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Rule 424(b)(5)
File No. 333-10119
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 10, 1996)
$600,000,000
AMERCO
LOGO
MEDIUM-TERM NOTES
---------------------------
DUE FROM NINE MONTHS TO 30 YEARS FROM DATE OF ISSUE
---------------------------
AMERCO (the "Company") may offer from time to time its Medium-Term Notes
(the "Notes"), having an aggregate initial offering price not to exceed
$600,000,000 (or the equivalent thereof in foreign currencies or currency
units), subject to reduction under certain circumstances as a result of the sale
of other Securities of the Company under the Prospectus to which this Prospectus
Supplement relates. The Notes will be general unsecured obligations of the
Company. The Notes will rank pari passu in right of payment with all senior
indebtedness of the Company, and senior in right of payment to all future
subordinated indebtedness of the Company. As of September 9, 1996, the Company
had approximately $785.7 million of unsecured debt and its subsidiaries had
approximately $68.6 million of secured debt. The Notes will be effectively
subordinated to (i) any secured indebtedness of the Company to the extent of the
assets securing that indebtedness and (ii) all indebtedness for money borrowed
and other liabilities of its subsidiaries. Subject to compliance with certain
financial covenants, the Company is not limited as to the amount of indebtedness
it may incur pari passu with or senior to the Notes. The Notes will be offered
in varying maturities from nine months to 30 years from their dates of issue and
may be subject to redemption at the option of the Company or repayment at the
option of the Holder (as defined in the
(Continued on next page)
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONS NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT HERETO OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
PRICE TO AGENTS' COMMISSION PROCEEDS TO
PUBLIC(1) OR DISCOUNTS(2) COMPANY(2)(3)
- ----------------------------------------------------------------------------------------------------
Per Note..................... 100% .125%-.750% 99.250%-99.875%
- ----------------------------------------------------------------------------------------------------
Total........................ $600,000,000 $750,000-$4,500,000 $595,500,000-$599,250,000
====================================================================================================
</TABLE>
(1) Unless otherwise indicated in the applicable Pricing Supplement, Notes will
be sold at 100% of their principal amounts.
(2) The Company will pay Lehman Brothers, Chase Securities Inc., Citicorp
Securities, Inc., Morgan Stanley & Co. Incorporated, NationsBanc Capital
Markets, Inc. and Salomon Brothers Inc (each an "Agent," and, collectively,
the "Agents") a commission ranging from .125% to .750% of the principal
amount of any Note, depending on its Stated Maturity, sold through such
Agent. Any Agent, acting as principal, may also purchase Notes at a discount
for resale to one or more investors or one or more broker-dealers (acting as
principal for purposes of resale) at varying prices related to prevailing
market prices at the time of resale, as determined by such Agent, or, if so
agreed, at a fixed public offering price. The Company has agreed to
reimburse the Agents for certain expenses and to indemnify the Agents
against certain liabilities, including liabilities under applicable federal
and state securities laws.
(3) Before deducting offering expenses payable by the Company estimated at
$370,000.
---------------------------
The Notes are offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable best efforts to solicit
offers to purchase the Notes. The Company has reserved the right to sell Notes
directly to investors on its own behalf, and on such sales no commissions will
be paid. The Notes will not be listed on any securities exchange, and there can
be no assurance that the Notes will be sold or that there will be a secondary
market for the Notes. The Company reserves the right to withdraw, cancel or
modify the offer made hereby without notice. The Company or the Agent that
solicits an offer to purchase may reject any such offer to purchase Notes in
whole or in part. See "Supplemental Plan of Distribution."
---------------------------
LEHMAN BROTHERS
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
September 10, 1996
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(from preceding page)
accompanying Prospectus), in each case, in whole or in part prior to the
maturity date (as defined below, the "Stated Maturity") thereof as set forth in
a Pricing Supplement to this Prospectus Supplement (a "Pricing Supplement").
Each Note will be denominated in U.S. dollars unless other currencies or
currency units (the "Specified Currency") are designated in the applicable
Pricing Supplement (the "Multi-Currency Notes"). See "Special Provisions
Relating to Multi-Currency Notes" and "Risk Factors -- Foreign Currency Risks."
The Notes may be issued as "Amortizing Notes," "Original Issue Discount Notes,"
"Reset Notes," "Currency Indexed Notes" or "Commodity Indexed Notes." See
"Description of Notes."
Each Note will bear interest at a fixed rate (a "Fixed Rate Note"), which
may be zero in the case of certain Notes issued at a price representing a
discount from the principal amount payable at maturity (a "Zero-Coupon Note"),
or at a variable rate (a "Floating Rate Note") determined by reference to the
Commercial Paper Rate, CD Rate, CMT Rate, Federal Funds Rate, 11th District Cost
of Funds Rate, Kenny Rate, LIBOR, Prime Rate or Treasury Rate or such other
interest rate formula (the "Interest Rate Basis") as may be specified in the
accompanying Pricing Supplement, as adjusted by a Spread or Spread Multiplier,
if any, applicable to such Notes. See "Description of Notes." Unless otherwise
specified in the applicable Pricing Supplement, interest on Fixed Rate Notes
and, in the case of Fixed Rate Amortizing Notes, interest and principal, will be
payable semiannually on each January 15 and July 15 (each an "Interest Payment
Date" with respect to such Fixed Rate Notes) and at Maturity. Interest on
Floating Rate Notes and, in the case of Floating Rate Amortizing Notes, interest
and principal, will be payable on the dates indicated in the applicable Pricing
Supplement (each an "Interest Payment Date" with respect to such Floating Rate
Notes) and at Maturity.
Each Note will be represented by either a global security (a "Book-Entry
Note") registered in the name of a nominee of The Depository Trust Company
("DTC") or another depositary (DTC or such depositary as is specified in the
applicable Pricing Supplement is referred to herein as the "Depositary"), or a
certificate issued in definitive form (a "Certificated Note"), as specified in
the applicable Pricing Supplement. Beneficial interests in Book-Entry Notes will
be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Owners of beneficial
interests in Book-Entry Notes will be entitled to physical delivery of
Certificated Notes only under the limited circumstances described herein. See
"Description of Securities -- Book-Entry System" in the accompanying Prospectus.
Unless otherwise specified in the applicable Pricing Supplement, Notes
denominated in U.S. dollars will be issued in denominations of $1,000 and
integral multiples thereof. If the Notes are to be issued in a foreign currency
or units of a foreign composite currency, the authorized denominations and
currency exchange rate information will be set forth in the applicable Pricing
Supplement.
---------------------------
IN CONNECTION WITH THIS OFFERING, THE AGENTS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
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COMPANY SUMMARY
The Company is the holding company for its principal subsidiary, U-Haul
International, Inc. ("U-Haul"). The Company's U-Haul rental operations
represented 83.9%, 85.1% and 85.0% of the Company's total revenue for the years
ended March 31, 1996, 1995 and 1994, respectively. The Company is also a holding
company for Ponderosa Holdings, Inc. ("Ponderosa") and Amerco Real Estate
Company ("AREC"). Throughout this Prospectus, unless the context otherwise
requires, the term "Company" includes all of the Company's subsidiaries.
U-Haul U-Move Operations. Founded in 1945, U-Haul is primarily engaged,
through its subsidiaries, in the rental of trucks, automobile-type trailers, and
support rental items to the do-it-yourself moving customer. The Company's
do-it-yourself moving business operates under the U-Haul name through an
extensive and geographically diverse distribution network of approximately 1,100
Company-owned U-Haul Centers and approximately 13,700 independent dealers
throughout the United States and Canada. The Company believes that it has more
moving equipment rental locations than its two largest competitors combined.
U-Haul's rental equipment fleet consists of approximately 87,000 trucks and
approximately 99,000 trailers. The Company, as part of its fleet renewal
program, purchased approximately 80,000 new trucks between March 1987 and March
1996 and reduced the overall average age of its truck fleet from approximately
eleven years at March 1987 to approximately six years at March 1996. Since 1990,
U-Haul has replaced approximately 62% of its trailer fleet with new, more
aerodynamically designed trailers better suited to the low height profile of
many newly manufactured automobiles. Additionally, U-Haul sells related products
(such as boxes, tape and packaging materials) and rents various kinds of
equipment (such as floor polishing and carpet cleaning equipment).
U-Haul Self-Storage Rental Operations. U-Haul entered the self-storage
business in 1974 and offers for rent more than 18.2 million square feet of
self-storage space through approximately 800 Company-owned or managed storage
locations. The Company believes it is the second largest self-storage operator
(in terms of square feet) in the industry. The Company believes its self-storage
operations are complementary to its do-it-yourself moving business. All of its
self-storage space is located at or near a U-Haul Center or an independent
dealer.
Ponderosa. Ponderosa serves as the holding company for the Company's
insurance businesses. Ponderosa's two principal subsidiaries are Oxford Life
Insurance Company ("Oxford") and Republic Western Insurance Company ("RWIC").
For financial statement presentation, the Company's insurance subsidiaries
report on a calendar year basis while the Company reports on a fiscal year
basis.
Oxford primarily reinsures life, health and annuity insurance products and
administers the Company's self-insured employee health plan. Approximately 7.2%
of Oxford's premium revenues are from business with the Company. Oxford's
revenues represented 3.8%, 3.2% and 2.8% of the Company's total revenue for the
years ended March 31, 1996, 1995 and 1994, respectively. Approximately 97% of
Oxford's invested assets are in investment grade (NAIC-2 or greater) fixed
income securities. Oxford is rated "A-VII" by A.M. Best.
RWIC originates and reinsures property and casualty type insurance products
for various market participants, including independent third parties, the
Company's customers, and the Company. RWIC's principal strategy is to capitalize
on its knowledge of insurance products aimed at the moving and rental markets.
Approximately 39% of RWIC's written premiums relate to insurance underwriting
activities involving U-Haul and its affiliates. RWIC's revenues represented
12.3%, 11.7% and 12.2% of the Company's total revenue for the years ended March
31, 1996, 1995 and 1994, respectively. Approximately 98% of RWIC's invested
assets are in investment grade (NAIC-2 or greater) fixed income securities. RWIC
is rated "A+-VIII" by A.M. Best.
AREC. AREC owns and actively manages most of the Company's real estate
assets, including the Company's U-Haul Center locations. In addition to its
U-Haul operations, AREC actively seeks to lease or dispose of the Company's
surplus properties.
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The Company's principal executive offices are located at 1325 Airmotive
Way, Suite 100, Reno, Nevada 89502, and the telephone number of the Company is
(702) 688-6300.
USE OF PROCEEDS
The Company intends to use the proceeds from the sale of the Notes for
capital expenditures, working capital, and general corporate purposes to be
determined from time to time.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratios of earnings to fixed
charges for the periods indicated. For purposes of computing the ratio of
earnings to fixed charges, "earnings" consists of pretax earnings from
operations plus total fixed charges excluding interest capitalized during the
period, and "fixed charges" consists of interest expense, capitalized interest,
amortization of debt expense and discounts and one-third of the Company's annual
rental expense (which the Company believes is a reasonable approximation of the
interest factor of such rentals). The ratio for the three months ended June 30,
1996 may not be indicative of the ratio to be expected for fiscal 1997 because,
among other reasons, the Company's U-Haul rental operations are seasonal and
proportionally more of its earnings are generated in the first and second
quarters of each fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30, YEARS ENDED MARCH 31,
- ------------- ----------------------------------------
1996 1995 1996 1995 1994 1993 1992
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3.48 1.95 2.01 1.99 1.67 1.45 1.21
</TABLE>
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DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS AND, TO THE EXTENT INCONSISTENT THEREWITH, REPLACES THE
DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE DEBT SECURITIES (DEFINED
AS "SECURITIES" IN THE ACCOMPANYING PROSPECTUS) SET FORTH UNDER THE HEADING
"DESCRIPTION OF SECURITIES" IN THE ACCOMPANYING PROSPECTUS, TO WHICH DESCRIPTION
REFERENCE IS HEREBY MADE. THE PROVISIONS OF THE NOTES SUMMARIZED HEREIN WILL
APPLY TO EACH NOTE UNLESS OTHERWISE SPECIFIED IN THE APPLICABLE PRICING
SUPPLEMENT. CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE THE MEANINGS
SPECIFIED IN THE INDENTURE REFERRED TO IN THE ACCOMPANYING PROSPECTUS, INCLUDING
THE FIRST SUPPLEMENTAL INDENTURE THEREUNDER (THE "INDENTURE") AND/OR THE NOTES.
GENERAL
The Notes offered hereby will be issued under the Indenture. The summary
contained herein of certain provisions of the Notes is subject to and is
qualified in its entirety by reference to the provisions of the Indenture,
including the First Supplemental Indenture thereunder and the forms of Notes.
The Indenture (including the First Supplemental Indenture and the forms of
Notes) has been filed as an exhibit to (or will be incorporated by reference by
means of Form 8-K into) the Registration Statement (the "Registration
Statement"), of which the accompanying Prospectus is a part, to which exhibits
reference is hereby made.
The Notes constitute a single series for purposes of the Indenture and are
limited to an aggregate initial offering price of U.S. $600,000,000 (or the
equivalent thereof in the Specified Currency, calculated on the applicable trade
date). Unless otherwise indicated in the applicable Pricing Supplement, currency
amounts in this Prospectus Supplement, the accompanying Prospectus and any
Pricing Supplement are stated in United States dollars ("$", "dollars" or "U.S.
$").
The Notes are offered on a continuing basis and will mature from nine
months to 30 years from their date of issue, on a date selected by the initial
purchaser and agreed to by the Company, and may be subject to redemption at the
option of the Company or repayment at the option of the Holder prior to stated
Maturity. See "Redemption and Repayment" below. Interest rates offered by the
Company with respect to the Notes, may differ depending upon, among other
things, the aggregate principal amount of the Notes, purchased in any single
transaction.
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars, and payments of principal of, premium, if
any, and any interest on the Notes will be made in U.S. dollars. If any of the
Notes are to be denominated other than in U.S. dollars, or if the principal of,
or premium, if any, or any interest on any of the Notes is to be payable at the
option of the Holder or the Company in a currency or composite currency unit
other than that in which such Notes are denominated, the applicable Pricing
Supplement will provide additional information, including authorized
denominations and applicable exchange rate information pertaining to the terms
of such Notes and certain other matters of interest to the Holders thereof. See
"Special Provisions Relating to Multi-Currency Notes" below.
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note. Except as set forth under "Description of
Securities -- Book-Entry System" in the accompanying Prospectus, Notes will not
be issuable in certificated form. Unless otherwise specified in the applicable
Pricing Supplement or as provided below with respect to Multi-Currency Notes,
Notes will be issued in denominations of $1,000 and any integral multiple
thereof.
Payments of interest and principal (and premium, if any) to beneficial
owners of Book-Entry Notes are expected to be made in accordance with the
Depositary's and its participants' procedures in effect from time to time.
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest and, in the case of Amortizing Notes, principal, with respect to any
Certificated Note (other than interest and, in the case of Amortizing Notes,
principal payable at Stated Maturity) will be made by mailing a check to the
Holder at the address of the Holder appearing on the Security Register (as
defined in the Indenture) for the Notes on the applicable Regular Record Date
(as defined below). Notwithstanding the foregoing, at the option of the
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Company, all payments of interest and, in the case of Amortizing Notes,
principal on the Notes may be made by wire transfer of immediately available
funds to an account designated by a Holder at a bank located in the United
States. Payment of the principal of (and premium, if any) and interest due with
respect to any Certificated Note at Maturity as defined below under "Interest
and Interest Rates" will be made in immediately available funds upon surrender
of such Note accompanied by wire transfer instructions, at the principal office
of the Trustee, provided that the Certificated Note is presented to the Trustee
in time for the Trustee to make such payment in such funds in accordance with
its normal procedures.
Notwithstanding anything in this Prospectus Supplement to the contrary,
unless otherwise specified in the applicable Pricing Supplement, if a Note is an
Original Issue Discount Note, the amount payable on such Note in the event the
principal amount thereof is declared to be due and payable immediately, as
described in the accompanying Prospectus under "Description of
Securities -- Events of Default" or in the event of the redemption or repayment
thereof prior to its Stated Maturity, in lieu of the principal amount due at the
stated Maturity thereof, will be the Amortized Face Amount of such Note as of
the date of declaration, redemption or repayment, as the case may be. The
"Amortized Face Amount" of an Original Issue Discount Note will be the amount
equal to (i) the principal amount of such Note multiplied by the Issue Price (as
defined below) specified in the applicable Pricing Supplement plus (ii) the
portion of the difference between the dollar amount determined pursuant to the
preceding clause (i) and the principal amount of such Note that has accreted at
the yield to maturity specified in the applicable Pricing Supplement (computed
in accordance with generally accepted United States bond yield computation
principles) to such date of declaration, redemption or repayment, but in no
event will the Amortized Face Amount of an Original Issue Discount Note exceed
its principal amount.
The Pricing Supplement relating to each Note will describe, among other
things, the following items: (i) the Specified Currency with respect to such
Note (and, if such Specified Currency is other than U.S. dollars, certain other
terms relating to such Note, including the authorized denominations); (ii) the
price (expressed as a percentage of the aggregate principal amount thereof) at
which such Note will be issued (the "Issue Price"); (iii) the date on which such
Note will be issued (the "Original Issue Date"); (iv) the date on which such
Note will mature (the "Stated Maturity") and whether the Stated Maturity may be
extended by the Company, and if so, the Extension Periods and the Final Maturity
Date (each as defined below under "Extension of Maturity"); (v) whether such
Note is a Fixed Rate Note or a Floating Rate Note; (vi) if such Note is a Fixed
Rate Note, the rate per annum at which such Note will bear interest, if any, the
Interest Payment Date or Dates, if different from those set forth below under
"Fixed Rate Notes" and whether such rate may be changed by the Company prior to
Stated Maturity; (vii) if such Note is a Floating Rate Note, the Initial
Interest Rate, the Interest Rate Basis, the Interest Reset Dates, the Interest
Payment Dates, the Index Maturity, the maximum interest rate, if any, the
minimum interest rate, if any, the Spread, if any, the Spread Multiplier, if any
(all as defined herein), and any other terms relating to the particular method
of calculating the interest rate for such Note, and whether any such Spread
and/or Spread Multiplier may be changed by the Company prior to Stated Maturity;
(viii) whether such Note is an Original Issue Discount Note, and if so, the
yield to maturity; (ix) whether such Note is a Currency Indexed Note or a
Commodity Indexed Note and, if so, the specific terms thereof; (x) whether such
Note is an Amortizing Note (as defined below under "Amortizing Notes") and, if
so, the basis or formula for the amortization of principal and/or interest and
the payment dates for such periodic principal payments; (xi) the regular record
date or dates for determining the person entitled to receive payments of
interest, principal and premium, if any (each a "Regular Record Date") if other
than as set forth below; (xii) whether such Note may be redeemed at the option
of the Company, or repaid at the option of the Holder, prior to Stated Maturity
and, if so, the provisions relating to such redemption or repayment; (xiii) any
sinking fund or other mandatory redemption provisions with respect
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to such Note; (xiv) whether such Note will be issued initially as a Book-Entry
Note or a Certificated Note; and (xv) any other terms of such Note not
inconsistent with the provisions of the Indenture.
Certificated Notes may be presented for registration of transfer or
exchange at the Corporate Trust Office of the Trustee.
All percentages resulting from any calculation with respect to any 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 upward
(e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from such calculation on any Notes will
be rounded to the nearest cent with one half cent being rounded upward.
As used herein, "Business Day" means, unless otherwise specified in the
applicable Pricing Supplement, any Monday, Tuesday, Wednesday, Thursday or
Friday that in The City of New York is not a day on which banking institutions
are authorized or required by law, regulation or executive order to close and,
with respect to Notes as to which LIBOR (as defined below) is the applicable
Interest Rate Basis, is also a London Business Day (as defined below), provided,
however, that with respect to any Specified Currency, such day is also not a day
on which banking institutions are authorized or required by law, regulation or
executive order to close in the principal financial center of the country of
such Specified Currency (or, in the case of ECUs, is not a day designated as an
ECU Non-Settlement Day by the ECU Banking Association in Paris or otherwise
generally regarded in the ECU interbank market as a day on which payments on
ECUs shall not be made). As used herein, "London Business Day" means, (a) if the
Designated LIBOR Currency is other than the ECU, any day on which dealings in
deposits in such Designated LIBOR Currency are transacted in the London
interbank market or, (b) if the Designated LIBOR Currency is the ECU, any day
that is not designated as an ECU Non-Settlement Day by the ECU Banking
Association in Paris or otherwise generally regarded in the ECU interbank market
as a day on which payments on ECUs shall not be made.
The Notes are referred to in the accompanying Prospectus as the "Offered
Securities" and, together with all debt securities issued under the Indenture,
as the "Securities." For a description of the rights attaching to different
series of Securities under the Indenture, see "Description of Securities" in the
Prospectus. Unless otherwise specified in the applicable Pricing Supplement, the
Notes will have the terms described below and in the Prospectus.
INTEREST AND INTEREST RATES
Unless otherwise specified in the applicable Pricing Supplement, each Note
(other than a Zero-Coupon Note) will bear interest from and including its
Original Issue Date or from and including the most recent Interest Payment Date
to which interest on such Note has been paid or duly provided for, at a fixed
rate per annum or at a rate per annum determined pursuant to an Interest Rate
Basis, stated therein and in the applicable Pricing Supplement, that may be
adjusted by a Spread and/or Spread Multiplier, until the principal thereof is
paid or made available for payment. The Pricing Supplement relating to each Note
will indicate, if applicable, that interest shall accrue on any overdue
principal and on any overdue installment of interest (to the extent that the
payment of such interest is legally enforceable) and at what rate any such
interest will accrue. Unless otherwise set forth in the applicable Pricing
Supplement, interest will be payable on each Interest Payment Date and at
Maturity. "Maturity" means the date on which the principal of a Note or an
installment of principal becomes due and payable in accordance with its terms
and the terms of the Indenture, whether at Stated Maturity, upon acceleration,
redemption, repayment or otherwise. Interest (other than defaulted interest
which may be paid to the Holder on a special record date) will be payable to the
Holder at the close of business on the Regular Record Date next preceding such
Interest Payment Date; provided, however, that the first payment of interest on
any Note originally issued between a Regular Record Date and the next Interest
Payment Date will be made on the Interest Payment Date following the next
succeeding Regular Record Date to the Holder on such next succeeding Regular
Record Date.
