalf of participants and
persons that may hold through participants, the ability of an owner of a
beneficial interest in the global note to pledge notes to persons or entities
that do not participate in the book-entry and transfer system of DTC, or
otherwise take actions in respect of the notes, may be limited. In addition, the
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. These limits and laws may impair
a purchaser's ability to transfer beneficial interests in the global note.
So long as DTC, or its nominee, is the registered owner of a global note,
DTC or nominee will be considered the sole owner or holder of the notes
represented by the global note for all purposes under the indenture. Generally,
owners of beneficial interests in a global note will not be entitled to have
notes represented by a global note registered in their names, will not receive
or be entitled to receive physical delivery of notes in definitive form and will
not be considered the owners or holders of the notes under the indenture.
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Principal and interest payments on notes registered in the name of DTC or
its nominee will be made to DTC or its nominee as the registered owner of the
global note. Neither us, the trustee, any paying agent or the note registrar
will have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in the global
note or for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests.
We expect that DTC, upon receipt of any payment of principal or interest,
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the global note as shown on the records of DTC. We also expect that payments
by participants to owners of beneficial interests in the global note held
through the participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
and registered in "street name," and will be the responsibility of such
participants. Owners of beneficial interests in the global note that hold
through DTC under a book-entry format (as opposed to holding certificates
directly) may experience some delay in the receipt of interest payments since
DTC will forward payments to its participants, which in turn will forward them
to persons that hold through participants.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by us or DTC within ninety days, we will
issue notes in definitive registered form in exchange for the global note. In
addition, either we or DTC may at any time, in our sole discretion, determine
not to have the notes represented by the global note and, in such event, we will
issue notes in definitive registered form in exchange for the global note. In
either instance, an owner of a beneficial interest in the global note will be
entitled to have notes equal in principal amount to the beneficial interest
registered in its name and will be entitled to physical delivery of the notes in
definitive form.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC was
created to hold securities of its participants and to facilitate the clearance
and settlement of securities transactions among its participants in those
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
whom own DTC. Access to DTC's book-entry system is also available to others,
including banks, brokers, dealers and trust companies, that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
REDEMPTION AND REPURCHASE
If applicable, the pricing supplement will indicate the terms on which the
notes will be redeemable at our option. Unless otherwise specified in the
pricing supplement, notice of redemption will be provided by mailing a notice of
redemption to each holder at least 30 days and not more than 60 days before the
date fixed for redemption. If not all the notes having the same terms are to be
redeemed, the notes to be redeemed shall be selected by the trustee by a method
as the trustee deems fair and appropriate. Unless otherwise specified in the
pricing supplement, the notes will not be subject to any sinking fund.
We may at any time repurchase notes at any price in the open market or
otherwise. Notes purchased by us may, at our discretion, be held or resold or
surrendered to the trustee for cancellation.
REPAYMENT AT OPTION OF HOLDER
If applicable, the pricing supplement will indicate that the note will be
repayable at the
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holder's option on a date or dates prior to maturity, and at a price or prices,
set forth in the pricing supplement, together with accrued interest to the date
of repayment.
In order for a note to be repaid, the trustee must receive at least 30 days
but not more than 45 days prior to the repayment date:
1. appropriate wire instructions and
2. either
a. the note with the form entitled "Option to Elect Repayment" on the
reverse of the note duly completed, or
b. a telegram, telex, facsimile transmission or letter from a member of a
national securities exchange or the National Association of Securities
Dealers, Inc., or a commercial bank or trust company in the United
States setting forth:
- the name of the holder of the note,
- the principal amount of the note,
- the portion of the principal amount of the note to be repaid,
- the certificate number or a description of the tenor and terms of the
note,
- a statement that the option to elect repayment is being exercised, and
- a guarantee that the note to be repaid with the form entitled "Option
to Elect Repayment" on the reverse of the note duly completed will be
received by the trustee within five Business Days. The note and form
duly completed must actually be received by the trustee by the fifth
Business Day.
Exercise of the repayment option by the holder of a note shall be
irrevocable. The repayment option may be exercised by the holder of a note for
less than the entire principal amount of the note provided that the principal
amount of the note remaining outstanding after repayment is an authorized
denomination. No transfer or exchange of any note will be permitted after
exercise of a repayment option. If a note is to be repaid in part, no transfer
or exchange of the portion of the note to be repaid will be permitted after
exercise of a repayment option. All questions as to the validity, eligibility,
including time of receipt, and acceptance of any note for repayment will be
determined by us and our determination will be final, binding and
non-appealable.
If a note is represented by a global note, DTC's nominee will be the holder
of the note and therefore will be the only entity that can exercise a right to
repayment. In order to ensure that DTC's nominee will timely exercise a right to
repayment with respect to a particular note, the beneficial owner of such note
must instruct the broker or other direct or indirect participant through which
it holds an interest in such note to notify DTC of its desire to exercise a
right to repayment. Different firms have different cutoff times for accepting
instructions from their customers. Accordingly, each beneficial owner should
consult the broker or other direct or indirect participant through which it
holds an interest in a note in order to ascertain the cutoff time by which an
instruction must be given in order for timely notice to be delivered to DTC.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of notes as of the date of this prospectus
supplement. Generally, this summary deals only with notes held as capital assets
and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, tax-exempt entities, life
insurance companies, persons holding Notes as part of a hedging, constructive
sale, conversion or other integrated transaction or a straddle or to holders of
Notes whose "functional currency" is not the U.S. dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code and
regulations, rulings and judicial decisions as of the date of this prospectus
supplement. Those authorities may be repealed, revoked or modified (possibly
with retroactive effect) so as to result in United States federal income tax
consequences different from those discussed below. Any special United
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States federal tax considerations relevant to a particular issue of the notes
will be provided in the pricing supplement. Persons considering the purchase,
ownership or disposition of notes should consult their own tax advisors
concerning the United States federal income tax consequences to them in light of
their particular situations as well as any consequences arising under the laws
of any other taxing jurisdiction.
U.S. HOLDERS
PAYMENTS OF INTEREST
Except as set forth below, interest on a note will generally be taxable to a
U.S. holder as ordinary income from domestic sources at the time it is paid or
accrued in accordance with the U.S. holder's method of accounting for tax
purposes. As used in this prospectus supplement, a "U.S. holder" means a
beneficial owner of a note that is:
- - a citizen or resident of the United States,
- - a corporation or partnership created or organized in or under the laws of the
United States or any political subdivision of the United States,
- - an estate the income of which is subject to United States federal income
taxation regardless of its source or
- - a trust that is subject to the supervision of a court within the United
States and the control of one or more United States persons as described in
section 7701(a)(30) of the Internal Revenue Code.
A "non-U.S. holder" is a holder that is not a U.S. holder.
ORIGINAL ISSUE DISCOUNT
U.S. holders of notes issued with original issue discount will be subject to
special tax accounting rules, as described in greater detail below. Original
issue discount is referred to herein as "OID". U.S. holders of those notes
should be aware that they generally must include OID in gross income in advance
of the receipt of cash attributable to that income. However, U.S. holders of
those notes generally will not be required to include separately in income cash
payments received on the notes, even if denominated as interest, to the extent
those payments do not constitute qualified stated interest. Notes issued with
OID will be referred to as "original issue discount notes." Notice will be given
in the pricing supplement when we determine that a particular note will be an
original issue discount note.
This summary is based upon final Treasury regulations addressing debt
instruments with OID. A note with an "issue price" that is less than its stated
redemption price at maturity generally will be issued with original issue
discount if that difference is at least 0.25% of the stated redemption price at
maturity multiplied by the number of complete years to maturity. The stated
redemption price at maturity is equal to the sum of all payments to be made on
the note other than "qualified stated interest". The "issue price" of each note
in a particular offering will be the first price at which a substantial amount
of that particular offering is sold to the public. This calculation will not
include any sales to an underwriter, placement agent or wholesaler. The term
"qualified stated interest" means stated interest that is unconditionally
payable in cash or in property, other than debt instruments of the issuer, at
least annually during the entire term of the note at a single fixed rate or,
subject to certain conditions, based on one or more interest indices. Interest
is payable at a single fixed rate only if the rate appropriately takes into
account the length of the interval between payments.
In the case of a note issued with DE MINIMIS OID, the U.S. holder generally
must include the DE MINIMIS OID (other than DE MINIMIS OID treated as qualified
stated interest) in income as stated principal payments on the notes are made in
proportion to the amount paid. A note will have DE MINIMIS OID if it is issued
with a discount that is not OID because it is less than 0.25% of the stated
redemption price at maturity multiplied by the number of complete years to
maturity. Any amount of DE MINIMIS OID that has been included in income
generally will be treated as capital gain.
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Certain notes may contain provisions permitting them to be redeemed prior to
their stated maturity at our option and/or at the holder's option. Original
issue discount notes containing those features may be subject to rules that
differ from the general rules discussed in this prospectus supplement. Persons
considering the purchase of original issue discount notes with those features
should carefully examine the pricing supplement and should consult their own tax
advisors with respect to those features since the tax consequences with respect
to OID will depend, in part, on the particular terms and features of the notes.
U.S. holders of original issue discount notes with a maturity upon issuance
of more than one year must, in general, include OID in income in advance of the
receipt of some or all of the related cash payments using the "constant yield
method" described in this paragraph. The amount of OID includible in income by
the initial U.S. holder of an original issue discount note is the sum of the
"daily portions" of OID with respect to the note for each day during the taxable
year or portion of the taxable year in which that U.S. holder held such note.
This amount is referred to as "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. The "accrual period" for an original issue
discount note may be of any length and may vary in length over the term of the
note, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the final
day of an accrual period. The amount of OID allocable to any accrual period is
an amount equal to the excess, if any, of:
- the product of the note's adjusted issue price at the beginning of the
accrual period and its yield to maturity. This is determined on the basis
of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period.
over
- the aggregate of all qualified stated interest allocable to the accrual
period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity and the adjusted issue price at the beginning of the final
accrual period. For purposes of this calculation, the amount payable at maturity
will not include payments of qualified stated interest. Special rules apply for
calculating OID for an initial short accrual period.
The "adjusted issue price" of a note at the beginning of any accrual period
generally is equal to its issue price:
- increased by the accrued OID for each prior accrual period, determined
without regard to the amortization of any acquisition or bond premium, as
described below, and
- reduced by any payments made on the note, other than qualified stated
interest, on or before the first day of the accrual period.
Under these rules, a U.S. holder will have to include in income increasingly
greater amounts of OID in successive accrual periods. We are required to provide
information returns stating the amount of OID accrued on notes held of record by
persons other than corporations and other exempt holders.
In the case of an original issue discount note that is a floating rate note,
both the "yield to maturity" and "qualified stated interest" will be determined
solely for purposes of calculating the accrual of OID as though the note will
bear interest in all periods at a fixed rate generally equal to:
- the rate that would be applicable to interest payments on the note on its
date of issue, or
- the rate that reflects the yield to maturity that is reasonably expected
for the note.
Additional rules may apply if interest on a floating rate note is based on more
than one interest index. Persons considering the purchase of floating rate notes
should carefully examine the pricing supplement and should consult their own tax
advisors regarding the United States federal income tax consequences of the
holding and disposition of those notes.
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U.S. holders may elect to treat all interest on any note as OID and
calculate the amount includible in gross income under the constant yield method
described above. For the purposes of this election, interest includes each of
the following, as adjusted by any amortizable bond premium or acquisition
premium:
- stated interest,
- acquisition discount,
- OID,
- DE MINIMIS OID,
- market discount,
- DE MINIMIS market discount and
- unstated interest.
The election is to be made for the taxable year in which the U.S. holder
acquired the note, and may not be revoked without the consent of the IRS. U.S.
holders should consult with their own tax advisors about this election.
Treasury Regulations contain aggregation rules stating that in certain
circumstances if more than one type of note is issued as part of the same
issuance of securities to a single holder, some or all of such notes may be
treated together as a single debt instrument with a single issue price, maturity
date, yield to maturity and stated redemption price at maturity for purposes of
calculating and accruing any original issue discount. Unless otherwise provided
in the related pricing supplement, we do not expect to treat any of the notes as
being subject to the aggregation rules for purposes of computing original issue
discount.
SHORT-TERM NOTES
Notes having a term of one year or less are referred to as "short-term
notes." In the case of short-term notes, all payments, including all stated
interest will be included in the stated redemption price at maturity, will not
be qualified stated interest and, thus, U.S. holders will generally be taxed on
the discount in lieu of stated interest. The discount will be equal to the
excess of the total of all payments due on the note over the issue price of the
note, unless the U.S. holder elects to compute this discount using tax basis
instead of issue price. In general, individuals and certain other cash method
U.S. holders of short-term notes are not required to include accrued discount in
their income currently unless they elect to do so. They may, however, be
required to include stated interest in income as the income is received. U.S.
holders that report income for U.S. federal income tax purposes on the accrual
method and certain other U.S. holders are required to accrue discount on these
short-term notes as ordinary income on a straight-line basis, unless an election
is made to accrue the discount according to a constant yield method based on
daily compounding. In the case of a U.S. holder that is not required, and does
not elect, to include discount in income currently, any gain realized on the
sale, exchange or retirement of the short-term note will generally be ordinary
income to the extent of the discount accrued through the date of sale, exchange
or retirement. In addition, a U.S. holder that does not elect to currently
include accrued discount in income may be required to defer deductions for a
portion of the U.S. holder's interest expense with respect to any indebtedness
attributable to the notes.
MARKET DISCOUNT
An investor may purchase:
- an original issue discount note for an amount that is less than its
adjusted issue price, or
- any other note for an amount that is less than its stated redemption price
at maturity.
If a U.S. holder purchases this type of note (other than short-term notes), the
amount of the difference will be treated as "market discount" for United States
federal income tax purposes, unless such difference is less than a specified DE
MINIMIS amount. Under the market discount rules, a U.S. holder will be required
to treat any principal payment (or, in the case of original issue discount
notes, any payment, other than qualified stated interest), on, or any gain on
the sale, exchange, retirement or other disposition of, a note as ordinary
income to the extent of the market discount which has not previously been
included in income (pursuant to an election by the holder to include such market
discount in income as it accrues) and is treated as having
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accrued on the note at the time of its payment or disposition. In addition, the
U.S. holder may be required to defer, until the maturity of the note or its
earlier disposition in a taxable transaction, or a nonrecognition transaction
other than as provided in Code Section 1276(c) and (d) (but only to the extent
of any gain recognized in such transaction), the deduction of all or a portion
of the interest expense on any indebtedness attributable to the note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the U.S.
holder elects to accrue on a constant interest method. A U.S. holder of a note
may elect to include market discount in income currently as it accrues on either
a ratable or constant interest method. However, in that case, the rule described
above regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.
ACQUISITION PREMIUM; AMORTIZABLE PREMIUM
A U.S. holder that purchases an original issue discount note for an amount
that is greater than its adjusted issue price but equal to or less than the sum
of all amounts payable on the note after the purchase date other than payments
of qualified stated interest will be considered to have purchased that note at
an "acquisition premium." Under the acquisition premium rules, the amount of OID
which the U.S. holder must include in its gross income with respect to the note
for any taxable year will be reduced by the portion of the acquisition premium
properly allocable to that year.
A U.S. holder that purchases a Note for an amount in excess of the sum of
all amounts payable on the note after the purchase date other than qualified
stated interest will be considered to have purchased the note at a "premium". If
the note purchased is an original issue discount note, that U.S. holder will not
be required to include any OID in income. A U.S. holder generally may elect to
amortize the premium over the remaining term of the note on a constant yield
method as an offset to interest when includible in income under the U.S.
holder's regular accounting method. A U.S. holder who elects to amortize premium
must reduce his tax basis in the note by the amount of the premium amortized in
any year.
Bond premium on a note held by a U.S. holder that does not make an election
to amortize the premium will decrease the gain or increase the loss otherwise
recognized on disposition of the note. The election to amortize premium on a
constant yield method once made applies to all debt obligations held or
subsequently acquired by the electing U.S. holder on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. holder's tax basis in a note will, in general, be the U.S. holder's
cost for that note, increased by OID, market discount or any discount with
respect to a short-term note previously included in income by the U.S. holder
and reduced by any amortized premium and any cash payments on the note other
than qualified stated interest. Upon the sale, exchange, retirement or other
disposition of a note, a U.S. holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange, retirement or
other disposition and the adjusted tax basis of the note. For purposes of this
calculation, the amount realized upon the disposition will be reduced by any
accrued qualified stated interest, which will be taxable as such. Except as
described above with respect to certain short-term notes or with respect to
market discount and as described below with respect to Foreign Currency Notes,
that gain or loss will be capital gain or loss. Capital gains of individuals
derived in respect of capital assets held for more than one year are eligible
for reduced rates of taxation. The deductibility of capital losses is subject to
limitations.
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FOREIGN CURRENCY NOTES
INTEREST PAYMENTS. If an interest payment is denominated in or determined
by reference to a foreign currency, the amount of income recognized by a cash
basis U.S. holder with respect to a Foreign Currency Note (other than an
original issue discount note on which OID is accrued on a current basis (except
to the extent any qualified stated interest is received) or a note on which
market discount is currently accrued) will be the U.S. dollar value of the
interest payment, based on the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars.
Accrual basis U.S. holders may determine the amount of income recognized
with respect to such interest payment in accordance with either of two methods.