Interest rates, interest rate formulae and other variable terms of the
Notes are subject to change by the Company from time to time, but no such change
will affect any Note already issued or as to which an offer to purchase has been
accepted by the Company. Unless otherwise indicated in the applicable Pricing
Supple-
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ment, the Interest Payment Dates and the Regular Record Dates for Fixed Rate
Notes will be as described below under "Fixed Rate Notes." The Interest Payment
Dates for Floating Rate Notes will be as specified in the applicable Pricing
Supplement, and unless otherwise indicated in the applicable Pricing Supplement,
each Regular Record Date for a Floating Rate Note will be the fifteenth day
(whether or not a Business Day) preceding each Interest Payment Date.
Each Note (other than a Zero-Coupon Note) will bear interest at either (a)
a fixed rate or (b) a floating rate determined by reference to an Interest Rate
Basis which may be adjusted by a Spread and/or Spread Multiplier. Any Floating
Rate Note may also have either or both of the following: (i) a maximum interest
rate, or ceiling on the rate of interest which may accrue during any interest
period, and (ii) a minimum interest rate or floor for the rate of interest which
may accrue during any interest period. The applicable Pricing Supplement
relating to each Note will designate either a fixed rate of interest per annum
on the applicable Fixed Rate Note or one or more of the following Interest Rate
Bases as applicable to the relevant Floating Rate Note: (a) the Commercial Paper
Rate, in which case such Note will be a "Commercial Paper Rate Note," (b) the CD
Rate, in which case such Note will be a "CD Rate Note," (c) the CMT Rate, in
which case such Note will be a "CMT Rate Note," (d) the Federal Funds Rate, in
which case such Note will be a "Federal Funds Rate Note," (e) the 11th District
Cost of Funds Rate, in which case such Note will be an "11th District Cost of
Funds Rate Note," (f) the Kenny Rate, in which case such Note will be a "Kenny
Rate Note," (g) LIBOR, in which such Note will be a "LIBOR Note," (h) the Prime
Rate, in which case such Note will be a "Prime Rate Note," (i) the Treasury
Rate, in which case such Note will be a "Treasury Rate Note," or (j) such other
Interest Rate Basis or formula as may be specified in such Pricing Supplement.
Notwithstanding the determination of the interest rate as provided below,
the interest rate on the Notes for any interest period shall not be greater than
the maximum interest rate, if any, or less than the minimum interest rate, if
any, specified in the applicable Pricing Supplement. The interest rate on the
Notes will in no event be higher than the maximum rate permitted by New York or
other applicable law, as the same may be modified by United States law of
general application. Under present New York law, the maximum rate of interest is
25% per annum on a simple interest basis. This limit may not apply to Notes in
which $2,500,000 or more has been invested.
FIXED RATE NOTES
Unless otherwise specified in the applicable Pricing Supplement, each Fixed
Rate Note (other than a Zero-Coupon Note) will accrue interest from and
including its Original Issue Date at the annual rate stated on the face thereof,
as specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, payments of interest on any Fixed Rate Note
with respect to any Interest Payment Date or Maturity will include interest
accrued from and including the Original Issue Date, or from and including the
most recent Interest Payment Date to which interest has been paid or duly
provided for, to but excluding the applicable Interest Payment Date or Maturity.
Fixed Rate Notes may bear one or more annual rates of interest during the
periods or under the circumstances specified therein and in the applicable
Pricing Supplement. Unless otherwise specified in the applicable Pricing
Supplement, interest on Fixed Rate Notes will be computed and paid on the basis
of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable Pricing Supplement, the
Interest Payment Dates for Fixed Rate Notes, including Fixed Rate Amortizing
Notes, will occur semiannually on each January 15 and July 15 and the Regular
Record Dates will be each January 1 and July 1 (whether or not a Business Day).
Unless otherwise specified in the applicable Pricing Supplement, Interest
Payment Dates for Fixed Rate Amortizing Notes will occur quarterly on each
January 15, April 15, July 15 and October 15, if specified in the applicable
Pricing Supplement, and Regular Record Dates will be each January 1, April 1,
July 1 and October 1 (whether or not a Business Day) next preceding each
Interest Payment Date. If any Interest Payment Date or the Maturity for any
Fixed Rate Note is a day that is not a Business Day, all payments to be made on
such day with respect to such Note will be made on the next day that is a
Business Day with the same force and effect as if made on the due date, and no
additional interest will be payable as a result of such delayed payment.
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<PAGE> 9
Unless otherwise specified in the applicable Pricing Supplement, payments
with respect to Fixed Rate Amortizing Notes will be applied first to interest
due and payable thereon and then to the reduction of the unpaid principal amount
thereof. A table setting forth repayment information in respect of each Fixed
Rate Amortizing Note will be provided to the original purchaser of such Note and
will be available, upon request, to subsequent Holders.
FLOATING RATE NOTES
The interest rate on each Floating Rate Note will be equal to either (i)
the interest rate calculated by reference to the specified Interest Rate Basis
plus or minus the Spread, if any, or (ii) the interest rate calculated by
reference to the specified Interest Rate Basis multiplied by the Spread
Multiplier, if any. The "Spread" is the number of basis points (one basis point
equals one-hundredth of a percentage point) specified in the applicable Pricing
Supplement as being applicable to such Note, and the "Spread Multiplier" is the
percentage specified in the applicable Pricing Supplement as being applicable to
such Note. The applicable Pricing Supplement will specify the Interest Rate
Basis and the Spread or Spread Multiplier, if any, and the maximum or minimum
interest rate, if any, applicable to each Floating Rate Note. In addition, such
Pricing Supplement will contain particulars as to the Calculation Agent (to be
the Trustee unless otherwise specified in the applicable Pricing Supplement (in
such capacity, the "Calculation Agent")), Index Maturity, Original Issue Date,
the interest rate in effect for the period from the Original Issue Date to the
first Interest Reset Date specified in the applicable Pricing Supplement (the
"Initial Interest Rate"), Interest Determination Dates, Interest Payment Dates,
Regular Record Dates and Interest Reset Dates with respect to such Note.
Except as provided below or in the applicable Pricing Supplement, the
Interest Payment Dates for Floating Rate Notes, including Floating Rate
Amortizing Notes, will be, (i) in the case of Floating Rate Notes that reset
daily, weekly or monthly, the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified on
the face thereof and in the applicable Pricing Supplement; (ii) in the case of
Floating Rate Notes that reset quarterly, the third Wednesday of March, June,
September and December of each year as specified on the face thereof and in the
applicable Pricing Supplement; (iii) in the case of Floating Rate Notes, that
reset semi-annually, the third Wednesday of each of two months of each year, as
specified on the face thereof and in the applicable Pricing Supplement; and (iv)
in the case of Floating Rate Notes, that reset annually, the third Wednesday of
one month of each year, as specified on the face thereof and in the applicable
Pricing Supplement and, in each case, at Maturity. If any Interest Payment Date,
other than Maturity, for any Floating Rate Note is not a Business Day for such
Floating Note, such Interest Payment Date will be postponed to the next day that
is a Business Day for such Floating Rate Note, except that in the case of a
LIBOR Note, if such Business Day for such Floating Rate Note is in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity for any Floating Rate Note falls on a
day that is not a Business Day, all payments to be made on such day with respect
to such Note will be made on the next day that is a Business Day with the same
force and effect as if made on the due date, and no additional interest shall be
payable on the date of payment for the period from and after the due date as a
result of such delayed payment.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually or annually (such period being the
"Reset Period" for such Note, and the first day of each Reset Period being an
"Interest Reset Date"), as specified in the applicable Pricing Supplement. The
Interest Reset Dates will be, in the case of Floating Rate Notes which reset
daily, each Business Day for such Floating Rate Note; in the case of Floating
Rate Notes (other than Treasury Rate Notes) which reset weekly, the Wednesday of
each week; in the case of Treasury Rate Notes which reset weekly, the Tuesday of
each week, except as provided below; in the case of Floating Rate Notes which
reset monthly, the third Wednesday of each month (with the exception of monthly
reset 11th District Cost of Funds Rate Notes, which will reset on the first
calendar day of each month); in the case of Floating Rate Notes which reset
quarterly, the third Wednesday of each March, June, September and December; in
the case of Floating Rate Notes which reset semi-annually, the third Wednesday
of each of two months of each year, as specified in the applicable Pricing
Supplement; and in the case of Floating Rate Notes which reset annually, the
third Wednesday of one month of each year, as specified in the applicable
Pricing Supplement; provided, however, that the interest rate in
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<PAGE> 10
effect from the Original Issue Date to but excluding the first Interest Reset
Date with respect to a Floating Rate Note will be the Initial Interest Rate (as
specified in the applicable Pricing Supplement). If any Interest Reset Date for
any Floating Rate Note is not a Business Day for such Floating Rate Note, the
Interest Reset Date for such Floating Rate Note will be postponed to the next
day that is a Business Day for such Floating Rate Note, except that in the case
of a LIBOR Note, if such Business Day is in the next succeeding calendar month,
such Interest Reset Date will be the immediately preceding Business Day. Each
adjusted rate shall be applicable on and after the Interest Reset Date to which
it relates to, but excluding the next succeeding Interest Reset Date, or until
the Maturity.
The interest rate for each Reset Period will be the rate determined by the
Calculation Agent on the Calculation Date (as defined below) pertaining to the
Interest Determination Date pertaining to the Interest Reset Date for such Reset
Period. Unless otherwise specified in the applicable Pricing Supplement, the
"Interest Determination Date" pertaining to an Interest Reset Date for (a) a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination Date"),
(b) a CD Rate Note (the "CD Interest Determination Date"), (c) a CMT Rate Note
(the "CMT Interest Determination Date"); (d) a Federal Funds Rate Note (the
"Federal Funds Interest Determination Date"), (e) a Kenny Rate Note (the "Kenny
Rate Interest Determination Date") or (f) a Prime Rate Note (the "Prime Interest
Determination Date"), will be the second Business Day prior to such Interest
Reset Date. Unless otherwise specified in the applicable Pricing Supplement, the
Interest Determination Date pertaining to an Interest Reset Date for an 11th
District Cost of Funds Rate Note (the "11th District Interest Determination
Date") will be the last Business Day of the month immediately preceding such
Interest Reset Date on which the Federal Home Loan Bank of San Francisco (the
"FHLB of San Francisco") publishes the Index (as defined below). Unless
otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date pertaining to an Interest Reset Date for a LIBOR Note (the
"LIBOR Interest Determination Date") will be the second London Business Day
immediately preceding such Interest Reset Date. Unless otherwise specified in
the applicable Pricing Supplement, the Interest Determination Date pertaining to
an Interest Reset Date for a Treasury Rate Note (the "Treasury Interest
Determination Date") will be the day of the week in which such Interest Reset
Date falls on which Treasury bills would normally be auctioned. Treasury bills
are 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,
except that such auction may be held on the preceding Friday. If an auction is
so held on the preceding Friday, such Friday will be the Treasury Interest
Determination Date pertaining to the Reset Period commencing in the next
succeeding week. If an auction date shall fall on any Interest Reset Date for a
Treasury Rate Note, then such Interest Reset Date shall instead be the first
Business Day immediately following such auction date. Unless otherwise specified
in the applicable Pricing Supplement, the "Calculation Date" pertaining to any
Interest Determination Date shall be the earlier of (i) the tenth calendar day
after the Interest Determination Date or, if such day is not a Business Day, the
next day that is a Business Day or (ii) the Business Day preceding the
applicable Interest Payment Date or Maturity, as the case may be.
"Index Maturity" means, with respect to a Floating Rate Note, the period to
maturity of the instrument or obligation on which the interest rate formula is
based, as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, payments
with respect to Floating Rate Amortizing Notes will be applied first to interest
due and payable thereon and then to the reduction of the unpaid principal amount
thereof. A table setting forth repayment information in respect of each Floating
Rate Amortizing Note will be provided to the original purchaser thereof and will
be available, upon request, to subsequent Holders.
Unless otherwise indicated in the applicable Pricing Supplement, each
Floating Rate Note will include accrued interest from and including its Original
Issue Date at the rate determined as provided in such Note and as specified in
the applicable Pricing Supplement. Unless otherwise specified in the applicable
Pricing Supplement, payments of interest on any Floating Rate Note with respect
to any Interest Payment Date will include interest accrued from and including
the Original Issue Date, or from and including the most recent Interest Payment
Date to which interest has been paid or duly provided for, but excluding the
Interest Payment Date or Maturity. With respect to Floating Rate Notes, accrued
interest is calculated by multiplying the face amount of a Note by an accrued
interest factor. This accrued interest factor is computed by adding
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the interest factors calculated for each day from and including the Original
Issue Date, or from and including the last date to which interest has been paid
or duly provided for, to but excluding the date for which accrued interest is
being calculated. The interest factor for each such day (unless otherwise
specified) is computed by dividing the interest rate applicable to such day by
360, in the case of Commercial Paper Rate Notes, CD Rate Notes, Federal Fund
Rate Notes, 11th District Cost of Funds Rate Notes, LIBOR Notes and Prime Rate
Notes or by the actual number of days in the year, in the case of CMT Rate Notes
or Treasury Rate Notes; or by 365 days, in the case of Kenny Rate Notes.
The Calculation Agent shall calculate the interest rate on the Floating
Rate Notes, as provided below. The Calculation Agent shall, upon the request of
the Holder of any Floating Rate Note, provide the interest rate then in effect
and, if then determined, the interest rate which will become effective as a
result of a determination made with respect to the most recent Interest
Determination Date with respect to such Note. For purposes of calculating the
rate of interest payable on Floating Rate Notes, the Company will enter into an
agreement with the Calculation Agent. The Calculation Agent's determination of
any interest rate shall be final and binding in the absence of manifest error.
Commercial Paper Rate Notes
Each Commercial Paper Rate Note will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any) specified in the Commercial Paper Rate Note and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Commercial Paper Interest
Determination Date, the Money Market at Yield (calculated as described below) of
the rate on such date for commercial paper having the Index Maturity specified
in the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates" or any successor publication of the Board of Governors ("H.15(519)")
under the heading "Commercial Paper." In the event that such rate is not
published prior to 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Commercial Paper Interest Determination Date, then the
Commercial Paper Rate with respect to such Commercial Paper Interest
Determination Date shall be the Money Market Yield of the rate on such
Commercial Paper Interest Determination Date for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" or any successor
publication ("Composite Quotations") under the heading "Commercial Paper." If by
3:00 P.M., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the Commercial Paper
Rate for such Commercial Paper Interest Determination Date shall be calculated
by the Calculation Agent and shall be the Money Market Yield of the arithmetic
mean of the offered rates (quoted on a bank discounted basis) as of 11:00 A.M.,
New York City time, on such Commercial Paper Interest Determination Date of
three leading dealers of commercial paper in The City of New York selected by
the Calculation Agent for commercial paper having the Index Maturity specified
in the applicable Pricing Supplement placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized securities
rating agency; provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this sentence, the
Commercial Paper Rate with respect to such Commercial Paper Interest
Determination Date will be the Commercial Paper Rate in effect immediately prior
to such Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage rounded,
if necessary, to the nearest one hundred-thousandth of a percent) calculated in
accordance with the following formula:
<TABLE>
<C> <C> <S>
D X 360
Money Market Yield = --------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for commercial paper, quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the period for which accrued interest is being calculated.
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CD Rate Notes
Each CD Rate Note will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in the CD Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any CD Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity specified in
the applicable Pricing Supplement as published in H.15(519) under the heading
"CDs (Secondary Market)." In the event that such rate is not published prior to
9:00 A.M., New York City time, on the Calculation Date pertaining to such CD
Interest Determination Date, then the CD Rate with respect to such CD Interest
Determination Date will be the rate on such CD Interest Determination Date for
negotiable certificates of deposit having the Index Maturity specified in the
applicable Pricing Supplement as published in Composite Quotations under the
heading "Certificates of Deposit." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in either H.15(519) or Composite
Quotations, then the CD Rate on such CD Interest Determination Date shall be
calculated by the Calculation Agent and shall be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such CD
Interest Determination Date of three leading nonbank dealers in negotiable U.S.
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United States
money market banks (in the market for negotiable certificates of deposit) with a
remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement in a denomination of U.S. $5,000,000; provided, however, that
if the dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the CD Rate with respect to such CD Interest
Determination Date will be the CD Rate in effect immediately prior to such CD
Interest Determination Date.
CMT Rate Notes
Each CMT Rate Note will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in the CMT Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Interest Determination Date, the rate displayed
on the Designated CMT Telerate Page (as defined below) under the caption
". . . Treasury Constant Maturities . . . Federal Reserve Board Release
H.15 . . . Mondays Approximately 3:45 P.M.," under the column for the Designated
CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate
Page is 7055, such CMT Interest Determination Date and (ii) if the Designated
CMT Telerate Page is 7052, the week, or the month, as applicable, ended
immediately preceding the week in which the applicable CMT Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the Calculation
Date pertaining to such CMT Interest Determination Date, then the CMT Rate for
such CMT Interest Determination Date will be such treasury constant maturity
rate for the Designated CMT Maturity Index as published in the relevant
H.15(519). If such rate is no longer published, or if not published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such CMT
Interest Determination Date, then the CMT Rate for such CMT Interest
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not provided by 3:00 P.M., New York
City time, on the Calculation Date pertaining to such CMT Interest Determination
Date, then the CMT Rate for the CMT Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity, based on
the arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 P.M., New York City time, on the CMT Interest Determination
Date reported, according to their written records, by three leading primary
United States government securities dealers (each, a "Reference Dealer") in The
City of New York selected by the
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Calculation Agent (from five such Reference Dealers selected by the Calculation
Agent and eliminating the highest quotation (or, in the event of equality, one
of the highest) and the lowest quotation (or, in the event of equality, one of
the lowest)), for the most recently issued direct noncallable fixed rate
obligations of the United States ("Treasury Notes") with an original maturity of
approximately the Designated CMT Maturity Index and a remaining term to maturity
of not less than such Designated CMT Maturity Index minus one year. If the
Calculation Agent cannot obtain three such Treasury Note quotations, the CMT
Rate for such CMT Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offer side prices as of approximately 3:30 P.M., New
York City time, on the CMT Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least U.S. $100,000,000. If three or four (and not
five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as described herein, the CMT Rate will be the CMT Rate in
effect immediately prior to such CMT Interest Determination Date. If two
Treasury Notes with an original maturity as described in the third preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the quotes for the Treasury Note with the shorter remaining term
to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page specified in the applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as published in H.15(519)). If no such page is
specified in the applicable Pricing Supplement, the Designated CMT Telerate Page
shall be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the Treasury Notes (either one, two, three, five, seven, ten, twenty or thirty
years) specified in the applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index will be two years.
Federal Funds Rate Notes
Each Federal Funds Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any) specified in the Federal Funds Rate Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Federal Funds Interest Determination
Date, the rate on such date for Federal Funds as published in H.15(519) under
the heading "Federal Funds (Effective)." In the event that such rate is not
published prior to 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Federal Funds Interest Determination Date, then the Federal
Funds Rate with respect to such Federal Funds Interest Determination Date will
be the rate on such Federal Funds Interest Determination Date as published in
Composite Quotations under the heading "Federal Funds/Effective Rate." If by
3:00 P.M., New York City time, on such Calculation Date such rate is not
published in either H.15(519) or Composite Quotations, then the Federal Funds
Rate with respect to such Federal Funds Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean (rounded, if
necessary, to the nearest one hundred-thousandth of a percent) of the rates as
of 9:00 A.M., New York City time, on such Federal Funds Interest Determination
Date for the last transaction in overnight Federal Funds arranged by three
leading brokers of Federal Funds transactions in The City of New York selected
by the Calculation Agent; provided, however, that if the brokers selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the Federal Funds Rate with respect to such Federal Funds Interest
Determination Date will be the Federal Funds Rate in effect immediately prior to
such Federal Funds Interest Determination Date.
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11th District Cost of Funds Rate Notes
Each 11th District Cost of Funds Rate Note will bear interest at the
interest rate (calculated with reference to the 11th District Cost of Funds Rate
and the Spread and/or Spread Multiplier, if any) specified in the 11th District
Cost of Funds Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "11th
District Cost of Funds Rate" means, with respect to any 11th District Interest
Determination Date, the rate equal to the monthly weighted average cost of funds
for the calendar month preceding such 11th District Interest Determination Date
as set forth under the caption "11th District" on Telerate Page 7058 as of 11:00
A.M., San Francisco time, on such 11th District Interest Determination Date. If
such rate does not appear on Telerate Page 7058 on any related 11th District
Interest Determination Date, the 11th District Cost of Funds Rate for such 11th
District Interest Determination Date shall be the monthly weighted average cost
of funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month preceding the date of
such announcement. If the FHLB of San Francisco fails to announce such rate for
the calendar month next preceding such 11th District Interest Determination
Date, then the 11th District Cost of Funds Rate with respect to such 11th
District Interest Determination Date will be the 11th District Cost of Funds
Rate then in effect on such 11th District Interest Determination Date.
Kenny Rate Notes
Each Kenny Rate Note will bear interest at the interest rate (calculated
with reference to the Kenny Rate and the Spread and/or Spread Multiplier, if
any) specified in the Kenny Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Kenny
Rate" means, with respect to any Kenny Rate Interest Determination Date, the
high grade weekly index (the "Weekly Index") on such date made available by
Kenny Information Systems ("Kenny") to the Calculation Agent. The Weekly Index
is, and will be, based upon 30-day yield evaluations at par of bonds, the
interest on which is exempt from Federal income taxation under the Internal
Revenue Code of 1986, as amended (the "Code"), of not less than five high-grade
component issuers selected by Kenny which shall include, without limitation,
issuers of general obligation bonds. The specific issuers included among the
component issuers may be changed from time to time by Kenny in its discretion.