Under the first method, the amount of income recognized will be based on the
average exchange rate in effect during the interest accrual period. If the
accrual period spans two taxable years, this calculation will be based on the
rate in effect during the partial period within the taxable year. Upon receipt
of an interest payment determined by reference to a foreign currency, an accrual
basis U.S. holder will recognize ordinary income or loss measured by the
difference between such average exchange rate and the exchange rate in effect on
the date of receipt, regardless of whether the payment is in fact converted into
U.S. dollars. These rules will also apply to a payment attributable to accrued
but unpaid interest upon the sale or retirement of a note.
Under the second method, an accrual basis U.S. holder may elect to translate
interest income into U.S. dollars at the spot exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, at the exchange rate in effect on the last day of the partial
period within the taxable year. Additionally, if a payment of interest is
actually received within 5 business days of the last day of the accrual period
or taxable year, an accrual basis U.S. holder applying the second method may
instead translate such accrued interest into U.S. dollars at the spot exchange
rate in effect on the day of actual receipt. In this case, no exchange gain or
loss will result. Any election to apply the second method will apply to all debt
instruments held by the U.S. holder at the beginning of the first taxable year
to which the election applies or thereafter acquired by the U.S. holder and may
not be revoked without the consent of the IRS.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS. Foreign currency received
as interest on a note or on the sale or retirement of a note will have a tax
basis equal to its U.S. dollar value at the time such interest is received or at
the time of such sale or retirement, as the case may be. Foreign currency that
is purchased will generally have a tax basis equal to the U.S. dollar value of
the foreign currency on the date of purchase. Any gain or loss recognized on a
sale or other disposition of a foreign currency, including its use to purchase
notes or upon exchange for U.S. dollars, will be ordinary income or loss.
FOREIGN CURRENCY DISCOUNT NOTES. OID for any accrual period on an original
issue discount note that is denominated in a foreign currency will be determined
in the foreign currency and then translated into U.S. dollars in the same manner
as stated interest accrued by an accrual basis U.S. holder. Upon receipt of an
amount attributable to original issue discount, whether in connection with a
payment of interest or the sale or retirement of a note, a U.S. holder may
recognize ordinary income or loss.
AMORTIZABLE BOND PREMIUM. In the case of a note that is denominated in a
foreign currency, bond premium will be computed in units of foreign currency,
and amortizable bond premium will reduce interest income in units of the foreign
currency (if the U.S. holder has elected to amortize the premium as discussed
above in "Acquisition Premium; Amortizable Premium"). At the time amortized bond
premium offsets interest income, a U.S. holder may realize ordinary income or
loss, measured by the difference between exchange rates at that time and at the
time of the acquisition of the notes.
MARKET DISCOUNT. Market discount is determined in units of the foreign
currency. Accrued market discount that is required to be taken into account on
the maturity or upon
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disposition of a note is translated into U.S. dollars at the exchange rate on
the maturity or the disposition date, as the case may be. No part of this amount
is treated as exchange gain or loss. Accrued market discount currently
includible in income by an electing U.S. holder is translated into U.S. dollars
at the average exchange rate for the accrual period or the partial accrual
period during which the U.S. holder held the note. Exchange gain or loss is
determined on maturity or disposition of the note in the manner described above
under "Foreign Currency Notes--Interest Payments" with respect to the
computation of exchange gain or loss on the receipt of accrued interest by an
accrual method holder.
EXCHANGE GAIN OR LOSS. Gain or loss recognized by a U.S. holder on the sale
or retirement of a note that is attributable to changes in exchange rates will
be treated as ordinary income or loss. However, exchange gain or loss is taken
into account only to the extent of total gain or loss realized on the
transaction.
INDEXED NOTES
If applicable, the pricing supplement will contain a discussion of any
special United States Federal income tax rules with respect to currency indexed
notes or other indexed notes.
NON-U.S. HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
1. no withholding of United States federal income tax will be required with
respect to the payment by us or any paying agent of principal and premium on
a note owned by a non-U.S. holder. No withholding of United States federal
income tax will be required with respect to the payment by us or any paying
agent of interest, including OID, on a note owned by a non-U.S. holder if
the requirements of the "portfolio interest" exception are satisfied. These
requirements are satisfied if:
a. the beneficial owner does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote within the meaning of section 871(h)(3) of the Internal Revenue
Code and the regulations thereunder,
b. the beneficial owner is not a controlled foreign corporation that is
related to us through stock ownership,
c. the beneficial owner is not a bank whose receipt of interest on a note
is described in section 881(c)(3)(A) of the Internal Revenue Code, and
d. the beneficial owner satisfies the statement requirement set forth in
section 871(h) and section 881(c) of the Internal Revenue Code and the
regulations thereunder;
2. except as discussed below, no withholding of United States federal income
tax will be required with respect to any gain or income realized by a
non-U.S. holder upon the sale, exchange or other disposition of a note; and
3. a note beneficially owned by an individual who at the time of death is a
non-U.S. holder will not be subject to United States federal estate tax as a
result of such individual's death, provided that such individual does not
actually or constructively own 10% or more of the total combined voting
power of all classes of our stock entitled to vote within the meaning of
section 871(h)(3) of the Internal Revenue Code and provided that the
interest payments with respect to the Note would not have been, if received
at the time of such individual's death, effectively connected with the
conduct of a United States trade or business by such individual.
To satisfy the requirement referred to in 1(d) above, the beneficial owner
of a note, or a financial institution holding the note on behalf of that owner,
must provide, in accordance with specified procedures, our paying agent with a
statement to the effect that the beneficial owner is not a U.S. holder. Pursuant
to current temporary Treasury regulations, these requirements will be met if:
- the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a United States
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person (which certification may be made on an IRS Form W-8 (or successor
form)) or
- a financial institution holding the note on behalf of the beneficial owner
certifies, under penalties of perjury, that the above statement has been
received by it and furnishes a paying agent with a copy of the statement.
Under recently finalized Treasury regulations, the statement requirement
referred to above may be satisfied with other documentary evidence for interest
paid after December 31, 2000 with respect to an offshore account or through
certain foreign intermediaries.
If a non-U.S. holder cannot satisfy the requirements of the "portfolio
interest" exception described in paragraph 1 above, payments of premium, if any,
and interest, including OID, made to that non-U.S. holder will be subject to a
30% withholding tax unless the beneficial owner of the note provides us or our
paying agent, as the case may be, with a properly executed:
- IRS Form 1001 or successor form claiming an exemption from or reduced rate
of withholding under the benefit of a tax treaty or
- IRS Form 4224 or successor form stating that interest paid on the note is
not subject to withholding tax because it is effectively connected with
the beneficial owner's conduct of a trade or business in the United
States.
Under the recently finalized Treasury regulations, non-U.S. holders will
generally be required for interest paid after December 31, 2000 to provide IRS
Form W-8-BEN in lieu of IRS Form W-8 and 1001, and IRS Form W-8 ECI in lieu of
IRS Form 4224, although alternative documentation may be applicable in certain
situations.
If a non-U.S. holder is engaged in a trade or business in the United States
and premium, if any, or interest, including OID, on the note is effectively
connected with the conduct of that trade or business, the non-U.S. holder,
although exempt from the withholding tax discussed above, will be subject to
United States federal income tax on that income on a net income basis in the
same manner as if it were a U.S. holder. In addition, if the holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to adjustments. For this
purpose, the premium, if any, and interest, including OID, on a note, and any
gain recognized on the sale, exchange or other disposition of a note, will be
included in that foreign corporation's earnings and profits.
Any gain or income realized by a non-U.S. holder upon the sale, exchange,
retirement or other disposition of a note generally will not be subject to
United States federal income tax, unless:
- that gain or income is effectively connected with a trade or business in
the United States of the non-U.S. holder (in which case such non-U.S.
holder will be taxed as if it were a U.S. holder), or
- in the case of a non-U.S. holder who is an individual, that individual is
present in the United States for 183 days or more in the taxable year of
the sale, exchange, retirement or other disposition, and certain other
conditions are met (in which case such gain will generally be subject to a
30 percent tax).
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on notes and to the
proceeds of sale of a note made to U.S. holders other than certain exempt
recipients, such as corporations. A 31% backup withholding tax will apply to
those payments if the U.S. holder fails to provide a taxpayer identification
number or certification of foreign or other exempt status or fails to report in
full dividend and interest income.
No information reporting or backup withholding will be required with respect
to payments made by us or any paying agent to non-U.S. holders if a statement
satisfying the
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requirements of 1(d) under "Non-U.S. Holders" has been received and the payor
does not have actual knowledge that the beneficial owner is a United States
person.
In addition, backup withholding and information reporting may apply to the
proceeds of the sale of a note within the United States or conducted through
certain U.S. related financial intermediaries unless the statement satisfying
the requirements of 1(d) under "Non-U.S. Holders" has been received (and the
payor does not have actual knowledge that the beneficial owner is a United
States person) or the holder otherwise establishes an exemption.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situations, the
availability of an exemption and the procedure for obtaining an exemption, if
available. Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against the holder's United States federal
income tax liability provided the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
We may sell the notes:
- through agents,
- through underwriters or dealers, or
- directly to purchasers.
DISTRIBUTION THROUGH AGENTS
We may sell the notes on a continuing basis through agents that become
parties to an agency agreement, a form of which is filed as an exhibit to the
registration statement. Each agent's obligations are separate and several from
those of any other agent. Each agent will use reasonable efforts when requested
by us to solicit purchases of the notes.
We will have the sole right to accept offers to purchase notes and may, in
our absolute discretion, reject any proposed purchase of notes in whole or in
part. Each agent will have the right, in its discretion reasonably exercised, to
reject in whole or in part any proposed purchase of notes through it.
We will pay each agent a commission to be negotiated at the time of sale.
Unless otherwise specified in the pricing supplement, the commission may range
from .125% to .750% of the principal amount of each note sold through that
agent, depending on its stated maturity.
As of the date of this prospectus supplement, the agents include Chase
Securities Inc., Credit Suisse First Boston Corporation, Goldman, Sachs & Co.,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated and Salomon Smith Barney Inc.
DISTRIBUTION THROUGH UNDERWRITERS
We may also sell notes to any agent, acting as principal, for its own
account or for resale to one or more investors or other purchasers, including
other broker-dealers.
The agents may sell any notes they have purchased as principal to any dealer
at a discount. Unless otherwise specified in the pricing supplement, the
discount allowed to any dealer will not be in excess of the discount to be
received by the agent from us. Unless otherwise specified in the pricing
supplement, any note sold to an agent as principal will be purchased by that
agent at a price equal to 100% of the principal amount of that note less a
percentage ranging from .125% to .750% of that principal amount, depending upon
the note's stated maturity. The notes may be resold by the agent to investors
and other purchasers from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale, or the notes may be resold to certain dealers as
described above. After the initial public offering of any notes, the public
offering price and discount may be changed.
DIRECT SALES
We may sell notes directly to investors, without the involvement of any
agent or underwriter. In this case, we would not be obligated to pay any
commission or discount in connection with the sale.
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GENERAL INFORMATION
The name of any agents or other persons through which we sell any notes, as
well as any commissions or discounts payable to those agents or other persons,
will be set forth in the pricing supplement.
Any agent, underwriter or dealer that participates in the offering of the
notes may be an "underwriter" within the meaning of the Securities Act of 1933.
The Company has agreed to indemnify each agent and certain other persons against
certain liabilities, including liabilities under the Securities Act.
We may replace the agents or appoint additional agents in connection with
the offering of the notes from time to time.
The notes will not be listed on any securities exchange. The agents have
advised us that they may from time to time purchase and sell the notes in the
secondary market. However, no agent is obligated to do so and any agent may
discontinue making a market in the notes at any time without notice. No
assurance can be given as to the existence or liquidity of any secondary market
for the notes.
The agents, as well as other agents to or through which we may sell notes,
and their affiliates may engage in transactions with us and perform services for
us in the ordinary course of business. The Chase Manhattan Bank, the trustee, is
an affiliate of Chase Securities Inc., one of the agents.
In connection with certain offerings of the notes, the agents may engage in
overallotment, stabilizing transactions and syndicate covering transactions in
accordance with Regulation M under the Securities Exchange Act of 1934.
Overallotment involves sales in excess of the offering size, which create a
short position for the agents. Stabilizing transactions involve bids to purchase
the notes in the open market for the purpose of pegging, fixing or maintaining
the price of the notes. Syndicate covering transactions involve purchases of the
notes in the open market after the distribution has been completed in order to
cover short positions. Stabilizing transactions and syndicate covering
transactions may cause the price of the notes to be higher than it would
otherwise be in the absence of those transactions. Those activities, if
commenced, may be discontinued at any time.
LEGAL OPINIONS
Opinions regarding the validity of the notes being offered will be issued
for us by John J. Shay, Jr., Vice President, General Counsel and Secretary of
the Company, and for the agents by Davis Polk & Wardwell, New York, New York.
Mr. Shay, together with members of his family, owns, has options to purchase and
has other interests in shares of common stock of our parent company, IBM.
In the opinions described above, assumptions will be made regarding future
action required to be taken by us and the appropriate trustee in connection with
the issuance and sale of any particular notes, the specific terms of those notes
and other matters which may affect the validity of those notes but which cannot
be ascertained on the date of the relevant opinion.
GLOSSARY
Set forth below are definitions of some of the terms used in this prospectus
supplement and not defined in the attached prospectus.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
DXN
Bond Equivalent Yield = ----------- X 100
360-(DXM)
</TABLE>
where "D" refers to the annual rate for Treasury bills, quoted on a bank
discount basis and expressed as a decimal, "N" refers to the actual number of
days in the year for which interest is being calculated, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
"Business Day" means, unless otherwise specified in the pricing supplement,
any day that is not a Saturday or Sunday and that, in New York City, is not a
day on which banking institutions generally are authorized or required by law or
executive order to close.
"Calculation Date" means, with respect to any Interest Determination Date,
the date on which the calculation agent is to calculate an interest rate for a
floating rate note. Unless otherwise specified in the note and the pricing
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supplement, the Calculation Date pertaining to an Interest Determination Date
for a floating rate note will be the first to occur of:
- the tenth calendar day after that Interest Determination Date or, if that
day is not a Business Day, the next succeeding Business Day or
- the Business Day preceding the applicable interest payment date or date of
maturity, redemption or repayment, of that note, as the case may be.
However, LIBOR will be calculated on the Interest Determination Date.
"Designated CMT Telerate Page" means the display on the Bridge Telerate
Inc., or any successor service, on the page specified in the pricing supplement,
or any other page that replaces that page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no page is
specified, page 7052.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is designated in the
pricing supplement, the display on the Reuters Monitor Money Rates Service, or a
successor nominated as the information vendor, for the purpose of displaying the
London interbank rates of major banks for the applicable Index Currency, or (b)
if "LIBOR Telerate" is designated in the pricing supplement, the display on the
Bridge Telerate Inc., or a successor nominated as the information vendor, for
the purpose of displaying the London interbank rates of major banks for the
applicable Index Currency. If neither LIBOR Reuters nor LIBOR Telerate is
specified, LIBOR for the applicable Index Currency will be determined as if
LIBOR Telerate had been specified.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates", or any successor publication, published by the Board
of Governors of the Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world wide web site of the Board of Governors of the Federal Reserve System
at http://www.bog.frb.fed.us/releases/h15/update, or any successor site or
publication.
"Index Currency" means the currency, including composite currencies,
specified in the pricing supplement as the currency for which LIBOR shall be
calculated. If no currency is specified, the Index Currency will be U.S.
dollars.
"Index Maturity" means the period of time designated as the representative
maturity of the certificates of deposit, the commercial paper, the Index
Currency or the Treasury bills, respectively, by reference to transactions in
which the CD Rate, the Commercial Paper Rate, LIBOR, the Treasury Rate and the
CMT Rate, respectively, are to be calculated, as set forth in the pricing
supplement.
"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 Interest Reset Date and calculated on the related Calculation Date.
However, LIBOR will be calculated on the Interest Determination Date. Unless
otherwise specified in the pricing supplement:
- the Interest Determination Date pertaining to an Interest Reset Date for a
CD Rate Note, Commercial Paper Rate Note, Federal Funds Rate Note, Prime
Rate Note or CMT Rate Note will be the second Business Day preceding that
Interest Reset Date;
- the Interest Determination Date pertaining to a Interest Reset Date for a
LIBOR Note will be the second business day in London preceding that
Interest Reset Date. A business day in London will be any day on which
dealings in deposits in U.S. dollars are transacted in the London
interbank market; and
- the Interest Determination Date pertaining to a Interest Reset Date for a
Treasury Rate Note will be the day of the week during which that Interest
Reset Date falls on which Treasury bills of the Index Maturity designated
in the pricing supplement are auctioned. Treasury bills are usually 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 or
S-27
<PAGE>
may be held on the preceding Friday. If, as the result of a legal holiday,
an auction is held on the preceding Friday, that Friday will be the
Interest Determination Date pertaining to the Interest Reset Date
occurring in the following week.