The bonds on which the Weekly Index is based will not include any bonds on which
the interest is subject to a minimum tax or similar tax under the Code, unless
all tax-exempt bonds are subject to such tax. In the event Kenny ceases to make
available such Weekly Index, a successor indexing agent will be selected by the
Calculation Agent, such index to reflect the prevailing rate for bonds rated in
the highest short-term rating category by Moody's Investors Service, Inc. and
Standard & Poor's Ratings Group in respect of issuers most closely resembling
the high grade component issuers selected by Kenny for its Weekly Index, the
interest on which is (A) variable on a weekly basis, (B) exempt from Federal
income taxation under the Code and (C) not subject to a minimum tax or similar
tax under the Code, unless all tax-exempt bonds are subject to such tax. If such
successor indexing agent is not available, the Kenny Rate with respect to any
Kenny Rate Interest Determination Date will be 67% of the rate determined if the
Treasury Rate option had been originally selected.
LIBOR Notes
Each LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified in
the LIBOR Note and in the applicable Pricing Supplement.
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Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means, with respect to any LIBOR Interest Determination Date, the rate
determined by the Calculation Agent in accordance with the following provisions:
(i) With respect to any LIBOR Interest Determination Date, LIBOR will
be either: (a) if "LIBOR Reuters" is specified in the Note and the
applicable Pricing Supplement, the arithmetic mean of the offered rates
(unless the specified Designated LIBOR Page (as defined below) by its terms
provides only for a single rate, in which case such single rate will be
used) for deposits in the Designated LIBOR Currency (as defined below)
having the Index Maturity specified in the Note and the applicable Pricing
Supplement, commencing on the second London Business Day immediately
following such LIBOR Interest Determination Date, which appear on the
Designated LIBOR Page specified in the Note and the applicable Pricing
Supplement as of 11:00 A.M., London time, on that LIBOR Interest
Determination Date, if at least two such offered rates appear (unless, as
aforesaid, only a single rate is required) on such Designated LIBOR Page,
or (b) if "LIBOR Telerate" is specified in the Note and the applicable
Pricing Supplement, the rate for deposits in the Designated LIBOR Currency
having the Index Maturity specified in the Note and the applicable Pricing
Supplement, commencing on the second London Business Day immediately
following such LIBOR Interest Determination Date, which appears on the
Designated LIBOR Page specified in the Note and the applicable Pricing
Supplement as of 11:00 A.M. London time, on that LIBOR Interest
Determination Date. Notwithstanding the foregoing, if fewer than two
offered rates appear on the Designated LIBOR Page with respect to LIBOR
Reuters (unless the specified Designated LIBOR Page by its terms provides
only for a single rate, in which case such single rate will be used), or if
no rate appears on the Designated LIBOR Page with respect to LIBOR
Telerate, whichever may be applicable, LIBOR with respect to such LIBOR
Interest Determination Date will be determined as if the parties had
specified the rate described in clause (ii) below.
(ii) With respect to any LIBOR Interest Determination Date on which
fewer than two offered rates appear on the Designated LIBOR Page with
respect to LIBOR Reuters (unless the specified LIBOR Page by its terms
provides only for a single rate, in which case such single rate will be
used), or if no rate appears on the Designated LIBOR Page with respect to
LIBOR Telerate, as the case may be, the Calculation Agent will request the
principal London office of each of four major banks in the London interbank
market selected by the Calculation Agent to provide the Calculation Agent
with its offered rate quotation for deposits in the Designated LIBOR
Currency for the period of the Index Maturity designated in the Note and
the applicable Pricing Supplement, commencing on the second London Business
Day immediately following such LIBOR Interest Determination Date, to prime
banks in the London interbank market as of 11:00 A.M., London time, on such
LIBOR Interest Determination Date and in a principal amount that is
representative for a single transaction in such Designated LIBOR Currency
in such market at such time. If at least two such quotations are provided,
LIBOR with respect to such LIBOR Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of such
quotations. If fewer than two quotations are provided, LIBOR with respect
to such LIBOR Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates quoted as of
11:00 A.M. in the applicable Principal Financial Center (as defined below),
on such LIBOR Interest Determination Date by three major banks in such
Principal Financial Center selected by the Calculation Agent for loans in
the Designated LIBOR Currency to leading European banks, commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date, having the Index Maturity specified in the Note and the
applicable Pricing Supplement in a principal amount that is representative
for a single transaction in such Designated LIBOR Currency in such market
at such time; provided, however, that if the banks so selected by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR with
respect to such LIBOR Interest Determination Date will be LIBOR in effect
immediately prior to such LIBOR Interest Determination Date.
"Designated LIBOR Currency" means, with respect to any LIBOR Note, the
currency (including a composite currency), if any, specified in the Note and the
applicable Pricing Supplement as the Designated LIBOR Currency. If no such
currency is specified in the Note and the applicable Pricing Supplement, the
Designated LIBOR Currency will be U.S. dollars.
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"Designated LIBOR Page" means either (a) the display on the Reuters Monitor
Money Rates Service for the purpose of displaying the London interbank rates of
major banks for the applicable Designated LIBOR Currency (if "LIBOR Reuters" is
designated in the Note and the applicable Pricing Supplement), or (b) the
display on the Dow Jones Telerate Service for the purpose of displaying the
London interbank rates of major banks for the applicable designated LIBOR
Currency (if "LIBOR Telerate" is specified in the Note and the applicable
Pricing Supplement). If neither LIBOR Reuters nor LIBOR Telerate is specified in
the Note and the applicable Pricing Supplement, LIBOR for the applicable
Designated LIBOR Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Designated LIBOR Currency, page 3750) had been chosen.
"Principal Financial Center" means, with respect to any LIBOR Note, unless
otherwise specified in the Note and the applicable Pricing Supplement, the
capital city of the country that issues as its legal tender the Designated LIBOR
Currency of such Note, except that with respect to U.S. dollars and ECUs, the
Principal Financial Center will be The City of New York and Brussels,
respectively.
Prime Rate Notes
Each Prime Rate Note will bear interest at the interest rate (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any) specified in the Prime Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Prime Interest Determination Date, the rate on
such date in H.15(519) under the heading "Bank Prime Loan." In the event that
such rate is not published prior to 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Prime Interest Determination Date, then the
Prime Rate with respect to such Prime Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the rates
of interest publicly announced by each bank that appears on the Reuters Screen
USPRIME 1 as such bank's prime rate or base lending rate as in effect with
respect to such Prime Interest Determination Date. If fewer than four such rates
appear on the Reuters Screen USPRIME 1 with respect to such Prime Interest
Determination Date, the Prime Rate with respect to such Prime Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 360 as of the close of business on such Prime
Interest Determination Date by at least two of the three major money center
banks in The City of New York selected by the Calculation Agent. If fewer than
two quotations are provided, the Prime Rate with respect to such Prime Interest
Determination Date will be determined on the basis of the rates furnished in The
City of New York by the appropriate number of substitute banks or trust
companies organized and doing business under the laws of the United States, or
any state thereof, having total equity capital of at least U.S. $500,000,000
million and being subject to supervision or examination by Federal or state
authority, selected by the Calculation Agent to provide such rate or rates;
provided, however, that if the appropriate number of substitute banks or trust
companies selected as aforesaid are not quoting as mentioned in this sentence,
the Prime Rate with respect to such Prime Interest Determination Date will be
the Prime Rate in effect immediately prior to such Prime Interest Determination
Date.
"Reuters Screen USPRIME 1 Page" means the display designated as page
"USPRIME 1" on the Reuters Monitor Money Rate Service (or such other page which
may replace the USPRIME 1 page on the service for the purpose of displaying the
prime rate or base lending rate of major banks).
Treasury Rate Notes
Each Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any) specified in the Treasury Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Treasury Interest Determination Date, the rate
for the most recent auction of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable Pricing
Supplement as
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published on Telerate pages 56-57 or, if not so published by 3:00 P.M., New York
City time, on the Calculation Date pertaining to such Treasury Interest
Determination Date, the average auction rate on such Treasury Interest
Determination Date (expressed as a bond equivalent, on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) as otherwise
announced by the United States Department of the Treasury. In the event that
such rate is not available by 3:00 P.M., New York City time, on the Calculation
Date pertaining to such Treasury Interest Determination Date, or if no such
auction is held in a particular week, then the Treasury Rate with respect to
such Treasury Interest Determination Date will be calculated by the Calculation
Agent and will be a yield to maturity (expressed as a bond equivalent, on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily basis)
of the arithmetic mean of the secondary market bid rates, as of approximately
3:30 P.M., New York City time, on such Treasury Interest Determination Date, of
three leading primary U.S. government securities dealers selected by the
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the Index Maturity specified in the applicable Pricing Supplement;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Treasury Rate with
respect to such Treasury Interest Determination Date will be the Treasury Rate
in effect immediately prior to such Treasury Interest Determination Date.
CURRENCY INDEXED NOTES
General
The Company may from time to time offer Notes, the principal amount payable
at Maturity and/or the interest rate of which is determined by a formula which
makes reference to the rate of exchange between one currency ("Currency I") and
another currency ("Currency II" together with Currency I, the "Selected
Currencies," both as specified in the applicable Pricing Supplement), neither of
which need be the Specified Currency of such Notes (the "Currency Indexed
Notes"). Unless otherwise specified in the applicable Pricing Supplement,
Holders of Currency Indexed Notes will be entitled to receive (i) an amount in
respect of principal equal to the principal amount of the Currency Indexed Notes
plus an adjustment, which may be negative or positive, based on the change in
the relationship between Selected Currencies or (ii) an amount of interest
calculated at the stated rate of interest on the Currency Indexed Notes plus an
adjustment, which may be negative or positive, based on the change in the
relationship between the Selected Currencies, in each case determined as
described below under "Payment of Principal and Interest." As specified in the
Pricing Supplement, the exchange rate designated as the base exchange rate (the
"Base Exchange Rate") will be the initial rate at which Currency I can be
exchanged for Currency II and from which the change in such exchange rate will
be measured.
Payment of Principal and Interest
Unless otherwise specified in the applicable Pricing Supplement, the
payment of principal at Maturity and interest on each Interest Payment Date
(until the payment thereof is paid or made available for payment) will be
payable in the Specified Currency in amounts calculated in the manner described
below.
Unless otherwise specified in the applicable Pricing Supplement, principal
at Maturity, if indexed, will be payable in an amount equal to the principal
amount of the Currency Indexed Note, plus or minus an amount determined by
reference to the difference between the Base Exchange Rate specified in the
applicable Pricing Supplement and the rate at which Currency I can be exchanged
for Currency II on the second Business Day prior to the Maturity (the
"Determination Date") of such Currency Indexed Note, as determined by the
determination agent specified in the applicable Pricing Supplement (the
"Determination Agent"). Unless otherwise specified in the applicable Pricing
Supplement, the interest payable on any Interest Payment Date, if indexed, will
be payable in an amount equal to the stated interest rate of the Currency
Indexed Note, plus or minus a rate adjustment determined by reference to the
difference between the Base Exchange Rate specified in the applicable Pricing
Supplement and the rate at which Currency I can be exchanged for Currency II on
the second Business Day prior to the Interest Payment Date (the "Indexed
Interest Determination Date") of such Currency Indexed Note, as determined by
the Determination Agent, applied to the average principal amount outstanding of
such Note for the period being measured. For the purpose of this section, such
rate of
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exchange on the Determination Date or the Indexed Interest Determination Date,
as the case may be, will be the average of quotations for settlement on the
Maturity Date or the relevant Interest Payment Date, as the case may be,
obtained by the Determination Agent from three Reference Dealers in The City of
New York at approximately 11:00 A.M., New York City time, on either the
Determination Date or the relevant Indexed Interest Determination Date, as the
case may be.
The formulas to be used by the Determination Agent to determine the
principal amount and/or the stated interest rate of a Currency Indexed Note
payable at Maturity or on any Interest Payment Date will be specified in the
applicable Pricing Supplement by reference to the appropriate formula and will
be as follows:
Principal
A. If principal is to increase when the Spot Rate exceeds the Base Exchange
Rate, and if principal is to decrease when the Spot Rate is less than the Base
Exchange Rate, the formula to determine the principal amount of a Currency
Indexed Note payable at Maturity shall equal:
Principal Amount + (Principal Amount X F X [Spot Rate - Base Exchange Rate])
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will sell
Currency I in exchange for a single unit of Currency II.
B. If principal is to increase when the Base Exchange Rate exceeds the Spot
Rate, and if principal is to decrease when the Base Exchange Rate is less than
the Spot Rate, the formula to determine the principal amount of a Currency
Indexed Note payable at Maturity shall equal:
Principal Amount + (Principal Amount X F X [Base Exchange Rate - Spot Rate])
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
Interest
A. If interest is to increase when the Spot Rate exceeds the Base Exchange
Rate, and if interest is to decrease when the Spot Rate is less than the Base
Exchange Rate, the formula to determine the interest rate payable on any
Interest Payment Date on a Currency Indexed Note shall equal:
Stated Interest Rate + F X (Spot Rate - Base Exchange Rate)
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will sell
Currency I in exchange for a single unit of Currency II.
B. If interest is to increase when the Base Exchange Rate exceeds the Spot
Rate, and if interest is to decrease when the Base Exchange Rate is less than
the Spot Rate, the formula to determine the interest rate payable on any
Interest Payment Date on a Currency Indexed Note shall equal:
Stated Interest Rate + F X (Base Exchange Rate - Spot Rate)
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
In each of the above formulas "F" will be the leverage factor, if any, used
in such formula.
AN INVESTMENT IN NOTES INDEXED, AS TO PRINCIPAL OR INTEREST OR BOTH, TO ONE
OR MORE VALUES OF CURRENCY INDICES (INCLUDING EXCHANGE RATES BETWEEN CURRENCIES)
ENTAILS SIGNIFICANT RISKS THAT ARE NOT ASSOCIATED WITH SIMILAR INVESTMENTS IN A
CONVENTIONAL FIXED-RATE DEBT SECURITY. IF THE INTEREST RATE OF SUCH A NOTE IS SO
INDEXED, IT MAY RESULT IN AN INTEREST RATE THAT IS LESS THAN THAT PAYABLE ON A
CONVENTIONAL FIXED-RATE DEBT
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SECURITY ISSUED AT THE SAME TIME, INCLUDING THE POSSIBILITY THAT NO INTEREST
WILL BE PAID, AND, IF THE PRINCIPAL AMOUNT OF SUCH A NOTE IS SO INDEXED, THE
PRINCIPAL AMOUNT PAYABLE AT MATURITY MAY BE LESS THAN THE ORIGINAL PURCHASE
PRICE OF SUCH NOTE IF ALLOWED PURSUANT TO THE TERMS OF SUCH NOTE, INCLUDING THE
POSSIBILITY THAT NO PRINCIPAL WILL BE PAID. THE SECONDARY MARKET FOR SUCH NOTES
WILL BE AFFECTED BY A NUMBER OF FACTORS, INDEPENDENT OF THE CREDITWORTHINESS OF
THE COMPANY AND THE VALUE OF THE APPLICABLE CURRENCY INDEX, INCLUDING THE
VOLATILITY OF THE APPLICABLE CURRENCY INDEX, THE TIME REMAINING TO THE MATURITY
OF SUCH NOTES, THE AMOUNT OUTSTANDING OF SUCH NOTES AND MARKET INTEREST RATES.
THE VALUE OF THE APPLICABLE CURRENCY INDEX DEPENDS ON A NUMBER OF INTERRELATED
FACTORS, INCLUDING ECONOMIC, FINANCIAL AND POLITICAL EVENTS, OVER WHICH THE
COMPANY HAS NO CONTROL. ADDITIONALLY, IF THE FORMULA USED TO DETERMINE THE
PRINCIPAL AMOUNT OR INTEREST PAYABLE WITH RESPECT TO SUCH NOTES CONTAINS A
MULTIPLE OR LEVERAGE FACTOR, THE EFFECT OF ANY CHANGE IN THE APPLICABLE CURRENCY
INDEX MAY BE INCREASED. THE HISTORICAL EXPERIENCE OF THE RELEVANT CURRENCY
INDICES SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE OF SUCH
CURRENCY INDICES DURING THE TERM OF ANY NOTE. ACCORDINGLY, PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED
BY AN INVESTMENT IN SUCH NOTES AND THE SUITABILITY OF SUCH NOTES IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES.
COMMODITY INDEXED NOTES
The Company may from time to time offer Commodity Indexed Notes. The
Pricing Supplement relating to a Commodity Indexed Note will set forth the
method by which the amount of interest payable and the amount payable at Stated
Maturity in respect of such Commodity Indexed Note will be determined, the tax
consequences to holders of Commodity Indexed Notes, a description of certain
risks associated with investments in Commodity Indexed Notes and other
information relating to such Commodity Indexed Notes.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may from time to time offer Original Issue Discount Notes. The
Pricing Supplement applicable to certain Original Issue Discount Notes may
provide that Holders of such Notes will not receive periodic payments of
interest. For purposes of determining whether Holders of the requisite principal
amount of Notes outstanding under the Indenture have made a demand or given a
notice or waiver or taken any other action, the outstanding principal amount of
Original Issue Discount Notes shall be deemed to be the amount of the principal
that would be due and payable upon declaration of acceleration of the Stated
Maturity thereof as of the date of such determination. See "General."
"Original Issue Discount Note" means, (i) a Note that has a "stated
redemption price at maturity" that exceeds its "issue price" (each as defined
for U.S. Federal income tax purposes) by at least 0.25% of its stated redemption
price at maturity multiplied by the number of complete years from the Original
Issue Date to the Stated Maturity for such Note (or, in the case of a Note that
provides for payment of any amount other than the qualified stated interest
prior to maturity, the weighted average maturity of the Note calculated by
taking into account only the number of complete years from the Original Issue
Date to the date that any such amount is paid) and (ii) any other Note
designated by the Company as issued with original issue discount for U.S.
Federal income tax purposes.
AMORTIZING NOTES
The Company may from time to time offer Notes for which payments of
principal and interest are made in installments over the life of the Note
("Amortizing Notes"). Interest on each Amortizing Note will be computed as
specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, payments with respect to an Amortizing Note
will be applied first to interest due and payable thereon and then to the
reduction of the unpaid principal amount thereof. A table setting forth
repayment information with respect to each Amortizing Note will be provided to
the original purchaser of such Note and will be available, upon request, to the
subsequent Holders.
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RESET NOTES
The Pricing Supplement relating to each Note will indicate whether the
Company has the option with respect to such Note to reset the interest rate, in
the case of a Fixed Rate Note, or to reset the Spread and/or Spread Multiplier,
in the case of a Floating Rate Note (in each case, a "Reset Note"), and, if so,
will indicate (i) the date or dates on which such interest rate or such Spread
and/or Spread Multiplier, as the case may be, may be reset (each an "Optional
Interest Reset Date") and (ii) the basis or formula, if any, for such resetting.
The Company may exercise such option with respect to a Note by notifying
the Trustee of such exercise at least 45 but not more than 60 calendar days
prior to an Optional Interest Reset Date for such Note. If the Company so
notifies the Trustee of such exercise, the Trustee will send, not later than 40
calendar days prior to such Optional Interest Reset Date, by telegram, telex,
facsimile transmission, hand delivery or letter (first class, postage prepaid)
to the Holder of such Note a notice (the "Reset Notice") indicating (i) that the
Company has elected to reset the interest rate, in the case of a Fixed Rate
Note, or the Spread and/or Spread Multiplier, in the case of a Floating Rate
Note, (ii) such new interest rate or such new Spread and/or Spread Multiplier,
as the case may be, and (iii) the provisions, if any, for redemption during the
period from such Optional Interest Reset Date to the next Optional Interest
Reset Date or, if there is no such next Optional Interest Reset Date, to the
Stated Maturity of such Note (each such period a "Subsequent Interest Period"),
including the date or dates on which or the period or periods during which and
the price or prices at which such redemption may occur during such Subsequent
Interest Period.
Notwithstanding the foregoing, not later than 20 calendar days prior to an
Optional Interest Reset Date for a Note, the Company may, at its option, revoke
the interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread
Multiplier, in the case of a Floating Rate Note, provided for in the Reset
Notice and establish a higher interest rate, in the case of a Fixed Rate Note,
or a Spread and/or Spread Multiplier resulting in a higher interest rate, in the
case of a Floating Rate Note, for the Subsequent Interest Period commencing on
such Optional Interest Reset Date by causing the Trustee to send by telegram,
telex, facsimile transmission, hand delivery or letter (first class, postage
prepaid) notice of such higher interest rate or Spread and/or Spread Multiplier
resulting in a higher interest rate, as the case may be, to the Holder of such
Note. Such notice will be irrevocable. All Notes with respect to which the
interest rate or Spread and/or Spread Multiplier is reset on an Optional
Interest Reset Date to a higher interest rate or Spread and/or Spread Multiplier
resulting in a higher interest rate will bear such higher interest rate, in the
case of a Fixed Rate Note, or Spread and/or Spread Multiplier resulting in a
higher interest rate, in the case of a Floating Rate Note, whether or not
tendered for repayment as provided in the next paragraph.
If the Company elects prior to an Optional Interest Reset Date to reset the
interest rate or the Spread and/or Spread Multiplier of a Note, the Holder of
such Note will have the option to elect repayment of such Note, in whole but not
in part, by the Company on such Optional Interest Reset Date at a price equal to
the principal amount thereof plus accrued and unpaid interest to but excluding
such Optional Interest Reset Date. In order for a Note to be so repaid on an
Optional Interest Reset Date, the Holder thereof must follow the procedures set
forth below under "Redemption and Repayment" for optional repayment, except that
the period for delivery of such Note or notification to the Trustee shall be at
least 25 but not more than 35 calendar days prior to such Optional Interest
Reset Date. A Holder who has tendered a Note for repayment following receipt of
a Reset Notice may revoke such tender for repayment by written notice to the
Trustee received prior to 5:00 P.M., New York City time, on the tenth calendar
day prior to such Optional Interest Reset Date.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note will indicate whether the
Company has the option to extend the Stated Maturity of such Note for one or
more periods of from one to five whole years (each an "Extension Period") up to
but not beyond the date (the "Final Maturity Date"), specified in such pricing
supplement.