"Interest Reset Date" means the date on which a floating rate note will
begin to bear interest at the interest rate determined as of any Interest
Determination Date. Unless otherwise specified in the applicable note and
pricing supplement, the Interest Reset Dates will be:
- in the case of floating rate notes that reset daily, each Business Day;
- in the case of floating rate notes, other than Treasury Rate notes, that
reset weekly, Wednesday of each week;
- in the case of Treasury Rate notes that reset weekly, Tuesday of each
week;
- in the case of floating rate notes that reset monthly, the third Wednesday
of each month;
- in the case of floating rate notes that reset quarterly, the third
Wednesday of March, June, September and December of each year;
- in the case of floating rates notes that reset semi-annually, the third
Wednesday of each of two months of each year specified in the pricing
supplement; and
- in the case of floating rate notes that reset annually, the third
Wednesday of one month of each year specified in the pricing supplement.
If a Interest Reset Date for any floating rate note would otherwise be a day
that is not a Business Day, or, in the case of a LIBOR note, a day that is not a
LIBOR Business Day, that Interest Reset Date will be postponed to the next
Business Day or LIBOR Business Day, as the case may be. However, in the case of
a LIBOR note, if that LIBOR Business Day is in the following calendar month,
that Interest Reset Date will be the preceding LIBOR Business Day. If a Treasury
bill auction, as described in the definition of "Interest Determination Date,"
will be held on any day that would otherwise be a Interest Reset Date for a
Treasury Rate note, then that Interest Reset Date will instead be the Business
Day immediately following that auction date.
"LIBOR" means London Inter-Bank Offered Rates.
"LIBOR Business Day" means any day that is not a Saturday or Sunday and
that, in the City of New York or the City of London, is not a day on which
banking institutions generally are authorized or required by law or executive
order to close.
"Money Market Yield" means a yield calculated in accordance with the
following formula:
<TABLE>
<C> <C> <S>
DX360
Money Market Yield = ----------- X 100
360-(DXM)
</TABLE>
where "D" refers to the annual rate for the commercial paper, quoted on a bank
discount basis and expressed as a decimal, and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
"Reuters Screen US Prime 1 Page" means the display on the Reuters Monitor
Money Rates Service on the page designated as "US Prime 1," or any other page
that replaces that page on that service for the purpose of displaying prime
rates or base lending rates of major United States banks.
"Telerate Page 56" and "Telerate Page 57" mean the displays designated on
Bridge Telerate, Inc. as Page 56 or Page 57, or any page that replaces either
Page 56 or Page 57 on that service, or another service that is nominated as the
information vendor, for the purpose of displaying Treasury bill auction rates.
S-28
<PAGE>
PROSPECTUS
IBM CREDIT CORPORATION
NORTH CASTLE DRIVE
ARMONK, NEW YORK 10504-1785
(914) 765-6100
$10,898,150,000
DEBT SECURITIES
----------------
WE WILL PROVIDE SPECIFIC TERMS OF THESE SECURITIES IN SUPPLEMENTS TO THIS
PROSPECTUS. YOU SHOULD READ THIS PROSPECTUS AND ANY SUPPLEMENT CAREFULLY BEFORE
YOU INVEST.
------------------------
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission, nor have these organizations
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
The date of this prospectus is October 6, 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................................................................... 2
Ratio of Earnings to Fixed Charges..................................................... 3
Where You Can Find More Information.................................................... 3
The Company............................................................................ 4
Use of Proceeds........................................................................ 4
Description of the Debt Securities..................................................... 4
Plan of Distribution................................................................... 13
Legal Opinions......................................................................... 14
Experts................................................................................ 14
</TABLE>
IBM CREDIT CORPORATION
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
TERMS OF OUR DEBT SECURITIES, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT
WITH THE ATTACHED PROSPECTUS SUPPLEMENT. TOGETHER, THESE DOCUMENTS WILL GIVE THE
SPECIFIC TERMS OF THE SECURITIES WE ARE OFFERING. YOU SHOULD ALSO READ THE
DOCUMENTS WE HAVE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS FOR INFORMATION
ON OUR COMPANY AND OUR FINANCIAL STATEMENTS. CAPITALIZED TERMS USED IN THIS
SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS.
THE DEBT SECURITIES WE MAY OFFER
This prospectus is part of a registration statement (No. 333-86615) that we
filed with the SEC utilizing a "shelf" registration process. Under this shelf
process, we may offer from time to time up to $10,898,150,000 of our debt
securities. This prospectus provides you with a general description of the debt
securities we may offer. Each time we offer debt securities, we will provide you
with a prospectus supplement and, where applicable, a pricing supplement, that
will describe the specific amounts, prices and terms of the debt securities we
offer. The prospectus supplement and the pricing supplements may also add,
update or change information contained in this prospectus.
The debt securities we may offer are unsecured general obligations of our
company. We will refer to these obligations simply as the "debt securities". The
debt securities will have the same rank as all of our other unsecured,
unsubordinated debt.
The debt securities will be issued under an indenture between us and The
Chase Manhattan Bank. The Chase Manhattan Bank is the trustee under the
indenture. The indenture is a very detailed contract between us and The Chase
Manhattan Bank. We have summarized general features of the debt securities from
the indenture. We encourage you to read our indenture, which is an exhibit to
the registration statement. We also encourage you to read our periodic and
current reports, which we file with the SEC.
GENERAL INDENTURE PROVISIONS THAT APPLY TO OUR DEBT SECURITIES
The indenture does not limit the amount of debt that we may issue. We may
also issue as many distinct series of debt securities under the indenture as we
wish.
The indenture limits our ability to enter into debt secured by liens on
certain of our property without also securing the debt securities we offer here,
unless the total amount of our secured debt does not exceed 10% of our
Consolidated Net Tangible Assets.
The indenture also limits our ability to consolidate, merge, or otherwise
transfer our properties and assets to other companies. But we can consolidate,
merge, or transfer our properties and assets, if the company we consolidate,
merge or transfer our properties and assets to is a company of which IBM, our
parent, owns all of the voting stock. Also, the company into which we
consolidate, merge or transfer our properties will be substituted for us under
the indenture.
The indenture provides that holders of a majority of the outstanding
principal amount of any series of debt securities may vote to change our
obligations, or your rights, under that series. However, to change the amount or
timing of principal, interest or other payments under the debt securities, every
holder in the series must consent.
We may discharge our obligations under the indenture relating to the debt
securities by depositing with the trustee sufficient funds or government
obligations to pay those debt securities when due.
EVENTS OF DEFAULT. Our indenture provides that the following are events of
default:
- If we do not pay interest for 30 days after its due date.
- If we do not pay principal or premium when due.
- If we do not deposit any sinking fund payment when due.
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<PAGE>
- If we continue to breach a covenant for 90 days after notice.
- If we enter bankruptcy or become insolvent.
- Any other event of default to which we agree for a series of debt
securities.
If an event of default occurs under any series of debt securities, the
trustee or holders of 25% of the outstanding principal amount of that series may
declare the principal amount of the series immediately payable. However, holders
of a majority of the principal amount can rescind this action.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated are
as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31,
----------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to
fixed charges....... 2.15 1.78 1.83 1.83 2.02 1.96 2.34
</TABLE>
We compute the ratio of earnings to fixed charges by dividing earnings,
which includes income before taxes and fixed charges, by fixed charges. We
exclude from this calculation the effects of accounting changes which have been
made over time. "Fixed charges" consist of interest on debt and a portion of
rentals we determine to represent interest.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the
SEC. You may read and copy any document we file at the SEC's public reference
room at 450 Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on their public reference room. Our SEC
filings are also available to the public at the SEC's web site at
(http://www.sec.gov).
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until our offering is completed:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and
June 30, 1999; and
- Current Reports on Form 8-K, filed on January 25, 1999, April 29, 1999,
and July 21, 1999.
You may also request a copy of these filings at no cost, by contacting us at
the following address:
Manager of External Financial Reporting
IBM Credit Corporation
North Castle Drive
Armonk, New York 10504
(914) 765-1900
You should rely only on the information incorporated by reference or
provided in this prospectus, any prospectus supplement and pricing supplement.
We have not authorized anyone else to provide you with different information. We
are not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus, any
prospectus supplement or pricing supplement is accurate as of any date other
than the date on the front of those documents.
We also have an Internet website on the world wide web, which contains
general information about our company. Please understand that we are NOT
incorporating by reference any of the information on that website. Therefore, do
not consider our website, or any of its contents, as part of this prospectus.
3
<PAGE>
THE COMPANY
IBM Credit Corporation (the company) was incorporated in Delaware on March
4, 1981. Our principal business is to finance IBM products and services. All of
our outstanding capital stock is owned by International Business Machines
Corporation (IBM), a New York corporation. In addition to financing the purchase
and lease of IBM products and related products and services by customers of IBM
in the United States, we also finance inventory and accounts receivable for
dealers and remarketers of IBM and non-IBM products and services.
OUR SUPPORT AGREEMENT WITH IBM
We have a support agreement in place with IBM. We've described important
provisions from this agreement here:
- IBM has agreed with us to hold 100 percent of our voting capital stock.
- IBM also agreed with us that it will not pledge or encumber our stock nor
will it dispose of our stock unless it is required to do so under a court
decree or other order of a governmental authority that IBM's legal counsel
believes may not be successfully challenged.
- IBM has also agreed to cause us to have a tangible net worth of at least
$1.00 at all times.
- We've agreed that the support agreement is NOT a guarantee by IBM of the
payment of our liabilities, debt, or other obligations of any kind.
- Finally, our support agreement with IBM can't be modified, amended or
terminated while there is any debt of the company outstanding unless all
the debt holders have consented in writing.
USE OF PROCEEDS
Unless we otherwise specify in a prospectus supplement, the net proceeds we
receive from the sale of the debt securities offered under this prospectus and
the accompanying prospectus supplement will be used for general corporate
purposes. General corporate purposes may include the repayment of debt,
investments in or extensions of credit to our affiliates and business partners,
or the financing of our business expansion. The net proceeds may also be
invested temporarily or applied to repay short-term debt until they are used for
their stated purpose.
DESCRIPTION OF THE DEBT SECURITIES
The following description of the terms of the debt securities sets forth
general terms that apply to the debt securities. The particular terms of any
debt securities will be described more specifically in each prospectus
supplement (and pricing supplement, where applicable) relating to those debt
securities.
The debt securities will be issued under an indenture dated as of January
15, 1989, as supplemented on April 29, 1997, between us and The Chase Manhattan
Bank, as trustee. We will be referring to this indenture in this prospectus
simply as the "indenture".
We are summarizing the indenture below. Since this is only a summary, it
does not contain all of the information which may be important to you. A copy of
the entire indenture is an exhibit to the registration statement of which this
prospectus is a part. When we make parenthetical section references in this
prospectus, those are references to sections of the indenture. We incorporate
the entire indenture by reference, and encourage you to read the indenture.
4
<PAGE>
GENERAL
The indenture does not limit the amount of debt securities that we may
issue. It also does not limit the number of series of debt securities we may
issue. The indenture provides that debt securities may be issued up to the
principal amount which is authorized by our company from time to time. The debt
securities we issue under the indenture will be unsecured and will have the same
rank as all of our other unsecured and unsubordinated debt.
The debt securities can be issued in one or more separate series. The
prospectus supplement relating to the particular series of debt securities being
offered will describe more specifically the amounts, prices and terms of those
debt securities. These terms may include:
- the title of the debt securities;
- any limit upon the aggregate principal amount of the debt securities;
- the maturity date or dates, or the method of determining the maturity
dates;
- the interest rate or rates, or the method of determining those rates;
- the interest payment dates and, for debt securities in registered form,
the regular record dates;
- the places where payments may be made;
- any mandatory or optional redemption provisions;
- any sinking fund or similar provisions;
- any conversion or exchange provisions;
- any terms for the attachment to the debt securities of warrants, options
or other rights to purchase or sell our securities;
- the portion of principal amount of the debt security payable upon an
acceleration of its maturity if other than the full principal amount;
- any deletions of, or changes or additions to, the events of default or
covenants;
- if other than U.S. dollars, the currency or currencies, including the euro
and other composite currencies, in which payments on the debt securities
will be payable and whether the holder may elect payment to be made in a
different currency;
- the method of determining the amount of any payments on the debt
securities which are linked to an index;
- whether the debt securities will be issued in fully registered form
without coupons or in bearer form, with or without coupons, or any
combination of these, and whether they will be issued in the form of one
or more global securities in temporary or definitive form;
- whether and on what terms we will pay additional amounts to holders of the
debt securities that are not U.S. persons for any tax, assessment or
governmental charge withheld or deducted and, if so, whether and on what
terms we will have the option to redeem the debt securities rather than
pay the additional amounts; and
- any other specific terms of the debt securities. (Sections 202 and 301)
Unless we otherwise specify in a prospectus supplement:
- the debt securities will be registered debt securities;
- the registered debt securities denominated in U.S. dollars and will be
issued in denominations of $1,000 or an integral multiple of $1,000; and
- bearer debt securities denominated in U.S. dollars will be issued in
denominations of $5,000. (Section 401)
If any of the debt securities are sold for any foreign currency or currency
unit, or if any payments on the debt securities are payable in any foreign
currency or currency unit, we will describe, in the prospectus supplement, the
applicable restrictions, elections, tax consequences, specific terms and other
5
<PAGE>
information for the debt securities and the foreign currency or currency unit.
Debt securities may bear appropriate legends, as required by United States
Federal tax and securities laws, rules and regulations.
Some of the debt securities may be issued as original issue discount debt
securities. Original issue discount debt securities bear no interest or bear
interest at below-market rates. These are sold at a discount below their stated
principal amount. If we issue these original discount debt securities, the
prospectus supplement will describe special tax, accounting or other information
relating to these securities.
EXCHANGE, REGISTRATION AND TRANSFER
Debt securities may be transferred or exchanged at the corporate trust
office of the security registrar or at any other office or agency which is
maintained for these purposes. No service charge will be payable upon the
transfer or exchange, except for any applicable tax or governmental charge.
(Section 404)
Our designated security registrar in the United States is The Chase
Manhattan Bank. It maintains an office located at 450 West 33rd Street, New
York, New York 10001.
If debt securities are issuable in both registered and bearer form, the
bearer securities will be exchangeable for registered securities. If a bearer
security with related coupons is surrendered in exchange for a registered
security between a record date and the date set for the payment of interest, the
bearer security will be surrendered without the coupon that relates to that
interest payment. That interest payment will be made only to the holder of the
coupon when due.
In the event any series of debt securities is redeemed, we will not be
required to:
- issue, register the transfer of, or exchange, debt securities of any
series between the opening of business 15 business days before any
selection of debt securities of that series to be redeemed and the close
of business on:
- the day of mailing of the relevant notice of redemption, if the debt
securities are issuable only in registered form,
- the day of the first publication of the relevant notice of redemption,
if the debt securities are issuable in bearer form, or,
- the day of mailing of the relevant notice of redemption, if the debt
securities are issuable in bearer and registered form, and there is no
publication;
- register the transfer of, or exchange, any registered security selected
for redemption, in whole or in part, except the unredeemed portion of any
registered security being redeemed in part; or
- exchange any bearer security selected for redemption, except to exchange
it for a registered security which is simultaneously surrendered for
redemption. (Section 404)
PAYMENT AND PAYING AGENT
We will pay principal, interest and any premium on fully registered
securities in the designated currency or currency unit at the office of the
paying agent. Payment of interest on fully registered securities may be made by
check mailed to the persons in whose names the debt securities are registered on
the days specified in the indenture or any prospectus supplement. (Sections 406
and 410)
We will pay principal, interest and any premium on bearer securities in the
designated currency or currency unit at the office of the paying agent or agents
outside of the United States. Payments will be made at the offices of the paying
agent in the United States only if the designated currency is U.S. dollars and
payment outside of the United States is illegal or effectively precluded.
(Sections 410 and 1102)
If any amount payable on any debt security or coupon remains unclaimed at
the end of two years after the amount became due and payable,
6
<PAGE>
the paying agent will release any unclaimed amounts to us. (Section 1103)
Our paying agent in the United States for the debt securities is The Chase
Manhattan Bank, which is located at 450 West 33rd Street, New York, New York
10001.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
we identify in a prospectus supplement. Global debt securities may be issued in
either registered or bearer form and in either temporary or definitive form. All
global securities in bearer form will be deposited with a depositary outside of
the United States. We will describe the specific terms of the depositary
arrangement with respect to a series of debt securities in a prospectus
supplement.
Other than for payments, we may treat a person having a beneficial interest
in a definitive global security as the holder of the principal amount of
outstanding debt securities represented by the global security. For these
purposes, we may rely upon a written statement delivered to the trustee by the
holder of the definitive global security, or, in the case of a definitive global
security in bearer form, by Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euro-clear System, and Cedelbank, societe anonyme.
(Section 411)
Neither we, the trustee nor any of our respective agents will be responsible
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a global security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. (Section 411)
Unless we otherwise specify in a prospectus supplement, we anticipate that
the following provisions will apply to our depositary arrangements.
TEMPORARY GLOBAL SECURITIES
- All or any portion of the debt securities of a series that are issuable in
bearer form initially may be represented by one or more temporary global
securities, without interest coupons. The temporary global securities will
be deposited with a depositary in London for Euro-clear and Cedelbank for
credit to the accounts of the beneficial owners of the debt securities or
to such other accounts as they may direct.
- On and after an exchange date provided in the applicable prospectus
supplement, each temporary global security will be exchangeable for
definitive securities in bearer form, registered form, definitive global
bearer form or any combination of these, as we may specify in a prospectus
supplement.
- No definitive bearer security delivered in exchange for a portion of a
temporary global security will be mailed or delivered to any location in
the United States.