The Company may exercise such option with respect to a Note by notifying
the Trustee of such exercise at least 45 but not more than 60 calendar days
prior to the Stated Maturity of such Note in effect prior to the
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exercise of such option (the "Original Stated Maturity Date"). If the Company so
notifies the Trustee of such exercise, the Trustee will send not later than 40
calendar days prior to the Original Stated Maturity Date, by telegram, telex,
facsimile transmission, hand delivery or letter (first class, postage prepaid),
to the Holder of such Note a notice (the "Extension Notice") relating to such
Extension Period, indicating (i) that the Company has elected to extend the
Stated Maturity of such Note, (ii) the new Stated Maturity, (iii) in the case of
a Fixed Rate Note, the interest rate applicable, the Extension Period or, in the
case of a Floating Rate Note, the Spread and/or Spread Multiplier applicable to
such Extension Period, and (iv) the provisions, if any, for redemption during
the Extension Period, including the date or dates on which or the period or
periods during which and the price or prices at which such redemption may occur
during the Extension Period. Upon the sending by the Trustee of an Extension
Notice to the Holder of a Note, the Stated Maturity of such Note will be
extended automatically, and, except as modified by the Extension Notice and as
described in the next two paragraphs, such Note will have the same terms as
prior to the sending of such Extension Notice.
Notwithstanding the foregoing, not later than 20 calendar days prior to the
Original Stated Maturity Date for a Note, the Company may, at its option, revoke
the interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread
Multiplier, in the case of a Floating Rate Note, provided for in the Extension
Notice and establish a higher interest rate, in the case of a Fixed Rate Note,
or a Spread and/or Spread Multiplier resulting in a higher interest rate, in the
case of a Floating Rate Note, for the Extension Period by causing the Trustee to
send by telegram, telex, facsimile transmission, hand delivery or letter (first
class, postage prepaid) notice of such higher interest rate or Spread and/or
Spread Multiplier resulting in a higher interest rate, as the case may be, to
the Holder of such Note. Such notice will be irrevocable. All Notes with respect
to which the Stated Maturity is extended will bear such higher interest rate, in
the case of a Fixed Rate Note, or Spread and/or Spread Multiplier resulting in a
higher interest rate, in the case of a Floating Rate Note, for the Extension
Period, whether or not tendered for repayment as provided in the next paragraph.
If the Company extends the Stated Maturity of a Note (or an Extension
Period, as applicable) the Holder of such Note will have the option to elect
repayment of such Note, in whole but not in part, by the Company on the Original
Stated Maturity Date (or last day of such Extension Period) at a price equal to
the principal amount thereof plus accrued and unpaid interest to but excluding
such date. In order for a Note to be so repaid on the Original Stated Maturity
Date (or last day of such Extension Period), the Holder thereof must follow the
procedures set forth below under "Redemption and Repayment" for optional
repayment, except that the period for delivery of such Note or notification to
the Trustee shall be at least 25 but not more than 35 calendar days prior to the
Original Stated Maturity Date (or the last day of such Extension Period). A
Holder who has tendered a Note for repayment following receipt of an Extension
Notice may revoke such tender for repayment by written notice to the Trustee
received prior to 5:00 P.M., New York City time, on the tenth calendar day prior
to the Original Stated Maturity Date (or the last day of such Extension Period).
RENEWABLE NOTES
The applicable Pricing Supplement will indicate that a Note (other than an
Amortizing Note) will mature at its Original Stated Maturity Date unless the
term of all or any portion of any such Note is renewed by the Holder in
accordance with the procedures, described in such Pricing Supplement.
COMBINATION OF PROVISIONS
If so specified in the applicable Pricing Supplement, any Note may be
subject to all of the provisions, or any combination of the provisions,
described above under "Reset Notes," "Extension of Maturity" and "Renewable
Notes."
REDEMPTION AND REPAYMENT
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity only if an Initial Redemption
Date is specified in the applicable Pricing Supplement ("Initial Redemption
Date"). If so specified, the Notes will be subject to redemption at the option
of the Company on any date on and after the
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applicable Initial Redemption Date in whole or from time to time in part in
increments of $1,000 or the minimum denomination, if any, specified in such
Pricing Supplement (provided that any remaining principal amount thereof shall
be at least $1,000 or such minimum denomination) at the applicable Redemption
Price (as defined below). "Redemption Price," with respect to a Note, means an
amount equal to the sum of (i) the Initial Redemption Percentage specified in
such Pricing Supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable (as specified in such Pricing Supplement)) multiplied
by the unpaid principal amount or the portion to be redeemed plus (ii) accrued
and unpaid interest to but excluding the date of redemption, but payments due
with respect to such Note prior to the date of redemption will be payable to the
Holder of record of such Note at the close of business on the relevant Regular
Record Date specified in the applicable Pricing Supplement, all as provided in
the Indenture. The Initial Redemption Percentage, if any, applicable to a Note
will decline at each anniversary of the Initial Redemption Date by an amount
equal to the applicable Annual Redemption Percentage Reduction, if any, until
the Redemption Price is equal to 100% of the unpaid principal amount thereof or
the portion thereof to be redeemed. The Company may exercise such option by
causing the Trustee to mail a notice of such redemption at least 30 but no more
than 60 calendar days prior to the date of redemption in accordance with the
provisions of the Indenture. In the event of redemption of a Note in part only,
such Note will be canceled and a new Note or Notes representing the unredeemed
portion thereof will be issued in the name of the Holder thereof.
Unless otherwise indicated in the applicable Pricing Supplement relating to
each Note, such Note will be subject to repurchase only as set forth in
"Description of Securities -- Purchase at the Option of Holders in the Event of
a Change of Control" in the accompanying Prospectus. Unless otherwise specified
in the applicable Pricing Supplement, if a Note is repayable in part pursuant to
the preceding sentence, the principal amount of the Note or Notes to be issued
to the Holder for the portion of such Note not being repaid must be $1,000 or an
integral multiple of $1,000 in excess thereof.
In order for a Note that is repayable at the option of the Holder to be
repaid prior to Stated Maturity, the Paying Agent (initially, the Company has
appointed the Trustee as Paying Agent) must receive at least 30 but not more
than 45 calendar days prior to the repayment date (i) the Note with the form
entitled "Option to Elect Repayment" on the reverse of the Note duly completed
or (ii) a telegram, telex, facsimile transmission or letter (first class,
postage prepaid) from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid with the form entitled "Option to Elect
Repayment" on the reverse of the Note duly completed will be received by the
Paying Agent not later than five Business Days after the date of such telegram,
telex, facsimile transmission or letter and such Note and form duly completed
are received by the Paying Agent by such fifth Business Day. Exercise of the
repayment option by the Holder of a Note will be irrevocable, except that a
Holder who has tendered a Note for repayment may revoke such tender for
repayment by written notice to the Paying Agent received prior to 5:00 P.M. New
York City time on the tenth calendar day prior to the repayment date. 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 such repayment is an authorized denomination.
Upon such partial repayment such Note will be canceled and a new Note or Notes
for the remaining principal amount thereof will be issued in the name of the
Holder thereof.
While the Book-Entry Notes are represented by the Global Securities (as
defined in the accompanying Prospectus) held by or on behalf of the Depositary,
and registered in the name of the Depositary or its nominee, the option for
repayment may be exercised by the applicable Participant (as defined herein)
that has an account with the Depositary, on behalf of the Beneficial Owners of
the Global Security or Securities representing such Book-Entry Notes, by
delivering a written notice substantially similar to the above-mentioned form
duly completed to the Trustee at its Corporate Trust Office (or such other
address of which the Company shall from time to time notify the Holders), at
least 30 but not more than 60 days prior to the date of repayment. Notices of
elections from Participants on behalf of Beneficial Owners of the Global
Security or Securities representing such Book-Entry Notes to exercise their
option to have such Book-Entry
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Notes repaid must be received by the Trustee by 5:00 P.M., New York City time,
on the last day for giving such notice. In order to ensure that a notice is
received by the Trustee on a particular day, the Beneficial Owner of the Global
Security or Securities representing such Book-Entry Notes must so direct the
applicable Participant before such Participant's deadline for accepting
instructions for that day. Different firms may have different deadlines for
accepting instructions from their customers. Accordingly, Beneficial Owners of
the Global Security or Securities representing Book-Entry Notes should consult
the Participants through which they own their interest therein for the
respective deadlines for such Participants. All notices shall be executed by a
duly authorized officer of such Participant (with signatures guaranteed) and
shall be irrevocable. In addition, Beneficial Owners of the Global Security or
Securities representing Book-Entry Notes shall effect delivery at the time such
notices of election are given to the Depositary by causing the applicable
Participant to transfer such Beneficial Owner's interest in the Global Security
or Securities representing such Book-Entry Notes, on the Depositary's records,
to the Trustee. See "Description of Securities -- Book-Entry System" in the
accompanying Prospectus.
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended, and any other securities
laws or regulations in connection with any such repayment.
REPURCHASE
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may be held or
resold or, at the discretion of the Company, may be surrendered to the Trustee
for cancellation.
OTHER PROVISIONS
Any provisions with respect to the determination of an Interest Rate Basis,
the specifications of an Interest Rate Basis, calculation of the interest rate
applicable to, or the principal payable at Maturity on, any Note, its Interest
Payment Dates or any other matter relating thereto may be modified by the terms
as specified on the face of such Note, or in an annex relating thereto if so
specified on the face thereof, and in the applicable Pricing Supplement.
DEFEASANCE
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be subject to defeasance and discharge as described under "Description of
Securities -- Defeasance -- Defeasance and Discharge" and "-- Defeseance of
Certain Covenants and Certain Events of Default" in the accompanying Prospectus.
SPECIAL PROVISIONS RELATING TO MULTI-CURRENCY NOTES
GENERAL
Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal of, premium (if
any) and interest on the Notes will be made in U.S. dollars. If any of the Notes
are to be denominated in a currency or currency unit other than U.S. dollars,
the following provisions shall apply, which are in addition to, and to the
extent inconsistent therewith replace, the description of general terms and
provisions of Notes set forth in the accompanying Prospectus and elsewhere in
this Prospectus Supplement.
Multi-Currency Notes are issuable in registered form only, without coupons.
The authorized denominations for Multi-Currency Notes will be specified in the
applicable Pricing Supplement. Unless otherwise specified in the applicable
Pricing Supplement, payment of the purchase price of Multi-Currency Notes will
be made in immediately available funds.
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CURRENCIES
Unless otherwise indicated in the applicable Pricing Supplement, purchasers
are to pay for Multi-Currency Notes in the Specified Currency in immediately
available funds. At the present time there are limited facilities in the United
States for converting U.S. dollars into the Specified Currencies and vice versa,
and banks do not offer non-U.S. dollar checking or savings account facilities in
the United States. However, if requested by a prospective purchaser of a
Multi-Currency Note on or prior to the fifth Business Day preceding the date of
delivery of the Multi-Currency Note, or by such other day as determined by the
Agent who presented such offer to purchase the Multi-Currency Note to the
Company, such Agent is prepared to arrange for the conversion of U.S. dollars
into the applicable Specified Currency to enable such purchaser to pay for the
Multi-Currency Notes. Each such conversion will be made by the Agent on such
terms and subject to such conditions, limitations and charges as the Agent may
from time to time establish in accordance with its regular foreign exchange
practices. All costs of exchange will be borne by the purchasers of the Multi-
Currency Notes.
Specific information about the foreign currency or currency unit in which a
particular Multi-Currency Note is denominated, including historical exchange
rates and a description of the currency and any exchange controls, will be set
forth in the applicable Pricing Supplement. See "Risk Factors -- Foreign
Currency Risks."
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest and principal (and premium, if any) with respect to any
Multi-Currency Note will be made by wire transfer to such account with a bank
located in the country issuing the Specified Currency (or, with respect to
Multi-Currency Notes denominated in ECUs, Brussels) or other jurisdiction
acceptable to the Company and the Trustee as shall have been designated at least
15 days prior to the Interest Payment Date or Maturity, as the case may be, by
the Holder of such Multi-Currency Note on the relevant Regular Record Date or at
Maturity, provided that, in the case of payment of principal of (and premium, if
any) and any interest due at Maturity, the Multi-Currency Note is presented to
the Paying Agent in time for the Paying Agent to make such payments in such
funds in accordance with its normal procedures. Such designation shall be made
by filing the appropriate information with the Trustee at its Corporate Trust
Office, and, unless revoked, any such designation made with respect to any
Multi-Currency Note by a Holder will remain in effect with respect to any
further payments with respect to such Multi-Currency Note payable to such
Holder. If a payment with respect to any such Multi-Currency Note cannot be made
by wire transfer because the required designation has not been received by the
Trustee on or before the requisite date or for any other reason, a notice will
be mailed to the Holder at its registered address requesting a designation
pursuant to which such wire transfer can be made and, upon the Trustee's receipt
of such a designation, such payment will be made within 15 days of such receipt.
The Company will pay any administrative costs imposed by banks in connection
with making payments by wire transfer, but any tax, assessment or governmental
charge imposed upon payments will be home by the Holders of the Multi-Currency
Notes in respect of which such payments are made.
If so specified in the applicable Pricing Supplement, except as provided
below, payments of interest and principal (and premium, if any) with respect to
any Multi-Currency Note will be made in U.S. dollars if the Holder of such
Multi-Currency Note on the relevant Regular Record Date or at Maturity, as the
case may be, has transmitted a written request for such payment in U.S. dollars
to the Paying Agent at its principal office on or prior to such Regular Record
Date or the date 15 days prior to Maturity, as the case may be. Such request may
be delivered by mail, by hand or by cable, telex or any other form of facsimile
transmission.
Any such request made with respect to any Multi-Currency Note by a Holder
will remain in effect with respect to any further payments of interest and
principal (and premium, if any) with respect to such Multi-Currency Note payable
to such Holder, unless such request is revoked by written notice received by the
Paying Agent on or prior to the relevant Regular Record Date or the date 15 days
prior to Maturity, as the case may be (but no such revocation may be made with
respect to payments made on any such Multi-Currency Note if an Event of Default
has occurred with respect thereto or upon the giving of a notice of
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redemption). Holders of Multi-Currency Notes whose Multi-Currency Notes are
registered in the name of a broker or nominee should contact such broker or
nominee to determine whether and how an election to receive payments in U.S.
dollars may be made.
The U.S. dollar amount to be received by a Holder of a Multi-Currency Note
who elects to receive payments in U.S. dollars will be based on the highest
indicated bid quotation for the purchase of U.S. dollars in exchange for the
Specified Currency obtained by the Currency Determination Agent (as defined
below) at approximately 11:00 A.M., New York City time, on the second Business
Day next preceding the applicable payment date (the "Conversion Date") from the
bank composite or multi-contributor pages of the Quoting Source for three (or
two if three are not available) major banks in The City of New York. The first
three (or two) such banks selected by the Currency Determination Agent which are
offering quotes on the Quoting Source will be used. If fewer than two such bid
quotations are available at 11:00 A.M., New York City time, on the second
Business Day next preceding the applicable payment date, such payment will be
based on the Market Exchange Rate as of the second Business Day next preceding
the applicable payment date. If the Market Exchange Rate for such date is not
then available, such payment will be made in the Specified Currency. As used
herein, the "Quoting Source" means Reuters Monitor Foreign Exchange Service, or
if the Currency Determination Agent determines that such service is not
available, Telerate Monitor Foreign Exchange Service, or if the Currency
Determination Agent determines that neither service is available, such
comparable display or other comparable manner of obtaining quotations as shall
be agreed between the Company and the Currency Determination Agent. All currency
exchange costs associated with any payment in U.S. dollars on any such
Multi-Currency Note will be borne by the Holder thereof by deductions from such
payment. The currency determination agent (the "Currency Determination Agent")
with respect to any Multi-Currency Notes will be specified in the applicable
Pricing Supplement for such Multi-Currency Notes. If payment in respect of a
Multi-Currency Note is required to be made in any currency unit (e.g. ECUs) and
such currency unit is unavailable, in the good faith judgment of the Company,
due to the imposition of exchange controls or other circumstances beyond the
Company's control, then all payments in respect of such Multi-Currency Note
shall be made in U.S. dollars until such currency unit is again available. The
amount of each payment of U.S. dollars shall be computed on the basis of the
equivalent of the currency unit in U.S. dollars, which shall be determined by
the Currency Determination Agent on the following basis. The component
currencies of the currency unit for this purpose (the "Component Currencies")
shall be the currency amounts that were components of the currency unit as of
the Conversion Date. The equivalent of the currency unit in U.S. dollars shall
be calculated by aggregating the U.S. dollar equivalents of the Component
Currencies. The U.S. dollar equivalent of each of the Component Currencies shall
be determined by the Currency Determination Agent on the basis of the Market
Exchange Rate for each such Component Currency as of the Conversion Date.
"Market Exchange Rate" means the noon buying rate in The City of New York for
cable transfers of such Specified Currency as certified for customs purposes by
the Federal Reserve Bank of New York.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
All determinations referred to above made by the Currency Determination
Agent shall be at its sole discretion and shall, in the absence of manifest
error, be conclusive for all purposes and binding on Holders of Multi-Currency
Notes.
OUTSTANDING MULTI-CURRENCY NOTES
For purposes of calculating the principal amount of any Multi-Currency Note
payable in a Specified Currency for any purpose under the Indenture, the
principal amount of such Multi-Currency Note at any time
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outstanding shall be deemed to be the U.S. dollar equivalent, at the Market
Exchange Rate determined as of the date of the original issuance of such
Multi-Currency Note, of the principal amount of such Multi-Currency Note.
RISK FACTORS
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in Multi-Currency Notes entails significant risks that are
not associated with a similar investment in a security denominated in U.S.
dollars. Such risks include, without limitation, the possibility of significant
changes in the rate of exchange between the U.S. dollar and the Specified
Currency and the possibility of the imposition or modification of foreign
exchange controls by either the United States or foreign governments. Such risks
generally depend on economic and political events over which the Company has no
control. In recent years, rates of exchange between the U.S. dollar and certain
foreign currencies have been highly volatile and such volatility may be expected
in the future. The exchange rate between the U.S. dollar and a foreign currency
or currency unit is at any moment a result of the supply of and demand for such
currencies, and changes in the rate result over time from the interaction of
many factors, among which are rates of inflation, interest rate levels, balances
of payments and the extent of governmental surpluses or deficits in the
countries of such currencies. These factors are in turn sensitive to the
monetary, fiscal and trade policies pursued by such governments and those of
other countries important to international trade and finance. Fluctuations in
any particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations in the rate that may occur during the term
of any Multi-Currency Note. Depreciation of the Specified Currency applicable to
a Multi-Currency Note against the U.S. dollar would result in a decrease in the
U.S. dollar equivalent yield of such Note, in the U.S. dollar-equivalent value
of the principal repayable at Maturity of such Note and, generally, in the U.S.
dollar-equivalent market value of such Note.
Foreign exchange rates can either be fixed by sovereign governments or
float. Exchange rates of most economically developed noncommunist nations are
permitted to fluctuate in value relative to the U.S. dollar. Sovereign
governments, however, rarely voluntarily allow their currencies to float freely
in response to economic forces. In fact, such governments use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rate of their currencies.
Governments may also issue a new currency to replace an existing currency or
alter the exchange rate or relative exchange characteristics by devaluation or
revaluation of a currency. Thus, a special risk in purchasing Notes that are
denominated in a foreign currency or currency unit is that their U.S.
dollar-equivalent yields could be affected by governmental actions which could
change or interfere with a theretofore freely determined currency valuation, by
fluctuations in response to other market forces and by the movement of
currencies across borders. There will be no adjustment or change in the terms of
the Multi-Currency Notes in the event that exchange rates should become fixed,
or in the event of any devaluation or revaluation or imposition of exchange or
other regulatory controls or taxes, or in the event of other developments,
affecting the U.S. dollar or any applicable currency or currency unit.
THE PROSPECTUS, INCLUDING THIS PROSPECTUS SUPPLEMENT, DOES NOT DESCRIBE ALL
RISKS OF AN INVESTMENT IN MULTI-CURRENCY NOTES THAT RESULT FROM SUCH NOTES BEING
DENOMINATED IN A FOREIGN CURRENCY OR CURRENCY UNIT EITHER AS SUCH RISKS EXIST AT
THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO
TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN MULTI-CURRENCY NOTES.
MULTI-CURRENCY NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Unless otherwise indicated in the applicable Pricing Supplement,
Multi-Currency Notes will not be sold in, or to residents of, the country of the
Specified Currency in which particular Multi-Currency Notes are
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denominated. The information set forth in this Prospectus Supplement is directed
to prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium, if
any, and interest on Multi-Currency Notes. Such persons should contact their own
legal advisors with regard to such matters.
Judgments
The Notes will be governed by and construed in accordance with the laws of
the State of New York. A judgment for money damages by courts in the United
States, including money damages based on an obligation expressed in a foreign
currency, will ordinarily be rendered only in U.S. dollars. New York statutory
law provides that in an action based on an obligation expressed in a currency
other than U.S. dollars a court shall render a judgment or decree in the foreign
currency of the underlying obligation and that the judgment or decree shall be
converted into U.S. dollars at the exchange rate prevailing on the date of entry
of the judgment or decree.
Exchange Controls, Etc.
Governments have imposed from time to time exchange controls and may in the
future impose or revise exchange controls at or prior to a Note's Maturity. Even
if there are no exchange controls, it is possible that the Specified Currency
for any particular Multi-Currency Note would not be available at such Note's
Maturity. In that event, the Company will pay in U.S. dollars on the basis of
the Market Exchange Rate on the second day prior to such payment, or if such
Market Exchange Rate is not then available, on the basis of the most recently
available Market Exchange Rate. See "Special Provisions Relating to
Multi-Currency Notes -- Payment of Principal and Interest."
An applicable Pricing Supplement with respect to the applicable Specified
Currency (which includes information with respect to applicable current foreign
exchange controls, if any) will be delivered and will become part of this
Prospectus and Prospectus Supplement. The information concerning exchange rates
is furnished as a matter of information only and should not be regarded as
indicative of the range of or trends in fluctuations in currency exchange rates
that may occur in the future.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the principal United States federal income
tax consequences of the purchase, ownership and disposition of Notes to initial
holders ("holders"). This summary is based on the Internal Revenue Code of 1986,
as amended to the date hereof (the "Code"). This summary is based on the
administrative pronouncements, judicial decisions, and existing, proposed and
temporary Treasury Regulations, including regulations that set forth rules
applicable to debt instruments issued with original issue discount (the "OID
Regulations"), changes to any of which subsequent to the date of this Prospectus
Supplement may affect the tax consequences described herein.
This summary discusses only the principal United States federal income tax
consequences to those holders holding Notes as capital assets within the meaning
of Section 1221 of the Code. It does not address all of the tax consequences
that may be relevant to a holder in light of the holder's particular
circumstances or to holders subject to special rules, such as certain financial
institutions, insurance companies, dealers in securities or foreign currencies,
persons holding Notes as part of a "straddle" or "conversion transaction" as
these terms are defined in Sections 1092 and 1258 of the Code, respectively,
persons holding Notes as a hedge against, or which are hedged against, currency
risks, or holders whose functional currency (as defined in Section 985 of the
Code) is not the United States dollar. Further, this summary does not discuss
Original Issue Discount Notes (as defined below) that qualify as "applicable
high-yield discount obligations" under Section 163(i) of the Code. Holders of
Original Issue Discount Notes that are applicable high-yield discount
obligations may be subject to special rules.
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Persons considering the purchase of Notes should consult their tax advisors
with regard to the application of the United States federal income tax laws to
their particular situations as well as any tax consequences to them arising
under the laws of any state, local or foreign taxing jurisdiction
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial owner of
a Note who or that is for United States federal income tax purposes either (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or of any
political subdivision thereof or (iii) an estate or trust the income of which is
subject to United States federal income taxation regardless of its source. The
term also includes certain holders who are former citizens of the United States
whose income and gain on the Notes will be subject to United States taxation.
Payments of Interest
Interest paid on a Note, to the extent considered "qualified stated
interest" (as defined below), will generally be taxable to a United States
Holder as ordinary interest income at the time it accrues or is received in
accordance with the United States Holder's method of accounting for United
States federal income tax purposes. Interest paid on a Note that is not
considered qualified stated interest will be taxed in the manner described below
under "Original Issue Discount Notes."
Original Issue Discount Notes
United States Holders of Original Issue Discount Notes that mature more
than one year from the date of issuance will be required to include original
issue discount in income for federal income tax purposes as it accrues, in
accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such income. Under this
method, United States Holders of Original Issue Discount Notes generally will be
required to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
The amount of original issue discount on a Note is equal to the excess of
the "stated redemption price at maturity" of the Note over the "issue price" of
the Note. The "issue price" of a Note will equal the first price at which a
substantial amount of Notes of the same issue is sold for money (excluding sales
to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers). The "stated
redemption price at maturity" of a Note will equal the sum of all payments
required under the Note other than certain contingent payments and "qualified
stated interest" payments. "Qualified stated interest" is stated interest
unconditionally payable as a series of payments in cash or property (other than
debt instruments of the issuer) at least annually during the entire term of the
Note and equal to the outstanding principal balance of the Note multiplied by a
single fixed rate of interest, one or more qualified floating rates of interest,
an objective rate, or certain combinations thereof. Special tax considerations
(including possible original issue discount) may arise with respect to Floating
Rate Notes providing for (i) one Base Rate followed by one or more Base Rates,
(ii) a single fixed rate followed by a qualified floating rate or (iii) a Spread
Multiplier. Purchasers of Floating Rate Notes with any of such features should
carefully examine the applicable Pricing Supplement and should consult their tax
advisors with respect to such a feature since the tax consequences will depend,
in part, on the particular terms of the purchased Note. Special rules may apply
if a Floating Rate Note bears interest at an objective rate and it is reasonably
expected that the average value of the rate during the first half of the Note's
term will be either significantly less than or significantly greater than the
average value of the rate during the final half of the Note's term. Special
rules may also apply if a Floating Rate Note is subject to a cap, floor,
governor or similar restriction that is not fixed throughout the term of the
Note and is reasonably expected as of the issue date to cause the yield on the
Note to be significantly less or more than the expected yield determined without
the restriction. In addition, no amounts payable on a Note that is treated as
providing for contingent payments (discussed further below) is treated as
qualified stated interest.
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Final Treasury Regulations issued on June 14, 1996 (the "1996 OID
Regulations") address, among other things, the accrual of original discount on,
and the character of gain realized on the sale, exchange or retirement of, debt
instruments providing for contingent payments. The 1996 OID Regulations
generally apply only to contingent payment debt instruments issued on or after
August 13, 1996. Certain Indexed Notes or Floating Rate Notes may be treated as
providing for contingent payments within the meaning of the 1996 OID Regulations
and prospective Holders of such Notes should refer to the discussion regarding
taxation in the applicable Pricing Supplement and should consult their tax
advisers regarding the federal income tax consequences of the ownership and
disposition of such Notes. The remainder of the discussion of Original Issue
Discount Notes assumes that such Notes do not provide for contingent payments
within the meaning of the 1996 OID Regulations.
If the difference between a Note's stated redemption price at maturity and
its issue price is less than a specified de minimis amount, equal to .0025
multiplied by the product of the stated redemption price at maturity and the
number of complete years to maturity (or, in the case of a Note providing for
payments prior to maturity of amounts included in its stated redemption price at
maturity, the weighted average maturity calculated by taking into account only
the number of complete years from the Original Issue Date to the date that any
such payment is made), then the Note will not be considered to have original
issue discount. United States Holders of Notes with original issue discount less
than such de minimis amount will generally include such de minimis original
issue discount in income as capital gain on a pro rata basis as principal
payments are made on the Notes.
In the case of an Original Issue Discount Note that has a fixed maturity
date one year or less from its date of issuance (a "Short-Term Original Issue
Discount Note"), a United States Holder of such a Note that uses the cash method
of accounting generally is not required to accrue original issue discount for
United States federal income tax purposes unless such Holder elects to do so for
all Short-Term Original Issue Discount Notes acquired on or after the first day
of the first tax year to which such election applies. United States Holders who
make such an election, United States Holders who report income for federal
income tax purposes on an accrual method and certain other United States
Holders, including banks and dealers in securities, are required to include
original issue discount in income on such Short-Term Original Issue Discount
Notes as it accrues on a straightline basis, unless an election is made with
respect to a particular obligation to accrue the original issue discount
according to a constant yield method based on daily compounding. In the case of
such a taxpayer, original issue discount is determined by including all payments
due on the instrument, including payments of qualified stated interest, in the
stated redemption price at maturity.
In the case of a United States Holder who is not required, and does not
elect, to include the original issue discount in income currently, stated
interest generally will be taxable at the time it is received and any gain
realized on the sale, exchange or retirement of the Short-Term Original Issue
Discount Note will be ordinary income to the extent of the original issue
discount accrued on a straightline basis (or, if elected, according to a
constant yield method based on daily compounding) through the date of sale,
exchange or retirement. In addition, such Holders will be required to defer
deductions for all or a portion of any interest paid on indebtedness incurred or
continued to purchase or carry Short-Term Original Issue Discount Notes in an
amount not exceeding the sum of the accrued original issue discount not
previously included in income and the amount of any interest not included in
original issue discount that accrues during the tax year while the taxpayer held
the obligation but which is not included in the taxpayer's income by reason of
the taxpayer's method of accounting.
A Holder may make an election (the "Constant Yield Election") to include in
gross income all interest that accrues on a Note (including stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount, and unstated interest, as
adjusted by any amortizable bond premium or acquisition premium) in accordance
with a constant yield method based on the compounding of interest. The election
if made applies to all debt instruments acquired in the year of the election and
thereafter and may not be revoked without consent of the Internal Revenue
Service. Holders should consult their tax advisers before making a Constant
Yield Election.
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Certain of the Original Issue Discount Notes may be redeemed prior to
maturity. Original Issue Discount Notes containing such a feature may be subject
to rules that differ from the general rules discussed above. Purchasers of
Original Issue Discount Notes with such a feature should carefully examine the
applicable Pricing Supplement and should consult their tax advisors with respect
to such a feature since the tax consequences with respect to original issue
discount will depend, in part, on the particular terms and the particular
features of the purchased Note.
If more than one type of Note is issued in connection with the same
transaction or related transactions, 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 an original issue discount. Unless otherwise provided in the applicable
Pricing Supplement, the Company does not expect to treat different types of
Notes as being subject to those "aggregation rules" for purposes of computing
original issue discount.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a Note, a United States Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such Holder's adjusted tax
basis in the Note. To the extent attributable to accrued but unpaid interest,
the amount realized by the United States Holder will be treated as a payment of
interest. See "-- Payments of Interest." A United States Holder's adjusted tax
basis in a Note will equal the cost of the Note to such Holder, increased by any
discount with respect to a Short-Term Original Issue Discount Note or any
original issue discount previously included in income by such Holder with
respect to such Note and reduced by any principal payments received by such
Holder and, in the case of an Original Issue Discount Note or Short-Term
Original Issue Discount Note, by the amount of any other payments received that
were included in the stated redemption price at maturity, as described above.
Gain or loss realized on the sale, exchange or retirement of a Note that is
not a Foreign Currency Note will be capital gain or loss (except in the case of
a Short-Term Original Issue Discount Note, to the extent of any original issue
discount not previously included in a United States Holder's taxable income and
in the case of any Note that is treated as providing for contingent payments)
and will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held for more than one year. See "Original Issue
Discount Notes" above. The excess of net long-term capital gains over net
short-term capital losses is taxed at a lower rate than ordinary income for
certain non-corporate taxpayers. The distinction between capital gain or loss
and ordinary income or loss is also relevant for purposes of, among other
things, limitations on the deductibility of capital losses.
Amortizable Bond Premium
If a United States Holder purchases a Note for an amount that is greater
than the amount payable at maturity, such Holder will be considered to have
purchased such Note with "amortizable bond premium" equal in amount to such
excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium, using a constant yield method, over the remaining term of
the Note (where such Note is not optionally redeemable prior to its maturity
date). If such Note may be optionally redeemed prior to maturity after the
Holder has acquired it, the amount of amortizable bond premium is determined
with reference to the amount payable on maturity or, if it results in a smaller
premium attributable to the period of earlier redemption date, with reference to
the amount payable on the earlier redemption date. A Holder who elects to
amortize bond premium must reduce his tax basis in the Note by the amount of the
premium amortized in any year. An election to amortize bond premium applies to
all taxable debt obligations owned as of the beginning of the year in which the
election is made or thereafter acquired by the taxpayer and may be revoked only
with the consent of the Internal Revenue Service.
If a Holder makes a Constant Yield Election for a Note with amortizable
bond premium, such election will result in a deemed election to amortize bond
premium for all of the Holder's debt instruments with
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amortizable bond premium and may be revoked only with the permission of the
Internal Revenue Service with respect to debt instruments acquired after
revocation.
Foreign Currency Notes And Multi-Currency Notes
The following summary relates to Notes that are denominated in a currency
or currency unit other than the U.S. dollar ("Foreign Currency Notes").
A United States Holder who uses the cash method of accounting and who
receives a payment of interest in a foreign currency with respect to a Foreign
Currency Note will be required to include in income the U.S. dollar value of the
foreign currency payment (determined on the date such payment is received)
regardless of whether the payment is in fact converted to U.S. dollars at that
time, and such U.S. dollar value will be the United States Holder's tax basis in
the foreign currency. A cash method Holder who receives such a payment in U.S.
dollars pursuant to an option available under such Note will be required to
include the amount of such payment in income upon receipt.
A United States Holder who uses the accrual method of accounting and both
cash and accrual method holders of a Foreign Currency Note that is an Original
Issue Discount Note with respect to original issue discount on that Note will be
required to include in income the U.S. dollar value of the amount of interest
income (including original issue discount), but reduced by amortizable bond
premium to the extent applicable) that has accrued and is otherwise required to
be taken into account with respect to a Foreign Currency Note during an accrual
period. The U.S. dollar value of such accrued income will be determined by
translating such income at the average rate of exchange for the accrual period
or, with respect to an accrual period that spans two taxable years, at the
average rate for the partial period within the taxable year. Such United States
Holder will recognize ordinary income or loss with respect to accrued interest
income on the date such income is actually received. The amount of ordinary
income or loss recognized will equal the difference between the U.S. dollar
value of the foreign currency payment received (determined on the date such
payment is received) in respect of such accrual period (or, where a Holder
receives U.S. dollars, the amount of such payment in respect of such accrual
period) and the U.S. dollar value of interest income that has accrued during
such accrual period (as determined above). A United States Holder may elect to
translate interest income (including original issue discount) into U.S. dollars
at the spot rate on the last day of the interest accrual period (or, in the case
of a partial accrual period, the spot rate on the last day of the taxable year)
or, if the date of receipt is within five business days of the last day of the
interest accrual period, the spot rate on the date of receipt. A United States
Holder that makes such an election must apply it consistently to all debt
instruments from year to year and cannot change the election without the consent
of the Internal Revenue Service. Original issue discount and amortizable bond
premium on a Foreign Currency Note are to be determined in the relevant foreign
currency.
Any loss realized on the sale, exchange or retirement of a Foreign Currency
Note with amortizable bond premium by a United States Holder who has not elected
to amortize such premium under Section 171 of the Code will be a capital loss to
the extent of such bond premium. If such an election is made, amortizable bond
premium taken into account on a current basis shall reduce interest income in
units of the relevant foreign currency. Exchange gain or loss is realized on
such amortized bond premium with respect to any period by treating the bond
premium amortized in such period as a return of principal.
A United States Holder's tax basis in a Foreign Currency Note, and the
amount of any subsequent adjustment to such Holder's tax basis, will be the U.S.
dollar value of the foreign currency amount paid for such Foreign Currency Note,
or of the foreign currency amount of the adjustment, determined on the date of
such purchase or adjustment. A United States Holder who purchases a Foreign
Currency Note with previously owned foreign currency will recognize ordinary
income or loss in an amount equal to the difference, if any, between such United
States Holder's tax basis in the foreign currency and the U.S. dollar fair
market value of the Foreign Currency Note on the date of purchase.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss which will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in exchange rates will equal
the
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difference between (i) the U.S. dollar value of the foreign currency principal
amount of such Note, and any payment with respect to accrued interest,
determined on the, date such payment is received or such Note is disposed of,
and (ii) the U.S. dollar value of the foreign currency principal amount of such
Note, determined on the date such United States Holder acquired such Note, and
the U.S. dollar value of the accrued interest received, determined by
translating such interest at the average exchange rate for the accrual period.
Such foreign currency gain or loss will be recognized only to the extent of the
total gain or loss realized by a United States Holder on the sale, exchange or
retirement of the Foreign Currency Note. The source of such foreign currency
gain or loss will be determined by reference to the residence of the Holder or
the "qualified business unit" of the Holder on whose books the Note is properly
reflected. Any gain or loss realized by such a Holder in excess of such foreign
currency gain or loss will be capital gain or loss (except, in the case of a
Short-Term Original Issue Discount Note, to the extent of any original issue
discount not previously included in the Holder's income).
A United States Holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Foreign Currency Note equal to
the U.S. dollar value of such foreign currency, determined at the time of such
sale, exchange or retirement. Regulations issued under Section 988 of the Code
provide a special rule for purchases and sales of publicly traded Foreign
Currency Notes by a cash method taxpayer under which units of foreign currency
paid or received are translated into U.S. dollars at the spot rate on the
settlement date of the purchase or sale. Accordingly, no exchange gain or loss
will result from currency fluctuations between the trade date and the settlement
of such a purchase or sale. An accrual method taxpayer may elect the same
treatment required of cash-method taxpayers with respect to the purchase and
sale of publicly traded Foreign Currency Notes provided the election is applied
consistently. Such election cannot be changed without the consent of the
Internal Revenue Service. Any gain or loss realized by a United States Holder on
a sale or other disposition of foreign currency (including its exchange for U.S.
dollars or its use to purchase Foreign Currency Notes) will be ordinary income
or loss.
Indexed Notes
The United States federal income tax consequences to a United States Holder
of the ownership and disposition of Commodity Indexed Notes and Currency Indexed
Notes will be summarized in the applicable Pricing Supplement.
Extendible Notes
If so specified in an applicable Pricing Supplement, the Company may have
the option to extend the maturity of a Note beyond its Original Stated Maturity
Date. See "Description of Notes -- Extension of Maturity." A description of the
federal income tax consequences to a United States Holder of the Company's
option to extend the maturity of a Note will be contained in the applicable
Pricing Supplement.
Renewable Notes
A Note may be issued wherein the initial maturity of the Note may be
extended beyond its Original Stated Maturity Date at the Holder's option. See
"Description of Notes -- Renewable Notes." A description of the federal income
tax consequences to a United States Holder of such Holder's option to renew a
Note will be contained in the applicable Pricing Supplement.
Reset Notes
Reset Notes may be subject to special rules for determining interest income
or gain or loss. The United States federal income tax consequences to a United
States Holder of the ownership and disposition of Reset Notes will be summarized
in the applicable Pricing Supplement.
Amortizing Notes
The United States federal income tax consequences to a United States Holder
of the ownership and disposition of Amortizing Notes will be summarized in the
applicable Pricing Supplement.
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Integration of Notes and Related Hedges
The 1996 OID Regulations also set forth rules under which holders are
permitted to (or may, under certain circumstances, be required by the IRS) treat
a Note and a related hedge as an integrated "synthetic" debt instrument if
certain requirements are met. Prospective holders should consult their tax
advisers in advance regarding the possible application of these rules to their
particular situations.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal, interest (including original issue
discount, if any) and premium on the Notes by the Company or any paying
agent to a beneficial owner of a Note that is not a United States Holder,
as defined above (hereinafter, a "United States Alien Holder"), will not be
subject to United States federal withholding tax, provided that, in the
case of interest, (i) such Holder does not own, actually or constructively,
ten percent or more of the total combined voting power of all classes of
stock of the Company entitled to vote, (ii) such Holder is not, for United
States federal income tax purposes, a controlled foreign corporation
related, directly or indirectly, to the Company through stock ownership,
(iii) such Holder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (iv) the certification requirements under
Section 871(h) or Section 881(c) of the Code and Treasury Regulations
thereunder (summarized below) are met;
(b) a United States Alien Holder of a Note will not be subject to
United States federal income tax on gain realized on the sale, exchange or
other disposition of such Note, unless (i) such Holder is an individual who
is present in the United States for 183 days or more in the taxable year of
disposition, and certain conditions are met or (ii) such gain is
effectively connected with the conduct by such Holder of a trade or
business in the United States; and
(c) a Note held by an individual who is not a citizen or resident of
the United States at the time of his death will not be subject to United
States federal estate tax as a result of such individual's death, provided
that (i) the individual does not own, actually or constructively, ten
percent or more of the total combined voting power of all classes of stock
of the Company entitled to vote, and (ii) at the time of such individual's
death, payments with respect to such Note would not have been effectively
connected with the conduct by such individual of a trade or business in the
United States.
Sections 871(h) and 881(c) of the Code and Treasury Regulations thereunder
require that, in order to obtain the exemption from withholding tax described in
paragraph (a) above, either (i) the beneficial owner of a Note must certify,
under penalties of perjury, to the Company or paying agent, as the case may be,
that such owner is a United States Alien Holder and must provide such owner's
name and address, and United States taxpayer identification number, if any, or
(ii) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
(a "Financial Institution") and that holds the Note on behalf of the beneficial
owner thereof must certify, under penalties of perjury, to the Company or paying
agent, as the case may be, that such certificate has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and must furnish the withholding agent with a copy thereof. A
certificate described in this paragraph is effective only with respect to
payments of interest (including original issue discount) made to the certifying
United States Alien Holder after issuance of the certificate in the calendar
year of its issuance and the two immediately succeeding calendar years. Under
temporary United States Treasury Regulations, such requirement will be fulfilled
if the beneficial owner of a Note certifies on Internal Revenue Service Form
W-8, under penalties of perjury, that it is not a United States Holder and
provides its name and address, and either the beneficial owner furnishes the
withholding agent with a copy of such statement or any Financial Institution
holding the Note on behalf of the beneficial owner files a statement with the
withholding agent to the effect that it has received such a statement from the
beneficial owner (and furnishes the withholding agent with a copy thereof).
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Interest described in Section 871(h)(4) of the Code will be subject to
United States withholding tax at a 30 percent rate (or such lower rate provided
by an applicable treaty). In general, interest described in Section 871(h)(4) of
the Code includes (subject to certain exceptions) any interest the amount of
which is determined by reference to receipts, sales or other cash flow of the
Company or a related person, any income or profits of the Company or a related
person, any change in the value of any property of the Company or a related
person or any dividend, partnership distributions or similar payments made by
the Company or a related person. Interest described in Section 871(h)(4) of the
Code may include other types of contingent interest identified by the Internal
Revenue Service in future Treasury Regulations. The Company does not currently
expect to issue Notes the interest on which is described in Section 871(h)(4) of
the Code, and the United States withholding tax consequences of any such Notes
issued by the Company will be described in the applicable Pricing Supplement.
If a United States Alien Holder of a Note is engaged in a trade or business
in the United States, and if interest (including any original issue discount) on
the Note, or gain realized on the sale, exchange or other disposition of a Note,
is effectively connected with the conduct of such trade or business, the United
States Alien Holder, although exempt from United States withholding tax, will
generally be subject to United States income tax on such interest (including any
original issue discount) or gain in the same manner as if it were a United
States Holder. See "Tax Consequences to United States Holders" above. In lieu of
the certificate described in the second preceding paragraph, such a holder will
be required to provide to the Company a properly executed Internal Revenue
Service Form 4224 or successor form in order to claim an exemption from
withholding tax. In addition, if such United States Alien 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 certain adjustments. For
purposes of the branch profits tax, interest (including any original issue
discount) on, and any gain recognized on the sale, exchange or other disposition
of, a Note will be included in the earnings and profits of such United States
Alien Holder if such interest or gain as the case may be is effectively
connected with the conduct by the United States Alien Holder of a trade or
business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31% backup
withholding tax and information reporting requirements apply to certain payments
of principal, premium and interest (including original issue discount) made to,
and to the proceeds of sale before maturity by, certain non-corporate United
States holders of the Notes.