- The prospectus supplement will describe any applicable ownership
certification requirements before a definitive bearer security is issued
or interest payments are made. (Section 403)
DEFINITIVE GLOBAL SECURITIES
BEARER SECURITIES. The applicable prospectus supplement will describe the
exchange provisions, if any, of debt securities issuable in definitive global
bearer form. We will not deliver any bearer securities in exchange for a portion
of a definitive global security to any location in the United States. (Section
404)
U.S. BOOK ENTRY SECURITIES. Debt securities of a series represented by a
definitive global registered security and deposited with or on behalf of a
depositary in the United States will be registered in the name of the depositary
or its nominee. These securities are referred to as "book-entry securities".
When a global security is issued and deposited with the depositary, the
depositary will
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<PAGE>
credit, on its book-entry registration and transfer system, the respective
principal amounts represented by that global security to the accounts of
institutions that have accounts with the depositary or its nominee. Institutions
that have accounts with the depositary or its nominee are referred to as
"participants".
The accounts to be credited will be designated by the underwriters or agents
for the sale of the book-entry securities or by us, if we offer and sell the
securities directly.
Ownership of book-entry securities are limited to participants or persons
that may hold interests through participants. In addition, ownership of these
securities are evidenced only by, and the transfer of that ownership will be
effected only through, records maintained by the depositary or its nominee, or
by participants or persons that hold through other participants.
So long as the depositary, or its nominee, is the registered owner of a
global security, that depositary or nominee will be considered the sole owner or
holder of the book-entry securities represented by the global security for all
purposes under the indenture. Payments of principal, interest and premium on
those securities will be made to the depositary or its nominee as the registered
owner or the holder of the global security.
Owners of book-entry securities:
- will not be entitled to have the debt securities registered in their
names;
- will not be entitled to receive physical delivery of the debt securities
in definitive form; and
- will not be considered the owners or holders of those debt securities
under the indenture.
The laws of some jurisdictions require that purchasers of securities take
physical delivery of the securities in definitive form. These laws impair the
ability to purchase or transfer book-entry securities.
We expect that the depositary for book-entry securities of a series will
immediately credit participants' accounts with payments received by the
depositary or nominee in amounts proportionate to the participants' beneficial
interests, as shown on the records of the depositary.
We also expect that payments by participants to owners of beneficial
interests in a global security held through the participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"STREET NAME". The payments by participants to the owners of beneficial
interests will be the responsibility of those participants.
PRACTICAL IMPLICATIONS OF HOLDING DEBT SECURITIES IN STREET NAME
Investors who hold debt securities in accounts at banks or brokers will not
generally be recognized by us as the legal holders of debt securities. Since we
recognize as the holder the bank or broker, or the financial institution the
bank or broker uses to hold its debt securities, it is the responsibility of
these intermediary banks, brokers and other financial institutions to pass along
principal, interest and other payments on the debt securities, either because
they agree to do so in their agreements with their customers, or because they
are legally required to do so. If you hold debt securities in street name, you
should check with your own institution to find out:
- How it handles securities payments and notices;
- Whether it imposes additional fees or charges;
- How it would handle voting and related issues if ever required;
- How it would pursue or enforce rights under the debt securities if there
were a default or other event triggering the need for direct holders to
act to protect their interests;
- How it would react on other matters which are important to persons who
hold debt securities in "street name".
8
<PAGE>
COVENANTS AND OTHER LIMITATIONS
We have agreed to a number of covenants and other limitations in the
indenture. Covenants are promises we make. If we don't live up to our promises,
we could be placed in default. We have summarized these covenants for you below.
We encourage you to read the full text of these limitations in the indenture.
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
We have agreed in the indenture not to consolidate with, or merge into any
other company, nor sell substantially all of our assets to another company
unless that company:
- is owned by IBM (or any successor to IBM);
- is organized in the United States; and
- expressly assumes all of our rights and obligations under the debt
securities and the indenture, and immediately after giving effect to the
transaction, there is no default under the indenture. (Section 901 & 902)
LIMITATION ON LIENS
We have also agreed that neither we nor any Restricted Subsidiary of ours
will incur, issue, assume, or guarantee any debt which is secured by any pledge,
mortgage, security interest or other lien on any of our property, without
securing our debt securities equally and ratably with, or prior to, that debt,
unless the total amount of all of this secured debt would not exceed 10% of
Consolidated Net Tangible Assets.
To better understand this covenant, you'll need to know both what a
"Restricted Subsidiary" is, as well as what "Consolidated Net Tangible Assets"
are, and how we make this computation. We've summarized these definitions for
you below. (Section 101)
A "RESTRICTED SUBSIDIARY" is a subsidiary of ours organized under the laws
of any state of the United States or the District of Columbia.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total assets of us and our
Restricted Subsidiaries, LESS:
- current liabilities,
- investments in and advances to subsidiaries other than our Restricted
Subsidiaries or other entities accounted for on the equity method of
accounting, and
- intangible assets.
We include in our definition of "intangible assets" the balance sheet
value of:
- all trade names, trademarks, licenses, patents, copyrights and
goodwill,
- organizational and development costs,
- deferred charges other than prepaid items such as insurance, taxes,
interest, commissions, rents and similar items and tangible items we
are amortizing, and
- unamortized debt discount and expense minus unamortized premium.
It is also important for you to understand that we can have certain debt and
liens which we don't have to consider under this covenant. Specifically, the
covenant does not apply to debt which is secured by:
- liens on property, shares of stock or debt of any company existing at the
time it becomes a Restricted Subsidiary;
- liens on property, shares of stock or debt existing at the time we, or any
Restricted Subsidiary, acquire it;
- liens on property, shares of stock or debt we, or any Restricted
Subsidiary, may in the future acquire, where the liens:
- are created prior to, at the time of or within one year after the
acquisition (or in the case of property, the completion of
construction or commencement of commercial operation, whichever is
later), and
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- are to secure or provide for the payment of all or part of the
purchase price (or, in the case of property, the construction price);
- liens in favor of us or any Restricted Subsidiary;
- liens in favor of the U.S. government, any state, the District of
Columbia, or any agency, department or other instrumentality, to secure
progress, advance or other payments under a contract or under a statute;
- liens to secure the performance of any contract which is not directly or
indirectly in connection with the borrowing of money, obtaining of
advances or credit or securing of debt, as long as these liens are made
and are continuing in the ordinary course of our business;
- liens incurred (no matter when created) in connection with leveraged or
single-investor lease transactions we, or a Restricted Subsidiary may
engage in, as long as the documentation provides that the borrowings are
payable solely out of the income and proceeds of the property subject to
the lien, and are not a general obligation of ours or of any Restricted
Subsidiary; and
- the extension, renewal or replacement of any lien otherwise excluded, as
long as:
- the extension, renewal or replacement lien is limited to all or a part
of the same property, shares of stock or debt that secured the lien
which is extended, renewed or replaced, and
- the debt secured by the lien at the time is not increased. (Section
1104)
WAIVER OF LIMITATIONS ON LIEN COVENANT
The holders of a majority in principal amount of all affected series of
outstanding debt securities can waive compliance with the limitation on liens
covenant. (Section 1106)
SATISFACTION AND DISCHARGE; DEFEASANCE
We may be discharged from our obligations on the debt securities of any
series that have matured or will mature or be redeemed within one year if we
deposit with the trustee enough cash to pay all the principal, interest and any
premium due to the stated maturity date or redemption date of the debt
securities. (Section 501)
The indenture contains a provision that permits us to elect:
- to be discharged after 90 days from all of our obligations (subject to
limited exceptions) with respect to any series of debt securities then
outstanding; or
- to be released from our obligations under the following covenants and from
the consequences of an event of default or cross-default resulting from a
breach of these covenants:
- the limitations on consolidation, merger, conveyance or transfer and
- the limitation on liens.
To make either of the above elections, we must deposit in trust with the
trustee enough money to pay in full the principal, interest and premium on the
debt securities. This amount may be made in cash and/or U.S. government
obligations, if the debt securities are denominated in U.S. dollars. This amount
may be made in cash, and/or foreign government securities if the debt securities
are denominated in a foreign currency. As a condition to either of the above
elections, we must deliver to the trustee an opinion of counsel that the holders
of the debt securities will not recognize income, gain or loss for Federal
income tax purposes as a result of the action. (Section 503)
If either of the above events occur, the holders of the debt securities of
the series will not be entitled to the benefits of the indenture, except for
registration of transfer and exchange of debt securities and replacement of
lost, stolen or mutilated debt securities. (Sections 501 and 503)
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EVENTS OF DEFAULT, NOTICE AND WAIVER
If an event of default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% in principal amount of the
debt securities of the series may by giving written notice to us, declare the
entire principal amount of all the debt securities of that series, together with
accrued interest, to be due and payable immediately. This declaration may be
annulled and past defaults may be waived by the holders of a majority of the
principal amount of the debt securities of that series. However, payment
defaults that are not cured may only be waived by all holders of debt securities
of the series. (Sections 602 and 613)
The indenture defines an "event of default" for any series of debt
securities as including one or more of the following events:
- we fail to pay interest on any debt security of a series when it becomes
due, and the default continues for 30 days;
- we fail to pay the principal or any premium on any debt securities of the
series when due;
- we fail to make any sinking fund payment when due;
- we fail to perform any other covenant in the indenture for a series of
debt securities and that default continues for 90 days after being given
notice;
- we enter into bankruptcy or become insolvent; and
- any other event of default, as we may agree upon for a particular series
of debt securities occurs under the terms of that particular series.