In the case of a non-corporate United States Holder, backup withholding
will apply only if such Holder (i) fails to furnish its Taxpayer Identification
Number ("TIN") which, for an individual, would be his Social Security number,
(ii) furnishes an incorrect TIN, (iii) is notified by the Internal Revenue
Service that it has failed to properly report payments of interest and dividends
or (iv) under certain circumstances, fails to certify, under penalties of
perjury, that it has furnished a correct TIN and has not been notified by the
Internal Revenue Service that it is subject to backup withholding for failure to
report interest and dividend payments. United States Holders should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption, if applicable.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding will not apply to payments of principal, premium
or interest including Original Issue Discount made by the Company or any paying
agent thereof on a Note if such Holder has provided the required certification
under penalties of perjury that it is not a United States Holder (as defined
above) and certain other conditions have been met or has otherwise established
an exemption, provided in each case that the Company or such paying agent, as
the case may be, does not have actual knowledge that the payee is a United
States Holder. The Company will, when required, report to United States Alien
Holders of the Notes and the Internal Revenue
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Service the amount of any interest paid or original issue discount accruing on
the Notes in each calendar year and the amounts of tax withheld, if any, with
respect to such payments.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, if such broker is a United
States person, a controlled foreign corporation for United States tax purposes
or a foreign person 50 percent or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting will be required unless the broker has in its
records documentary evidence that the beneficial owner is not a United States
Holder and certain other conditions are met or the beneficial owner otherwise
establishes an exemption. Under proposed Treasury Regulations, backup
withholding may apply to any payment which such broker is required to report if
such broker has actual knowledge that the payee is a United States Holder.
Payments to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a United States Holder and certain other
conditions are met or otherwise establishes an exemption.
United States Alien Holders of Notes should consult their tax advisors
regarding the application of information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amounts withheld
from a payment to a United States Alien Holder under the backup withholding
rules will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are offered on a continuing basis by the Company through the
Agents, each of which has agreed to use its reasonable efforts to solicit
purchases of the Notes. The Company will pay each Agent a commission of from
.125% to .750% of the principal amount of each Note, depending upon its Stated
Maturity, sold through such Agent. The Distribution Agreement permits the
Company to offer Notes through agents other than the Agents on terms that are
substantially similar to the terms set forth in the Distribution Agreement. The
name of any such other agent and the terms of any such offering shall be set
forth in the applicable Pricing Supplement. The Company will have the sole right
to accept offers to purchase Notes and may reject any such offer in whole or in
part. Each Agent will have the right, in its discretion reasonably exercised, to
reject in whole or in part any offer to purchase Notes received by such Agent.
The Company also may sell Notes to any Agent, acting as principal, at a discount
to be agreed upon at the time of sale, for resale to one or more investors or to
one or more broker-dealers (acting as principal for purposes of resale) at
varying prices related to prevailing market prices at the time of resale, as
determined by such Agent, or, if so agreed, at a fixed public offering price.
Unless otherwise indicated in the applicable Pricing Supplement, if any Note is
resold by an Agent to any broker-dealer at a discount, such discount will not be
in excess of the discount or commission received by such Agent from the Company.
In addition, unless otherwise indicated in the applicable Pricing Supplement,
any Note purchased by an Agent as principal will be purchased at 100% of the
principal amount thereof less a percentage equal to the commission applicable to
an agency sale of a Note having an identical Stated Maturity. After the initial
public offering of the Notes, the public offering price (in the case of Notes to
be resold on a fixed public offering price basis), the concession and the
discount may be changed. The Company also reserves the right to sell the Notes
directly to investors on its own behalf in those jurisdictions where it is
authorized to do so or as otherwise provided in the applicable Pricing
Supplement. In such circumstances, the Company will have the sole right to
accept offers to purchase Notes and may reject any proposed purchase of Notes in
whole or in part. In the case of sales made directly by the Company, no
commission will be payable.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act"). The Company has agreed to
indemnify each Agent against certain liabilities, including liabilities under
the Act, or to contribute to the Agents such payments as each Agent may be
required to make
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in respect thereof. The Company has agreed to reimburse the Agents for certain
of the Agents' expenses, including, but not limited to, the fees and expenses of
counsel to the Agents.
The Company has been advised by each Agent that such Agent may from time to
time purchase and sell Notes in the secondary market, but that it is not
obligated to do so. There can be no assurance that there will be a secondary
market for the Notes or liquidity in such secondary market if one develops. From
time to time, each Agent may make a market in the Notes, but no Agent is
obligated to do so, and an Agent may discontinue any market making at any time.
From time to time, the Agents and their affiliates may engage in
transactions with and perform services, including investment banking services,
for the Company and its affiliates in the ordinary course of business. From time
to time, in the ordinary course of business, affiliates of certain Agents also
engage in general financing and banking transactions with the Company and its
affiliates. In addition, an affiliate of NationsBanc Capital Markets, Inc. has
recently purchased $100.0 million of the Company's Series B Convertible
Preferred Stock.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Lionel,
Sawyer & Collins, Las Vegas, Nevada, in reliance with respect to matters of law
of the State of New York upon Milbank, Tweed, Hadley & McCloy, New York, New
York and for the Agents by Milbank, Tweed, Hadley & McCloy, New York, New York,
in reliance with respect to matters of the law of the State of Nevada upon
Lionel, Sawyer & Collins, Las Vegas, Nevada.
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PROSPECTUS
$600,000,000
A M E R C O
DEBT SECURITIES
LOGO
AMERCO (the "Company"), a holding company for U-Haul International, Inc.,
Ponderosa Holdings, Inc., Amerco Real Estate Company, and other companies, may
issue and sell from time to time unsecured debt securities ("Securities")
consisting of debentures, notes and/or other unsecured evidences of indebtedness
in one or more series. The Securities offered pursuant to this Prospectus may be
issued in one or more series or issuances and will be limited to an aggregate
public offering price of $600,000,000.
The specific terms of the particular Securities in respect of which this
Prospectus is being delivered ("Offered Securities") will be set forth in a
supplement to this Prospectus ("Prospectus Supplement") which will be delivered
together with this Prospectus, including, where applicable, the specific
designation, aggregate principal amount, denomination, maturity, premium, if
any, rate (which may be fixed or variable), time and method of calculating
payments of interest, if any, place or places where principal, premium, if any,
and interest, if any, on such Securities will be payable, any terms of
redemption at the option of the Company, any sinking fund provisions, and the
initial public offering price for the Offered Securities.
The Company may sell Securities directly to purchasers or through agents
designated from time to time by the Company or to or through underwriters or a
group of underwriters which may be managed by one or more underwriters. If any
agents of the Company or any underwriters are involved in the sale of Securities
in respect of which this Prospectus is being delivered, the names of such agents
or underwriters and any applicable commission or discount will be set forth in
the applicable Prospectus Supplement. The net proceeds to the Company from the
sale of Securities will be the public offering price of such Securities less
such discount, in the case of an offering through an underwriter, or the
purchase price of such Securities less such commission, in the case of an
offering through an agent, and less, in each case, other expenses of the Company
associated with the issuance and distribution of such Securities.
No person is authorized to give the information or to make any
representations other than those contained or incorporated by reference in this
Prospectus in connection with this Prospectus and, if given or made, any such
information or representation must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy securities in any state or other jurisdictions
where, or to any person to whom, it is unlawful to make such an offer or a
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
ON PAGES 5-6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 10, 1996.
<PAGE> 38
------------------------
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements, and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at its regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such
material may be accessed electronically by means of the Commission's home page
on the Internet at http://www.sec.gov.
The Company has filed with the Commission a registration statement (the
"Registration Statement") with respect to the Securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information contained in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
Securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, which may be examined without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from the Public Reference Section of the Commission at prescribed
rates. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each statement being qualified in all
respects by such reference.
The Company's Series A 8 1/2% Preferred Stock is listed on the New York
Stock Exchange and the Company's Common Stock is listed on Nasdaq. Reports,
proxy statements, and other information filed by the Company may be inspected
and copied at the New York Stock Exchange, 20 Broad Street, New York, New York
10005 and at the National Association of Securities Dealers, 1735 K Street,
N.W., Washington, D.C. 20007.
In addition, Summary Quarterly Financial Reports may be accessed
electronically by means of the Company's home page on the Internet at:
http://www.uhaul.com.
INFORMATION INCORPORATED BY REFERENCE
The Annual Report of the Company on Form 10-K for the fiscal year ended
March 31, 1996, the Quarterly Report of the Company on Form 10-Q for the quarter
ended June 30, 1996, and the Current Report of the Company on Form 8-K filed
with the Commission on May 6, 1996 are incorporated herein by reference.
All reports filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be made a part hereof from
their respective dates of filing.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will cause to be furnished without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any documents described above,
other than certain exhibits to such documents. Requests should be addressed to:
AMERCO, Investor Relations, 1325 Airmotive Way, Suite 100, Reno, Nevada 89502;
telephone: (702) 688-6300.
2
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COMPANY SUMMARY
The Company is the holding company for its principal subsidiary, U-Haul
International, Inc. ("U-Haul"). The Company's U-Haul rental operations
represented 83.9%, 85.1%, and 85.0% of the Company's total revenue for the years
ended March 31, 1996, 1995 and 1994, respectively. The Company is also a holding
company for Ponderosa Holdings, Inc. ("Ponderosa") and Amerco Real Estate
Company ("AREC"). Throughout this Prospectus, unless the context otherwise
requires, the term "Company" includes all of the Company's subsidiaries.
U-Haul U-Move Operations. Founded in 1945, U-Haul is primarily engaged,
through its subsidiaries, in the rental of trucks, automobile-type trailers, and
support rental items to the do-it-yourself moving customer. The Company's
do-it-yourself moving business operates under the U-Haul name through an
extensive and geographically diverse distribution network of approximately 1,100
Company-owned U-Haul Centers and approximately 13,700 independent dealers
throughout the United States and Canada. The Company believes that it has more
moving equipment rental locations than its two largest competitors combined.
U-Haul's rental equipment fleet consists of approximately 87,000 trucks and
approximately 99,000 trailers. The Company, as part of its fleet renewal
program, purchased approximately 80,000 new trucks between March 1987 and March
1996 and reduced the overall average age of its truck fleet from approximately
eleven years at March 1987 to approximately five years at March 1996. Since
1990, U-Haul has replaced approximately 62% of its trailer fleet with new, more
aerodynamically designed trailers better suited to the low height profile of
many newly manufactured automobiles. Additionally, U-Haul sells related products
(such as boxes, tape and packaging materials) and rents various kinds of
equipment (such as floor polishing and carpet cleaning equipment).
U-Haul Self-Storage Rental Operations. U-Haul entered the self-storage
business in 1974 and offers for rent more than 18.7 million square feet of
self-storage space through approximately 800 Company-owned or managed storage
locations. The Company believes it is the second largest self-storage operator
(in terms of square feet) in the industry. The Company believes its self-storage
operations are complementary to its do-it-yourself moving business. All of its
self-storage space is located at or near one or more U-Haul Centers or
independent U-Haul dealers.
Ponderosa. Ponderosa serves as the holding company for the Company's
insurance businesses. Ponderosa's two principal subsidiaries are Oxford Life
Insurance Company ("Oxford") and Republic Western Insurance Company ("RWIC").
For financial statement presentation, the Company's insurance subsidiaries
report on a calendar year basis while the Company reports on the basis of a
fiscal year ending on March 31.
Oxford primarily reinsures life, health, and annuity insurance products and
administers the Company's self-insured employee health plan. Approximately 7.2%
of Oxford's premium revenues are from business with the Company. Oxford's
revenues represented 3.8%, 3.2%, and 2.8% of the Company's total revenue for the
years ended March 31, 1996, 1995, and 1994, respectively. Approximately 97% of
Oxford's invested assets are in investment grade (NAIC-2 or greater) fixed
income securities. Oxford is rated "A-VII" by A.M. Best.
RWIC originates and reinsures property and casualty type insurance products
for various market participants, including independent third parties, the
Company's customers, and the Company. RWIC's principal strategy is to capitalize
on its knowledge of insurance products aimed at the moving and rental markets.
Approximately 39% of RWIC's written premiums relate to insurance underwriting
activities involving U-Haul and its affiliates. RWIC's revenues represented
12.3%, 11.7%, and 12.2% of the Company's total revenue for the years ended March
31, 1996, 1995, and 1994, respectively. Approximately 98% of RWIC's invested
assets are in investment grade (NAIC-2 or greater) fixed income securities. RWIC
is rated
"A+-VIII" by A.M. Best.
AREC. AREC owns and actively manages most of the Company's real estate
assets, including the Company's U-Haul Center locations. In addition to its
U-Haul operations, AREC actively seeks to lease or dispose of the Company's
surplus properties.
3
<PAGE> 40
The Company's principal executive offices are located at 1325 Airmotive
Way, Suite 100, Reno, Nevada 89502, and the telephone number of the Company is
(702) 688-6300. For more information on the Company, see "Business."
The following chart represents the corporate structure of the major
operating subsidiaries of the Company.
LOGO
4
<PAGE> 41
RISK FACTORS
THE FOLLOWING MATTERS, INCLUDING THOSE MENTIONED ELSEWHERE, SHOULD BE
CONSIDERED CAREFULLY BY A PROSPECTIVE INVESTOR IN EVALUATING A PURCHASE OF THE
SECURITIES.
COMPANY STOCK REPURCHASE
As discussed in "Shoen Litigation," the Company will repurchase 6,052,928
shares of its Common Stock on or before October 1, 1996 in satisfaction of a
judgment arising out of a lawsuit brought by certain significant shareholders of
the Company against certain of its current and former directors. The Company has
previously repurchased 12,202,048 shares of Common Stock from five of the
plaintiffs in the lawsuit in satisfaction of their claims. After completing all
of these repurchases, the Company will have acquired approximately 47.3% of its
outstanding Common Stock. The Company is not a defendant in this action.
The Company will acquire the remaining shares of Common Stock and will
satisfy the remainder of the judgment in full with the payment of approximately
$153.5 million, plus interest if ultimately awarded. The Company has sold
mortgage notes for proceeds of $83.5 million and has completed a $97.4 million
sale and subsequent leaseback of rental trailers to raise a portion of the cash
used to make the stock purchases to date. The remainder of the cash necessary to
satisfy the judgment will be raised from the sale of surplus or non-essential
assets including real estate and mortgage notes, from internally generated funds
and, to the extent necessary, from additional borrowings under the Company's
existing credit agreements.
In order to comply with covenants in the Company's current credit
agreements and to improve the likelihood that its existing debt ratings will be
maintained, the Company increased its equity by selling $100.0 million of its
Series B Convertible Preferred Stock in a private placement.
As a result of funding the repurchase, the Company will incur additional
costs in the future in the form of lease payments and/or interest. Furthermore,
following the repurchase, the Company's outstanding Common Stock will be reduced
by 6,052,928 shares in addition to the 12,202,048 shares repurchased from the
plaintiffs to date. In addition, the Company plans to deduct for income tax
purposes approximately $324.0 million of the payments already made and remaining
to be made by the Company to the plaintiffs, which will reduce the Company's
income tax liability. While the Company believes that such income tax deductions
are appropriate, there can be no assurance that any such deductions ultimately
will be allowed in full.
Furthermore, in the event the fair value of the consideration paid by the
Company to the plaintiffs is in excess of the fair value of the stock
repurchased by the Company, the Company will be required to record an expense
equal to that difference. No such expense was recorded for the previous
transactions with the plaintiffs and no provision has been made in the Company's
financial statements for any payments to be made to the plaintiffs in the
future. For the reasons set forth above, the repurchase could result in material
changes in the Company's financial condition, results of operations, cash flow,
capital expenditure plans, net income, or earnings per common share. See "Shoen
Litigation."
ENVIRONMENTAL MATTERS
The Company has since fiscal 1989 managed a testing and removal program
that is expected to result in the removal of all but approximately 100 of its
underground storage tanks ("USTs") by the year 2000. Under this program, the
Company budgets $7 million annually for UST testing, removal and remediation and
has removed a total of 2,296 USTs from April 1, 1989 through June 30, 1996 at a
total cost of approximately $26.2 million. At June 30, 1996, the Company owned
properties containing approximately 680 USTs. The USTs are used to store various
petroleum products, including gasoline, fuel oil, and waste oil, and a majority
of USTs have a capacity of less than 6,000 gallons. See
"Business -- Environmental Matters."
5
<PAGE> 42
SEASONALITY
The Company's U-Haul rental operations are seasonal and proportionally more
of the Company's revenues and net earnings from its rental operations are
generated in the first and second quarters of each fiscal year (April through
September). In addition, the Company's results of operations have in the past
been and will continue to be affected by a wide variety of factors, including
natural disasters (which affect, among other things, results of insurance
operations) and other events that are beyond the control of the Company.
LIMITED PRIOR MARKET
There has been no public market for any of the Company's securities other
than the Company's Series A 8 1/2% Preferred Stock which is trading on the New
York Stock Exchange under the symbol "AO/A" and a small percentage of the
Company's Common Stock which is trading on Nasdaq under the symbol "AMOO". There
is currently no established market for any Securities that may be offered
pursuant to this Prospectus. Although the Company may apply to have the
Securities offered hereby listed on a national securities exchange or approved
for quotation on Nasdaq, there can be no assurance that it will do so or that an
active trading market will develop or be maintained following such offering. The
absence of any trading market for any of the Securities may have an adverse
effect on the liquidity of such Securities.
USE OF PROCEEDS
The use of proceeds for a particular offering of Securities will be set
forth in the Prospectus Supplement relating to such offering.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratios of earnings to fixed
charges for the periods indicated. For purposes of computing the ratio of
earnings to fixed charges, "earnings" consists of pretax earnings from
operations plus total fixed charges excluding interest capitalized during the
period, and "fixed charges" consists of interest expense, capitalized interest,
amortization of debt expense and discounts, and one-third of the Company's
annual rental expense (which the Company believes is a reasonable approximation
of the interest factor of such rentals). The ratio for the three months ended
June 30, 1996 may not be indicative of the ratio to be expected for fiscal 1997
because, among other reasons, the Company's U-Haul rental operations are
seasonal and proportionally more of its earnings are generated in the first and
second quarters of each fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30, YEARS ENDED MARCH 31,
- ------------ ----------------------------------------------------------------
1996 1996 1995 1994 1993 1992
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
3.48 2.01 1.99 1.67 1.45 1.21
</TABLE>
6
<PAGE> 43
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial information, insofar as it relates to each
of the fiscal years ended March 31, 1996, 1995, 1994, 1993, and 1992, has been
derived from and is qualified by reference to the financial statements and other
information and data contained in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996, which is incorporated by reference herein.
The selected financial information related to the three months ended June 30,
1996 and 1995 has been derived from the Company's unaudited quarterly report on
Form 10-Q for the quarter ended June 30, 1996, which is incorporated by
reference herein. Oxford and RWIC have been consolidated on the basis of fiscal
years ended December 31. The summaries for the three months ended June 30, 1996
and 1995 are unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of such financial information have been
included. The results of operations for the three months ended June 30, 1996 may
not be indicative of the results to be expected for fiscal 1997 because, among
other reasons, the Company's U-Haul rental operations are seasonal and
proportionally more of its revenue and net earnings are generated in the first
and second quarters of each fiscal year.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
FOR THE YEARS ENDED MARCH 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1996(1) 1995 1994 1993 1992 1996 1995(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Rental, net sales and other revenue.... $1,094,185 $1,058,499 $ 967,743 $ 900,863 $ 845,128 $ 315,551 $ 288,427
Premiums and net investment income..... 200,238 177,733 162,151 139,465 126,756 44,157 42,082
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,294,423 1,236,232 1,129,894 1,040,328 971,884 359,708 330,509
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expense, advertising expense,
and cost of sales.................... 880,429 779,302 730,880 697,117 661,229 230,506 220,074
Benefits, losses and amortization of
deferred acquisition costs........... 168,363 144,303 130,168 115,969 99,091 27,280 30,169
Depreciation(2)........................ 81,847 151,409 133,485 110,105 109,641 18,779 37,693
Interest expense....................... 67,558 67,762 68,859 67,958 76,189 18,856 18,832
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,198,197 1,142,776 1,063,392 991,149 946,150 295,421 306,768
---------- ---------- ---------- ---------- ---------- ---------- ----------
Pretax earnings from operations........ 96,226 93,456 66,502 49,179 25,734 64,287 23,741
Income tax expense..................... (35,832) (33,424) (19,853) (17,270) (4,940) (24,282) (8,564)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings from operations before
extraordinary loss on early
extinguishment of debt and cumulative
effect of change in accounting
principle............................ 60,394 60,032 46,649 31,909 20,794 40,005 15,177
Extraordinary loss on early
extinguishment of debt(3)............ -- -- (3,370) -- -- -- --
Cumulative effect of change in
accounting principle(4).............. -- -- (3,095) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings........................... $ 60,394 $ 60,032 $ 40,184 $ 31,909 $ 20,794 $ 40,005 $ 15,177
========== ========== ========== ========== ========== ========== ==========
Ratios:
Ratio of earnings to fixed
charges(5)......................... 2.01 1.99 1.67 1.45 1.21 3.48 1.95
Ratio of EBITDA to Interest(6)....... 3.94 4.80 4.13 3.61 2.97 5.74 4.41
MARCH 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1996 1995 1994 1993 1992 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Balance Sheet Data:
Total property, plant and equipment,
net................................. $1,316,715 $1,274,246 $1,174,236 $ 989,603 $ 987,095 $1,249,816 $1,268,623
Total assets.......................... $2,827,978 2,605,989 2,344,442 2,024,023 1,979,324 2,714,443 2,678,930
Notes and loans payable............... 998,220 881,222 723,764 697,121 733,322 756,098 866,132
Stockholders' equity.................. 649,548 686,784 651,787 479,958 451,888 677,957 700,949
</TABLE>
- ---------------
(1) Reflects the adoption of Statement of Position 93-7, "Reporting on
Advertising Costs."
(2) Reflects the change in estimated salvage value during the year ended March
31, 1996.
(3) During fiscal 1994, the Company extinguished $25.2 million of its
medium-term notes originally due in fiscal 1995 through 2000. This resulted
in an extraordinary charge of $1.9 million, net of $1.0 million of tax
benefit. The Company also terminated swaps with a national value of $77.0
million originally due in fiscal 1995. The terminations resulted in an
extraordinary charge of $1.5 million net of a $0.8 million tax benefit.
(4) Reflects the adoption of Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other than Pensions."
(5) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consists of pretax earnings from operations plus total fixed charges
excluding interest capitalized during the period and "fixed charges"
consists of interest expense, capitalized interest, amortization of debt
expense and discounts and one-third of the Company's annual rental expense
(which the Company believes is a reasonable approximation of the interest
factor of such rentals).
(6) For purposes of computing the ratio of EBITDA to Interest, "EBITDA" consists
of net earnings (loss) before interest, taxes, depreciation, and
amortization. EBITDA is not intended to represent cash flow or any other
measure of performance in accordance with generally accepted accounting
principles. EBITDA is included herein because certain investors find it to
be a useful tool in understanding cash flow generated from operations that
is available for debt service, taxes and capital expenditures.
7
<PAGE> 44
BUSINESS
HISTORY
The Company was founded in 1945 under the name "U-Haul Trailer Rental
Company". From 1945 to 1975, the Company rented trailers and trucks on a one-way
and in-town (round-trip) basis through independent dealers (at that time
principally independent gasoline service stations). Since 1974, the Company has
developed a network of Company-owned rental centers ("U-Haul Centers") through
which U-Haul rents its trucks and trailers and provides a number of other
related products and services and has expanded the number and geographic
diversity of its independent dealers. At June 30, 1996, the Company's
distribution network included approximately 1,100 U-Haul Centers and
approximately 13,700 independent dealers.
In March 1974, in conjunction with the acquisition and construction of
U-Haul Centers, the Company entered the self-storage business. As of March 31,
1996, approximately 72% of the Company's U-Haul Centers were located at or near
U-Haul self storage locations. Beginning in 1974, the Company introduced the
sale and installation of hitches and towing systems, as well as the sale of
support items such as packing and moving aids. During 1983, the Company expanded
its range of do-it-yourself rental products to include tools and equipment for
the homeowner and small contractor and other general rental items.
In 1969, the Company acquired Oxford to provide employee health and life
insurance for the Company in a cost-effective manner. In 1973, the Company
formed RWIC to provide automobile liability insurance for the U-Haul truck and
trailer rental customers.
Commencing in 1987, the Company began the implementation of a strategic
plan designed to emphasize reinvestment in its core do-it-yourself rental,
moving, and storage business. The plan included a fleet renewal program (see
"Business -- U-Haul Operations -- Rental Equipment Fleet"), and provided for the
discontinuation of certain unprofitable and unrelated operations. As part of its
plan, the Company discontinued the operation of its full-service moving van
lines, initiated the phase out of its recreational vehicle rental operations,
and began the disposition of its recreational vehicle rental fleet. The
disposition of the moving van lines' assets and the recreational vehicle rental
fleet was completed in 1988 and 1992, respectively. The Company also eliminated
various types of rental equipment and closed certain warehouses and repair
facilities. The Company believes that its refocused business strategy enabled
U-Haul to generate higher revenues and to achieve significant cost savings.
Since 1987, the Company has sold surplus real estate assets with a book
value of approximately $43.6 million for total proceeds of approximately $87.9
million.
In 1990, the Company reorganized its operations into separate legal
entities, each with its own operating, financial, and investment strategies. The
reorganization separated the Company into three parts: U-Haul rental operations,
insurance, and real estate. The purpose of the reorganization was to increase
management accountability and to allow the allocation of capital based on
defined performance measurements.
BUSINESS STRATEGY
U-HAUL OPERATIONS
The Company's present business strategy remains focused on the
do-it-yourself moving customer. The objective of this strategy is to offer, in
an integrated manner over a diverse geographical area, a wide range of products
and services to the do-it-yourself moving customer.
Integrated Approach to Moving. Through its "Moving Made Easier(R)"
program, the Company strives to offer its customers a high quality, reliable,
and convenient fleet of trucks and trailers at reasonable prices while
simultaneously offering other related products and services, including moving
accessories, self-storage facilities, and other items often desired by the
do-it-yourself mover. The rental trucks purchased in the fleet renewal program
have been designed with the do-it-yourself customer in mind to include features
such as low decks, air conditioning, power steering, automatic transmissions,
soft suspensions, AM/FM cassette stereo systems, and over-the-cab storage. The
Company has introduced certain insurance products, including
8
<PAGE> 45
"Safemove(R)" and "Safestor(R)", to provide the do-it-yourself mover with
certain moving-related insurance coverage. In addition, the Company provides
rental customers the option of storing their possessions at either their points
of departure or destination.
Wide Geographic Distribution. The Company believes that the customer
access, in terms of truck or trailer availability and proximity of rental
locations, is critical to its success. Since 1987, the Company has more than
doubled the number of U-Haul rental locations, with a net addition of over 8,300
independent dealers.
High Quality Fleet. To effectively service the U-Haul customer at these
additional rental locations with equipment commensurate with the Company's
commitment to product excellence, the Company, as part of the fleet renewal
program, purchased approximately 80,000 new trucks between March 1987 and March
1996 and reduced the overall average age of its truck fleet from approximately
11 years at March 1987 to approximately five years at March 1996. During this
period, approximately 64,000 trucks were retired or sold.
Since 1990, U-Haul has replaced approximately 61% of its trailer fleet with
new, more aerodynamically designed trailers better suited to the low height
profile of many newly manufactured automobiles. Given the mechanical simplicity
of a trailer relative to a truck as well as a trailer's longer useful life, the
Company expects to replace trailers only as necessary.
Network Management System. Beginning in 1983, the Company implemented a
point-of-sale computer system for all of its Company-owned locations. The system
was designed primarily to handle the Company's reservations, traffic, and
reporting of rental transactions. The Company believes that the implementation
of the system has been a significant factor in allowing the Company to increase
its fleet utilization. On an ongoing basis, the Company is enhancing and
revising the system to include managerial tools, such as budgeting and profit
and loss reporting. The Company is also expanding the system to include
transaction reporting from independent dealers and managed storage facilities.
INSURANCE OPERATIONS
Oxford's business strategy emphasizes long-term capital growth funded
through earnings from reinsurance and investment activities. In the past, Oxford
has selectively reinsured life, health, and annuity-type insurance products.
Oxford anticipates pursuing its growth strategy by providing reinsurance
facilities to well-managed insurance or reinsurance companies which offer
similar products and are in need of additional capital, either as a result of
rapid growth or regulatory demands, or are interested in divesting non-core
business lines.
RWIC's principal business strategy is to capitalize on its knowledge of
insurance products aimed at the moving and rental markets. RWIC believes that
providing U-Haul and U-Haul customers with property and casualty insurance
coverage has enabled it to develop expertise in the areas of rental vehicle
lessee insurance coverage, self-storage property coverage, motor home insurance
coverage, and general rental equipment coverage. RWIC has used, and plans to
continue to use, this knowledge to expand its customer base by offering similar
products to insureds other than U-Haul and its customers. In addition, RWIC
plans to expand its involvement in specialized areas by offering commercial
multi-peril and excess workers' compensation.
U-HAUL OPERATIONS
GENERAL
The Company's do-it-yourself moving business operates under the U-Haul name
through an extensive and geographically diverse distribution network of
Company-owned U-Haul Centers and independent dealers throughout the United
States and Canada.
Substantially all of the Company's rental revenue is derived from
do-it-yourself moving customers. Other occasional use customers provide the
remaining rental revenue. Moving rentals include: (i) in-town (round-trip)
rentals, where the equipment is returned to the originating U-Haul Center or
independent dealer and (ii) one-way rentals, where the equipment is returned to
a U-Haul Center or independent dealer in another
9
<PAGE> 46
city. Typically, the number of in-town(R) rental transactions is substantially
greater than the number of one-way rental transactions. However, total revenues
generated by one-way transactions typically exceed total revenues from in-town
rental transactions.
As part of the Company's integrated approach to the do-it-yourself moving
market, U-Haul has a variety of product offerings. U-Haul's "Moving Made
Easier(R)" program is designed to offer clean, well-maintained rental trucks and
trailers at a price the customer can afford and to provide support items such as
furniture pads, hand trucks, appliance and utility dollies, mirrors, tow bars,
tow dollies, and bumper hitches. The Company also sells boxes, tape, and
packaging materials and rents additional items such as floor polishers and
carpet cleaning equipment at its U-Haul Center locations. U-Haul Centers also
sell and install hitches, sell propane, and some of them sell gasoline. U-Haul
sells insurance packages such as (i) "Safemove(R)", which provides moving
customers with a damage waiver, cargo protection, and medical and life coverage,
and (ii) "Safestor(R)", which provides self-storage rental customers with
various insurance coverages.
The U-Haul truck and trailer rental business tends to be seasonal with
proportionally more transactions and revenues generated in the spring and summer
months than during the balance of the year. The Company attributes this
seasonality to the preference of do-it-yourself movers to move during this time.
Also, consistent with do-it-yourself mover preferences, the number of rental
transactions tends to be higher on weekends than on weekdays.
RENTAL EQUIPMENT FLEET
As of June 30, 1996, U-Haul's rental equipment fleet consisted of
approximately 87,000 trucks and approximately 99,000 trailers. Rental trucks are
offered in five sizes and range in size from the ten-foot "Mini-Mover(R)" to the
twenty-six-foot "Super-Mover(R)". In addition, U-Haul offers pick-up trucks and
cargo vans at many of its locations. Trailers range between six feet and twelve
feet in length and are offered in both open and closed box configurations.
DISTRIBUTION NETWORK
The Company's U-Haul products and services are marketed across the United
States and Canada through approximately 1,100 Company-owned U-Haul Centers and
approximately 13,700 independent dealers as of June 30, 1996. The independent
dealers, which include gasoline station operators, general equipment rental
operators, and others, rent U-Haul trucks and trailers in addition to carrying
on their principal lines of business. U-Haul Centers, however, are dedicated to
the U-Haul line of products and services. Independent dealers are commonly
located in suburban and rural markets, while U-Haul Centers are concentrated in
urban and suburban markets.
Independent dealers receive U-Haul equipment on a consignment basis and are
paid a commission on gross revenues generated from their rentals. Independent
dealers also may earn referral commissions on U-Haul products and services
provided at other U-Haul locations. The Company maintains contracts with its
independent dealers that can be canceled upon thirty days' written notice by
either party.
In addition, the Company has sought to improve the productivity of its
rental locations by installing computerized reservations and network management
systems in each U-Haul Center and with a limited number of independent dealers.
The Company believes that these systems have been a major factor in enabling the
Company to deploy equipment more effectively throughout its network of locations
and anticipates expanding these systems to cover additional independent dealers.
The Company's U-Haul Center and independent dealer network in the United
States and Canada is divided into ten districts, each supervised by an area
district vice president. Within the districts, the Company has established local
marketing companies, each of which, guided by a marketing company president, is
responsible for retail marketing at all U-Haul Centers and independent dealers
within its respective geographic area.
Although rental dealers are independent, U-Haul area field managers work
with the dealer network by reviewing each independent dealer's facilities,
auditing their activities, and providing training on securing more
10
<PAGE> 47
customers on a regular basis. In addition, the area field managers recruit new
independent dealers for expansion or replacement purposes. U-Haul has instituted
performance compensation programs that focus on accomplishment and reward strong
performers.
SELF-STORAGE BUSINESS
U-Haul entered the self-storage business in 1974 and since that time has
increased the rentable square footage of its storage locations through the
acquisition of existing facilities and new construction. In addition, the
Company has entered into management agreements to manage self-storage properties
owned by others and is expanding its ownership of self-storage facilities. The
Company also provides financing and management services for independent
self-storage businesses.
Through approximately 800 Company-owned or managed storage locations in the
United States and Canada, the Company offers for rent more than 18.7 million
square feet of self-storage space as of June 30, 1996. The Company's
self-storage facility locations range in size from 1,000 to 149,000 square feet
of storage space, with individual storage spaces ranging in size from 16 square
feet to 200 square feet.
The primary market for storage rooms is the storage of household goods. The
majority of customers renting storage rooms are in the process of a move. Even
with an increase of over 25,000 new and acquired storage rooms during fiscal
1996, average occupancy remained high, rates in the mid 80% range, with very
little seasonal variation. During fiscal 1996 and fiscal 1995, delinquent
rentals as a percentage of total storage rentals were approximately 6% in each
year. The Company considers this rate to be satisfactory.
EQUIPMENT DESIGN, MANUFACTURE AND MAINTENANCE
The Company designs and manufactures its truck van boxes, trailers, and
various other support rental equipment items. With the needs of the
do-it-yourself moving customer in mind, the Company's equipment is designed to
achieve high safety standards, simplicity of operation, reliability,
convenience, durability, and fuel economy. Truck chassis are manufactured to
Company specifications by both foreign and domestic truck manufacturers. These
chassis receive certain post-delivery modifications and are joined with van
boxes at seven Company-owned manufacturing and assembly facilities in the United
States.
The Company services and maintains its trucks and trailers through an
extensive preventive maintenance program. Regular vehicle maintenance is
generally performed at Company-owned facilities located throughout the United
States and Canada. Major repairs are performed either by the chassis
manufacturers' dealers or by Company-owned repair shops. To the extent
available, the Company takes advantage of manufacturers' warranties.
COMPETITION
The do-it-yourself moving truck and trailer rental market is highly
competitive and dominated by national operators in both the in-town and one-way
markets. These competitors include the truck rental divisions of Ryder System,
Penske Truck Leasing, and Budget Rent-A-Car. Management believes that there are
two distinct users of rental trucks: commercial users and do-it-yourself users.
As noted above, the Company focuses on the do-it-yourself mover. The Company
believes that the principal competitive factors are price, convenience of rental
locations, and availability of quality rental equipment.
The self-storage industry is also highly competitive. The top three
national firms, including the Company, Public Storage and Shurgard, only account
for ten percent of total industry square footage. Efficient management of
occupancy and delinquency rates, as well as price and convenience, are key
competitive factors.
EMPLOYEES
For the period ended March 31, 1996, the Company's non-seasonal workforce
consisted of approximately 13,000 employees comprised of approximately 39%
part-time and 61% full-time employees. During the summer months, the Company
increases its workforce by approximately 450 employees and the percentage of
11
<PAGE> 48
part-time employees increases to approximately 43% of the total workforce. The
Company's employees are non-unionized, and management believes that its
relations with its employees are satisfactory.
INSURANCE OPERATIONS
OXFORD -- LIFE INSURANCE
Oxford underwrites life, health and annuity insurance, both as a direct
writer and as an assuming reinsurer. Oxford's direct writings are primarily
related to the underwriting of credit life and accident and health business
which accounted for 20.8% of Oxford's premium revenues for the year ended
December 31, 1995. Oxford's other direct lines are related to group life and
disability coverage issued to employees of the Company. For the year ended
December 31, 1995, approximately 7.2% of Oxford's premium revenues resulted from
business with the Company. In addition, direct premium revenue includes
individual life insurance acquired from other insurers. Oxford administers the
Company's self-insured group health and dental plans.
Oxford's reinsurance assumed lines, which accounted for approximately 71.8%
of Oxford's premium revenues for the year ended December 31, 1995, include
individual life insurance coverage, annuity coverages, excess loss health
insurance coverage, credit life, credit accident and health, and short-term
travel accident coverage. These reinsurance arrangements are entered into with
unaffiliated insurers, except for travel accident products reinsured from RWIC.
RWIC -- PROPERTY AND CASUALTY
RWIC's underwriting activities consist of three basic areas: U-Haul and
U-Haul-affiliated underwriting, direct underwriting, and assumed reinsurance
underwriting. U-Haul underwritings include coverage for U-Haul and U-Haul
employees, and U-Haul-affiliated underwritings consist primarily of coverage for
U-Haul customers. For the year ended December 31, 1995, approximately 39% of
RWIC's written premiums relate to insurance underwriting activities involving
U-Haul and its affiliates. RWIC's direct underwriting is done through home
office underwriters and selected general agents. The products provided include
liability coverage for rental vehicle lessees and storage rental properties, and
coverage for commercial multiple peril and excess workers' compensation. RWIC's
assumed reinsurance underwriting is done via broker markets and includes, among
other things, reinsurance of municipal bond insurance written through MBIA, Inc.
RWIC's liability for unpaid losses is based on estimates of the ultimate
cost of settling claims reported prior to the end of the accounting period,
estimates of reinsurers and estimates of incurred but unreported losses which
are based on RWIC's experience and insurance industry historical experience.
Unpaid loss adjustment expenses are based on historical ratios of loss
adjustment expense paid to losses paid.
The liabilities are estimates of the amount necessary to settle all claims
as of the date of the stated reserves and all incurred but not reported claims.
RWIC updates the reserves as additional facts regarding claims become available.
In addition, court decisions, economic conditions and public attitudes impact
the estimation of reserves and also the ultimate cost of claims. In estimating
reserves, no attempt is made to isolate inflation from the combined effect of
numerous factors including inflation. Unpaid losses and unpaid loss expenses are
not discounted.
RWIC's unpaid loss and loss expenses are certified annually by an
independent actuarial consulting firm as required by state regulation.
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<PAGE> 49
Activity in the liability for unpaid claims and claim adjustment expenses
is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1............................... $329,741 $314,482 $320,509
Less reinsurance recoverable..................... 74,663 76,111 81,747
-------- -------- --------
Net balance at January 1........................... 255,078 238,371 238,762
Incurred related to:
Current year..................................... 114,110 102,782 91,044
Prior years...................................... 8,292 6,576 12,688
-------- -------- --------
Total incurred..................................... 122,402 109,358 103,732
Paid related to:
Current year..................................... 22,576 22,269 20,200
Prior years...................................... 86,796 70,382 83,923
-------- -------- --------
Total paid......................................... 109,372 92,651 104,123
Net balance at December 31......................... 268,108 255,078 238,371
Plus reinsurance recoverable..................... 73,873 74,663 76,111
-------- -------- --------
Balance at December 31............................. $341,981 $329,741 $314,482
======== ======== ========
</TABLE>
As a result of changes in estimates of insured events in prior years, the
provision for unpaid loss and loss adjustment expenses (net of reinsurance
recoveries of $26.7 million and $26.5 million in 1995 and 1994, respectively)
increased by $8.3 million and $6.6 million in 1995 and 1994, respectively,
because of higher than anticipated losses and related expenses for claims
associated with assumed reinsurance and certain retrospectively rated policies.
The table on the next page illustrates the change in unpaid loss and loss
adjustment expenses. The first line shows the reserves as originally reported at
the end of the stated year. The second section, reading down, shows the
cumulative amounts paid as of the end of successive years with respect to that
reserve. The third section, reading down, shows revised estimates of the
original recorded reserve as of the end of successive years. The last section
compares the latest revised estimated reserve amount to the reserve amount as
originally established. This last section is cumulative and should not be
summed.
13
<PAGE> 50
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Adjustment Expenses:......... $123,342 $146,391 $168,688 $199,380 $207,939 $226,324
Paid (Cumulative) as of:
One year later............ 41,170 54,627 49,681 59,111 50,992 55,128
Two years later........... 77,697 92,748 91,597 89,850 87,850 97,014
Three years later......... 105,160 124,278 110,834 114,979 116,043 120,994
Four years later.......... 126,734 137,744 129,261 133,466 132,703 133,338
Five years later.......... 133,421 151,354 142,618 145,864 142,159 144,764
Six years later........... 142,909 161,447 152,579 153,705 151,227
Seven years later......... 151,379 169,601 158,531 161,498
Eight years later......... 158,728 173,666 165,021
Nine years later.......... 162,082 178,101
Ten years later........... 165,923
Reserve Reestimated as of:
One year later............ 138,287 167,211 187,663 200,888 206,701 229,447
Two years later........... 147,968 192,272 190,715 202,687 206,219 221,450
Three years later......... 168,096 192,670 194,280 203,343 199,925 211,998
Four years later.......... 168,040 199,576 195,917 199,304 198,986 207,642
Five years later.......... 175,283 201,303 195,203 200,050 197,890 200,629
Six years later........... 178,232 202,020 196,176 198,001 194,601
Seven years later......... 182,257 202,984 196,770 197,112
Eight years later......... 184,266 202,654 196,072
Nine years later.......... 187,247 203,285
Ten years later........... 188,301
Initial Reserve in Excess
of (Less than)
Reestimated Reserve:
Amount (Cumulative)......... $(64,959) $(56,894) $(27,384) $ 2,268 $ 13,338 $ 25,695
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Adjustment Expenses:......... $236,019 $238,762 $314,482 $329,741 $341,981
Paid (Cumulative) as of:
One year later............ 65,532 83,923 70,382 86,796
Two years later........... 105,432 123,310 115,467
Three years later......... 126,390 153,030
Four years later.......... 143,433
Five years later..........
Six years later...........
Seven years later.........
Eight years later.........
Nine years later..........
Ten years later...........
Reserve Reestimated as of:
One year later............ 231,779 251,450 321,058 338,033
Two years later........... 224,783 254,532 323,368
Three years later......... 223,403 253,844
Four years later.......... 214,854
Five years later..........
Six years later...........
Seven years later.........
Eight years later.........
Nine years later..........
Ten years later...........
Initial Reserve in Excess
of (Less than)
Reestimated Reserve:
Amount (Cumulative)......... $ 21,165 $(15,082) $ (8,886) $ (8,292)
</TABLE>
The operating results of the property and casualty insurance industry,
including RWIC, are subject to significant fluctuations due to numerous factors,
including premium rate competition, catastrophic and unpredictable events
(including man-made and natural disasters), general economic and social
conditions, interest rates, investment returns, changes in tax laws, regulatory
developments, and the ability to accurately estimate liabilities for unpaid
losses and loss adjustment expenses.