An event of default for one series of debt securities is not necessarily an
event of default for any other series of debt securities. (Section 601)
The indenture requires the trustee to give the holders of an affected series
of debt securities notice of a default within 90 days, unless the default is
cured or waived. However, the trustee may withhold this notice if it determines
in good faith that it is in the interest of those holders. The trustee may not,
however, withhold this notice in the case of a payment default. (Section 702)
Other than the duty to act with the required standard of care during an
event of default, a trustee is not obligated to exercise any of its rights or
powers under the indenture at the request or direction of any of the holders of
debt securities, unless the holders have offered to the trustee reasonable
indemnification. (Section 703)
Generally, the holders of a majority in principal amount of outstanding debt
securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or exercising any trust or
other power conferred on the trustee. (Section 612)
The indenture includes a covenant that we will file annually with the
trustee a certificate of no default, or specifying any default that exists.
(Section 1105)
STREET NAME AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR BROKERS
FOR INFORMATION ON THEIR REQUIREMENTS FOR GIVING NOTICE OR TAKING OTHER ACTIONS
UPON A DEFAULT.
MODIFICATION OF THE INDENTURE
Together with the trustee, we may modify the indenture without the consent
of the holders for limited purposes, including adding to our covenants or events
of default, establishing forms or terms of debt securities, curing ambiguities
and other purposes which do not adversely affect existing holders in any
important way. (Section 1001)
Together with the trustee, we may also modify and amend the indenture with
the consent of the holders of a majority in principal amount of the outstanding
debt securities of all affected series. However, without the consent of each
affected holder, no modification may:
- change the stated maturity of any debt security;
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- reduce the principal, premium (if any) or rate of interest on any debt
security;
- change any place of payment or the currency in which any debt security is
payable;
- impair the right to enforce any payment after the stated maturity or
redemption date;
- adversely affect the terms of any conversion right;
- reduce the percentage of holders of outstanding debt securities of any
series required to consent to any modification, amendment or waiver under
the indenture;
- change any of our obligations for outstanding debt securities of a series
to maintain an office or agency in the places and for the purposes
specified in the indenture for that series; or
- change certain amendment or waiver provisions in the indenture. (Section
1002)
STREET NAME AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR BROKERS
FOR INFORMATION ON HOW APPROVAL MAY BE GRANTED OR DENIED IF WE WISH TO CHANGE
THE INDENTURE OR THE DEBT SECURITIES, REQUEST A WAIVER, OR OTHERWISE MODIFY THE
INDENTURE.
MEETINGS
The indenture provides for convening meetings of the holders of debt
securities of a series. (Section 1401) A meeting may be called at any time by
the trustee, upon our request, or upon the request of the holders of at least
10% in principal amount of the outstanding debt securities of the series. In
each case, notice will be given to the holders of debt securities of the series.
(Section 1402)
Persons holding a majority in principal amount of the outstanding debt
securities of a series will constitute a quorum at a meeting. A meeting called
by us or the trustee that did not have a quorum may be adjourned for not less
than 10 days, and if there is not a quorum at the adjourned meeting, the meeting
may be further adjourned for not less than 10 days. Generally, any resolution
presented at a meeting at which a quorum is present may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
outstanding debt securities of that series. However, to change the amount or
timing of payments under the debt securities, every holder in the series must
consent. In addition, in those instances where the indenture provides that an
action may be taken by the holders of a specified percentage in principal amount
of outstanding debt securities of a series, that action may be taken at a
meeting at which a quorum is present by the affirmative vote of the holders of
that specified percentage in principal amount of the outstanding debt securities
of that series. Any resolution passed or decision taken at any meeting of
holders of debt securities of any series duly held under the terms of the
indenture will be binding on all holders of debt securities of that series and
the related coupons. (Section 1404)
NOTICES TO HOLDERS
In most instances, where the indenture requires that notice be provided to
holders, notice to holders of registered securities will be given by mail to the
addresses of the holders as they appear in the security register. Notices to
holders of bearer securities will be given by publication at least once in a
daily newspaper in The City of New York and in London. Notices may also be
published in another city or cities as may be specified in the bearer
securities. In addition, notices to holders of bearer securities will be mailed
to those persons whose names and addresses were previously filed with the
applicable trustee. (Section 106)
TITLE
Title to any bearer securities and any related coupons will pass by
delivery. We, the trustee and any agent of ours or the trustee may treat the
holder of any bearer security or related coupon as the absolute owner of that
security for all purposes. We may also treat the registered owner of any
registered security as the absolute owner of that security for all purposes.
(Section 407)
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REPLACEMENT OF SECURITIES AND COUPONS
It's important to keep your debt securities safe. We will replace debt
securities or coupons that have been mutilated at the expense of the holder when
the mutilated debt security or coupon is surrendered to the trustee. Debt
securities or coupons that become destroyed, stolen or lost will be replaced by
us at the expense of the holder when the trustee receives evidence of its
destruction, loss or theft satisfactory to us and the trustee. In the case of a
destroyed, lost or stolen debt security or coupon, the holder of the debt
security or coupon may be required to indemnify the trustee and us before a
replacement debt security will be issued. (Section 405)
GOVERNING LAW
The indenture, the debt securities and the coupons will be governed by, and
construed under, the laws of the State of New York. (Section 112)
OUR RELATIONSHIP WITH THE TRUSTEE
We maintain lines of credit, and have other customary banking relationships,
with the trustee under the indenture.
PLAN OF DISTRIBUTION
We may sell the debt securities:
- through underwriters,
- through agents or
- directly to purchasers.
We will describe, in the prospectus supplement, the terms of the offering of our
debt securities, including the following:
- the name or names of any underwriters;
- the purchase price and the proceeds we will receive from the sale;
- any underwriting discounts and other items constituting underwriters'
compensation;
- any initial public offering price and any discounts or concessions allowed
or reallowed or paid to dealers;
- any securities exchanges on which the debt securities of the series may be
listed; and
- any other information we think is important.
If we use underwriters in the sale, the debt securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
The securities may be either offered to the public through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate. The obligations of the underwriters to purchase securities will be
subject to certain conditions, and the underwriters will be obligated to
purchase all the debt securities of a series 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.
Debt securities may be sold directly by us or through agents we designate
from time to time. Any agent involved in the offer or sale of the debt
securities under which this prospectus is delivered will be named and any
commissions we pay to that agent will be described in the prospectus supplement.
Unless we otherwise indicate in a prospectus supplement, any agent will be
acting on a best efforts basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by certain types
of institutions to purchase securities from us at the public offering price set
forth in the prospectus supplement under delayed delivery contracts. These
contracts will provide for payment and delivery on a
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specified date in the future. The conditions to these contracts and the
commissions payable for solicitation of these contracts will be set forth in a
prospectus supplement.
Agents and underwriters may be entitled to indemnification by us against
civil liabilities arising out of this prospectus, including liabilities under
the Securities Act of 1933, or to contribution for payments which the agents or
underwriters may be required to make relating to those liabilities. Agents and
underwriters may be customers of, engage in transactions with, or perform
services for, us in the ordinary course of business.
Each series of securities will be a new issue of securities with no
established trading market. Any underwriter may make a market in the securities,
but will not be obligated to do so and may discontinue any market making at any
time without notice. Neither we, nor any underwriter, can provide any assurance
as to the liquidity of the trading market for any of the debt securities.
LEGAL OPINIONS
The legality of the debt securities will be passed upon by John J. Shay,
Jr., our Vice President, General Counsel and Secretary. Mr. Shay, together with
members of his family, owns, has options to purchase and has other interests in
shares of common stock of our parent company, IBM.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to our Annual Report on Form 10-K for the year ended December 31, 1998
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of that firm as experts in
auditing and accounting. Before the July 1, 1998 merger of Price Waterhouse LLP,
our former independent accountant, and Coopers & Lybrand L.L.P. (C&L) to form
PricewaterhouseCoopers LLP, the retirement plan of C&L purchased 14,500 shares
of our capital stock. All 14,500 shares were sold on December 1, 1998.
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