INVESTMENTS
Oxford's and RWIC's investments must comply with the insurance laws of the
State of Arizona where the companies are domiciled. These laws prescribe the
type, quality, and concentration of investments that may be made. In general,
these laws permit investments in federal, state, and municipal obligations,
corporate bonds, preferred and common stocks, real estate mortgages, and real
estate, within specified limits and subject to certain qualifications. Moreover,
in order to be considered an acceptable reinsurer by cedents and intermediaries,
a reinsurer must offer financial security. The quality and liquidity of invested
assets are important considerations in determining such security.
The investment philosophies of Oxford and RWIC emphasize protection of
principal through the purchase of investment grade fixed income securities.
Approximately 97% of Oxford's portfolio and 98% of RWIC's portfolio consist of
investment grade (NAIC-2 or greater) fixed income securities. The maturity
distributions are designed to provide sufficient liquidity to meet future cash
needs.
14
<PAGE> 51
REINSURANCE
The Company's insurance operations assume and cede insurance from and to
other insurers and members of various reinsurance pools and associations.
Reinsurance arrangements are utilized to provide greater diversification of risk
and to minimize exposure on large risks. However, the original insurer remains
liable should the assuming insurer not be able to meet its obligations under the
reinsurance agreements.
REGULATION
The Company's insurance subsidiaries are subject to considerable regulation
and supervision in the states in which they transact business. The purpose of
such regulation and supervision is primarily to provide safeguards for
policyholders. As a result of federal legislation, the primary regulation of the
insurance industry is performed by the states. State regulation extends to such
matters as licensing companies; restricting the types or quality of investments;
regulating capital and surplus and actuarial reserve maintenance; setting
solvency standards; requiring triennial financial examinations, market conduct
surveys, and the filing of reports on financial condition; licensing agents;
regulating aspects of the insurance companies' relationship with their agents;
restricting expenses, commissions, and new business issued; imposing
requirements relating to policy contents; restricting use of some underwriting
criteria; regulating rates, forms, and advertising; limiting the grounds for
cancellations or non-renewal of policies; regulating solicitation and
replacement practices; and specifying what constitutes unfair practices. State
laws also regulate transactions and dividends between an insurance company and
its parent or affiliates, and generally require prior approval or notification
for any change in control of the insurance subsidiary.
In the past few years, the insurance and reinsurance regulatory framework
has been subjected to increased scrutiny by the National Association of
Insurance Commissioners (the NAIC), state legislatures, insurance regulators,
and the United States Congress. State legislatures have considered or enacted
legislative proposals that alter, and in many cases increase, state authority to
regulate insurance companies and holding company systems. The NAIC and state
insurance regulators have been examining existing laws and regulations with an
emphasis on insurance company investment and solvency issues. Legislation has
been introduced in Congress that could result in the federal government assuming
some role in the regulation of the insurance industry. It is not possible to
predict the future impact of changing state and federal regulation on the
operations of Oxford and RWIC.
Oxford and RWIC have adopted the NAIC minimum risk-based capitalization
requirements for insurance companies. As of December 31, 1995, Oxford and RWIC
are in compliance with these requirements.
COMPETITION
The insurance industry is competitive. Competitors include a large number
of life insurance companies and property and casualty insurance companies, some
of which are owned by stockholders and others of which are owned by
policyholders (mutual). Many companies in competition with Oxford and RWIC have
been in business for a longer period of time or possess substantially greater
financial resources. Competition in the insurance business is based upon price,
product design, and services rendered to producers and policyholders.
AMERCO REAL ESTATE OPERATIONS
AREC owns and manages most of the Company's real estate assets, including
the Company's U-Haul Center locations. AREC has responsibility for acquiring and
developing properties suitable for new U-Haul Centers and self-storage
locations. AREC is also responsible for managing any environmental risks
associated with the Company's real estate. In addition to the U-Haul operations,
AREC actively seeks to lease or dispose of surplus properties.
15
<PAGE> 52
ENVIRONMENTAL MATTERS
UNDERGROUND STORAGE TANKS
The Company owns properties that, as of June 30, 1996, contained
approximately 680 underground storage tanks (USTs). The USTs are used to store
various petroleum products, including gasoline, fuel oil, and waste oil. The
USTs are subject to various federal, state, and local laws and regulations that
require testing and removal of leaking USTs, and remediation of polluted soils
and groundwater under certain circumstances. In addition, if leakage from USTs
has migrated, the Company may be subject to civil liability to third parties.
From April 1, 1989 through June 30, 1996, the Company incurred expenditures
totaling approximately $26.2 million for removal and remediation of 2,296 USTs,
a portion of which may be recovered from insurance and certain states' funds for
the removal of USTs. Expenditures incurred through the end of fiscal 1996 may
not be representative of future experience. However, the Company believes that
compliance with laws and regulations, and cleanup and liability costs related to
USTs will not have a material adverse effect on the Company's financial
condition or operating results.
In fiscal 1989, the Company began its current program emphasizing removal
of all but approximately 100 USTs by the year 2000. The USTs expected to remain
at the year 2000 are currently anticipated to consist primarily of waste oil
tanks not required to be removed under current laws and regulations and gasoline
tanks located at its remote rental locations where their use is deemed necessary
to service the Company's moving customers. The Company has budgeted $7.0 million
for fiscal 1997 for UST testing, removal, and remediation. Removal and
remediation costs are capitalized to the extent these costs improve the safety
or efficiency of the properties or are incurred in preparing the properties for
sale.
FEDERAL SUPERFUND SITES
The Company has been named as a "potentially responsible party" (PRP) with
respect to the disposal of hazardous wastes at fourteen federal superfund
hazardous waste sites located in eleven states. Under applicable laws and
regulations the Company could be held jointly and severally liable for the costs
to clean up these sites. Currently, the Company has entered into settlements for
nine of the sites for de minimis amounts. One of the sites has been disputed by
the Company with no response for eight years. Based upon the information
currently available to the Company regarding these fourteen sites, the current
anticipated magnitude of the cleanup, the number of PRPs, and the volumes of
hazardous waste currently anticipated to be attributed to the Company and other
PRPs, the Company believes its share of the cost of investigation and cleanup at
the fourteen superfund sites will not have a material adverse effect on the
Company's financial condition or operating results.
WASHINGTON STATE HAZARDOUS WASTE SITES
A subsidiary of U-Haul owns one property located within two different state
hazardous waste sites in the State of Washington. The property is located in
Yakima, Washington and is believed to contain elevated levels of pesticide and
other contaminant residue as a result of onsite operations conducted by one or
more former owners. The State of Washington has designated the property as a
state hazardous waste site known as the "Yakima Valley Spray Site". The
subsidiary, U-Haul Co. of Inland Northwest (Inland Northwest), has been named by
the State of Washington as a "potentially liable party" (PLP) under state law
with respect to this site, along with approximately 100 other companies and
individuals. Inland Northwest, together with eight other companies and persons,
has formed a committee that has retained an environmental consultant. The
process of site assessment on the Yakima Valley Spray Site is ongoing and, based
upon the information currently available to Inland Northwest regarding the
volume and nature of wastes present, Inland Northwest is unable to reasonably
assess the potential investigation and cleanup costs, but the costs could be
substantial. Although Inland Northwest has entered into an agreement with such
other companies and persons under which Inland Northwest has assumed
responsibility for 20% of the costs to investigate the site, no agreement among
the parties with respect to cleanup costs has been entered into at the date
hereof.
In addition, Inland Northwest has been named by the State of Washington as
a PLP along with 300 other PLPs with respect to another state-listed hazardous
waste site known as the "Yakima Railroad Site". The
16
<PAGE> 53
Yakima Valley Spray Site is located within the Yakima Railroad Site. Inland
Northwest has been notified that the Yakima Railroad Site involves potential
groundwater contamination in an area of approximately two square miles. Inland
Northwest has contested its designation as a PLP at this site, but, at the date
hereof, no formal ruling has been issued in this matter.
In February 1992, the State of Washington issued an enforcement order to
Inland Northwest and eight other parties requiring an interim remedial action
and the provision of bottled water to households that obtain drinking water from
wells within the Yakima Railroad Site. Without conceding any liability, Inland
Northwest and several of the other PLPs have implemented the bottled water
program. Over the past four years, Inland Northwest has incurred an average
annual expense of $720 for the bottled water program. The State of Washington
has stated its intention to expand the existing municipal water system to supply
municipal water to those households currently receiving bottled water, and it is
estimated that the cost thereof will be approximately $6 million, with such cost
being allocated among the 300 PLPs.
In addition, there will be costs associated with remedial measures to
address the regional groundwater contamination issue. The process of site
assessment on the Yakima Railroad Site is ongoing and, based upon the
information currently available to Inland Northwest regarding the volume and
nature of wastes present, Inland Northwest is unable to reasonably assess the
potential investigation and clean-up costs, but the costs could be substantial.
Moreover, the investigative and remedial costs incurred by the State can be
imposed upon Inland Northwest and any other PLP as a joint and several
liability. At the date of this report, other than the indication of the
expansion of the municipal water system, there has been no formal indication
from the State of Washington of its intentions regarding future cost recoveries
at the Yakima Railroad Site.
OTHER
Subsidiaries of the Company own twelve facilities that manufacture and
assemble various components of the Company's equipment. In addition, the
subsidiaries own various facilities engaged in the maintenance and servicing of
its equipment. Various individual properties owned and operated by the Company
are subject to various state and local laws and regulations relating to the
methods of disposal of solvents, tires, batteries, antifreeze, waste oils and
other materials. Compliance with these requirements is monitored and enforced at
the local level. Based upon information currently available to the Company,
compliance with these local laws and regulations has not had, and is not
expected to have, a material adverse effect on the Company's financial condition
or operating results.
AREC currently leases approximately 200 properties to various businesses.
AREC has a policy of leasing properties subject to an environmental
indemnification from the lessee for operations conducted by the lessee. It
should be recognized, however, that such indemnifications do not cover
pre-existing conditions and may be limited by the lessee's financial
capabilities. In any event, to the extent that any lessee does not perform any
of its obligations under applicable environmental laws and regulations, the
Company may remain potentially liable to governmental authorities and other
third parties for environmental conditions at the leased properties.
Furthermore, as between the Company and its lessees, disputes may arise as to
allocation of liability with respect to environmental conditions at the leased
properties.
SHOEN LITIGATION
A judgment was entered on February 21, 1995, in an action in the Superior
Court of the State of Arizona, Maricopa County, entitled Samuel W. Shoen, M.D.,
et al. v. Edward J. Shoen, et al., No. CV88-20139, instituted August 2, 1988
(the "Shoen Litigation") against Edward J. Shoen, James P. Shoen, Aubrey K.
Johnson, John M. Dodds, and William E. Carty, who are current members of the
Board of Directors of the Company and against Paul F. Shoen, who is a former
director. The Company was also a defendant in the action as originally filed,
but was dismissed from the action on August 15, 1994. The plaintiffs alleged,
among other things, that certain of the individual plaintiffs were wrongfully
excluded from sitting on the Company's Board of Directors in 1988 through the
sale of Company Common Stock to certain key employees. That sale allegedly
prevented the plaintiffs from gaining a majority position in the Company's
Common Stock and control of the Company's Board of Directors. The plaintiffs
alleged various breaches of fiduciary duty and
17
<PAGE> 54
other unlawful conduct by the individual defendants and sought equitable relief,
compensatory damages, punitive damages, and statutory post-judgment interest.
Based on the plaintiffs' theory of damages, the court ruled that the
plaintiffs elected as their remedy in this lawsuit to transfer their shares of
stock in the Company to the defendants upon the satisfaction of the judgment.
The judgment was entered against the defendants in the amount of approximately
$461.8 million plus interest and taxable costs. In addition, on February 21,
1995, judgment was entered against Edward J. Shoen in the amount of $7 million
as punitive damages. On March 23, 1995, Edward J. Shoen filed a notice of appeal
with respect to the award of punitive damages.
Pursuant to separate indemnification agreements, the Company has agreed to
indemnify the defendants to the fullest extent permitted by law or the Company's
Articles of Incorporation or By-Laws, for all expenses and damages incurred by
the defendants in this proceeding, subject to certain exceptions. In addition,
the transfer of Common Stock from the plaintiffs to the defendants would
implicate rights held by the Company. For example, pursuant to the Company's
By-Laws, the Company has certain rights of first refusal with respect to the
transfer of the plaintiffs' stock. Furthermore, the defendants' rights to
acquire the plaintiffs' stock may present a corporate opportunity which the
Company is entitled to exercise.
On February 21, 1995, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson,
John M. Dodds, and William E. Carty (the "Director-Defendants") filed for
protection under Chapter 11 of the federal bankruptcy laws, resulting in the
issuance of an order automatically staying the execution of the judgment against
those defendants. In late April 1995, the Director-Defendants, in cooperation
with the Company, filed plans of reorganization in the United States Bankruptcy
Court for the District of Arizona, all of which propose the same funding and
treatment of the plaintiffs' claims resulting from the judgment in the Shoen
Litigation. The plans of reorganization, as amended and restated on February 29,
1996, were confirmed by the bankruptcy court on March 15, 1996. The plans, as
confirmed, shall collectively be referred to as the "Plan".
On April 25, 1995, the Director-Defendants filed an action in the
bankruptcy court seeking injunctive relief to prevent the Company from
conducting its annual meetings of stockholders until the Plan is confirmed
and/or to prevent the plaintiffs from voting the common stock that they are
required to transfer pursuant to the Shoen Litigation. On June 8, 1995, the
bankruptcy court issued a memorandum decision and an order enjoining the Company
from holding its 1994 Annual Meeting of Stockholders (which was originally
delayed as a result of litigation initiated by Paul F. Shoen) or any subsequent
annual meeting of stockholders until the court enters an order confirming or
denying confirmation of the Plan or until further order of the court. On June
21, 1996, the bankruptcy court issued an order enjoining the annual meetings
until consummation of the Plan. The Company has not scheduled the 1994, 1995, or
1996 Annual Meetings of Stockholders. However, the Company anticipates that such
meetings will occur as soon as practicable after the consummation of the Plan.
In early October 1995, the Director-Defendants made written demand upon the
Company to make them whole for losses resulting from the judgment in the Shoen
Litigation. The Director-Defendants also asserted substantial claims against the
Company related to or arising from the Shoen Litigation, including, but not
limited to, claims for financial losses, emotional distress, loss of business
and/or professional reputation, loss of credit standing and breach of contract.
The Director-Defendants claim that their actions that form the basis for the
judgment in the Shoen Litigation were actions within the scope of the
Director-Defendants' duties and that such actions were undertaken in good faith
and for the benefit of the Company.
In addition, the Director-Defendants had retained unexpired appeal rights
with respect to the Shoen Litigation. If the Director-Defendants exercised such
appeal rights, the damage award may have increased and the Company may have been
exposed to increased liability to the Director-Defendants under existing
indemnity agreements.
In recognition of the foregoing and of the substantial risks associated
with an appeal of the Shoen Litigation, on October 17, 1995, the Company entered
into an agreement ("the Agreement") with the Director-Defendants resolving the
foregoing issues. Under the Agreement, the Company agreed, among other things,
to fund the Plan and to release the Director-Defendants from all claims the
Company may have against
18
<PAGE> 55
them arising from the Shoen Litigation. In addition, the Director-Defendants
agreed, (i) to release, subject to certain exceptions, the Company from any
claim they may have against it pursuant to any indemnification agreements, (ii)
to assign all rights they have under the Shoen Litigation to the Company, (iii)
to waive all appeal rights related to the Shoen Litigation (not including Edward
J. Shoen's appeal of the punitive damage award), and (iv) not to oppose the
Company should it elect to exercise its right of first refusal on any Common
Stock to be transferred by the plaintiffs upon satisfaction of the judgment in
the Shoen Litigation.
On September 19, 1995, the Director-Defendants entered into a Stock
Purchase Agreement with one of the plaintiffs in the Shoen Litigation, Maran,
Inc., a Nevada corporation ("Maran"). All of Maran's voting stock was held by
Mary Anna Shoen Eaton ("Shoen Eaton"), who was also a plaintiff in the Shoen
Litigation. Under the Stock Purchase Agreement, the Director-Defendants agreed
to purchase 3,343,076 shares of Common Stock held by Maran in exchange for
approximately $22.7 million. The Stock Purchase Agreement was approved by the
bankruptcy court on October 10, 1995. On October 18, 1995, the Company exercised
its right of first refusal and repurchased the Common Stock that was the subject
of the Stock Purchase Agreement for the price set forth therein. In addition, on
September 19, 1995, the Director-Defendants, Shoen Eaton, Maran, and the Company
entered into a Settlement Agreement, providing for the payment to Shoen Eaton of
approximately $41.4 million in exchange for a full release of all claims against
the Company and the Director-Defendants, including all claims asserted by her in
the Shoen Litigation. The Settlement Agreement was approved by the bankruptcy
court on October 10, 1995, and the payment was made on October 18, 1995. As a
result of the foregoing, and after giving effect to the discount achieved
through settlement, approximately $84.6 million of the judgment in the Shoen
Litigation was satisfied.
Pursuant to the judgment in the Shoen Litigation, on January 30, 1996, the
Company acquired 833,420 shares of Common Stock held by L.S.S., Inc. ("L.S.S.")
in exchange for approximately $5.7 million and paid damages to L.S. Shoen of
approximately $15.4 million. The Company also funded a total of approximately
$2.1 million of statutory post-judgment interest on the above amounts. In
addition, on February 7, 1996, the Company acquired 1,651,644 shares of Common
Stock held by Thermar, Inc. ("Thermar") by paying Thermar approximately $41.8
million, including damages of approximately $30.6 million. The Company also paid
to Thermar approximately $4.1 million of statutory post-judgment interest on
such amount. On July 19, 1996, the Company paid CEMAR, Inc. ("Cemar")
approximately $15.9 million to repurchase 2,331,984 shares of Common Stock held
by Cemar. On the same date, the Company paid damages to Cecilia M. Hanlon of
approximately $43.1 million and statutory post-judgment, pre-petition date
interest of $129,000. On August 6, 1996, the Company funded approximately $8.3
million of post-petition date interest by depositing such amount into an escrow
account pending the outcome of a dispute involving the entitlement of the
plaintiffs in the Shoen Litigation to post-petition date interest. Upon the
funding of the above-mentioned escrow account, the Common Stock held by Cemar
was transferred into the Company treasury. Finally, on September 6, 1996, the
Company paid Katabasis International, Inc. ("Katabasis") approximately $27.5
million to repurchase 4,041,924 shares of Common Stock held by Katabasis. On the
same date, the Company paid damages to Samuel W. Shoen of approximately $74.8
million and paid statutory post-judgment, pre-petition date interest of
$224,000. The Company also funded approximately $15.7 million of post-petition
date interest into the escrow account described above. As a result of the
foregoing transactions, the balance of the judgment has been reduced to
approximately $153.5 million, plus post-petition date interest claimed by the
plaintiffs.
With respect to the remaining plaintiffs in the Shoen Litigation, the Plan
provides for the payment by the Company of approximately $41.2 million in
exchange for 6,052,928 shares of Common Stock held by four of the plaintiffs and
for the payment by the Company of approximately $112.3 million to two of the
plaintiffs as damages.
As of the date hereof, an issue remains regarding whether or not Cecilia M.
Hanlon, Samuel W. Shoen, and the remaining plaintiffs are entitled to statutory
post-judgment interest at the rate of 10% per year for the period following the
Director-Defendants' bankruptcy filings. As of September 6, 1996, total accrued
post-petition date interest on the outstanding balance of the judgment is
approximately $23.5 million and is accruing at the rate of approximately $42,000
per day. On July 19, 1996 the bankruptcy court ruled that the plaintiffs are
entitled to such post-petition date interest. The Director-Defendants and the
Company intend to
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appeal the bankruptcy court's decision. Pending the final resolution of the
post-petition date interest dispute (including all appeals by either side), the
Company intends, if necessary, to deposit either cash or, in appropriate
circumstances, an irrevocable letter of credit into an escrow account to secure
payment of the post-petition date interest. The amount of the escrow deposit
would be in such case equal to the accrued interest to the date funds are
deposited into escrow. As provided in the Plan, the escrow deposit, plus
interest thereon, will remain until all aspects of the post-petition date
interest dispute have been finally decided, including dischargeability
litigation which the plaintiffs filed against the Director-Defendants in the
bankruptcy court as an alternative means of trying to collect post-petition date
interest. The dischargeability litigation has not been set for trial and is
likely to await the outcome of the other aspects of the post-petition date
interest dispute.
On March 15, 1996, the bankruptcy court issued a Confirmation Order in each
Director-Defendant's Chapter 11 case. This order provided that the effective
date for the Plan (i.e., the date on which the Company must have paid the
plaintiffs an aggregate of approximately $153.5 million and the remaining
plaintiffs must have surrendered their Common Stock) will be no later than
October 1, 1996 (absent compelling circumstances justifying an extension of that
date).
The Company has sold mortgage notes for proceeds of $83.5 million and has
completed a $97.4 million sale and subsequent leaseback of rental trailers to
raise a portion of the cash needed to fund the Plan. The remainder of the cash
will be raised from the sale of surplus or non-essential assets including real
estate and mortgage notes, from internally generated funds and, to the extent
necessary, from additional borrowings under the Company's existing credit
agreements.
In order to comply with covenants in the Company's current credit
agreements and to improve the likelihood that its existing debt ratings will be
maintained, the Company increased its equity by selling $100.0 million of its
Series B Convertible Preferred Stock in a private placement.
As a result of funding the Plan, the Company will incur additional costs in
the future in the form of lease payments and/or interest. Furthermore, following
the repurchase, the Company's outstanding Common Stock will be reduced by
6,052,928 shares in addition to the 3,343,076 shares repurchased from Maran on
October 18, 1995, the 833,420 shares repurchased from L.S.S. on January 30,
1996, the 1,651,644 shares repurchased from Thermar on February 7, 1996, the
2,331,984 shares repurchased from Cemar on August 6, 1996, and the 4,041,924
shares repurchased from Katabasis on September 6, 1996. In addition, the Company
plans to deduct for income tax purposes approximately $324.0 million of the
payments already made and remaining to be made by the Company to the plaintiffs,
which will reduce the Company's income tax liability. While the Company believes
that such income tax deductions are appropriate, there can be no assurance that
any such deductions ultimately will be allowed in full.
Furthermore, in the event the fair value of the consideration paid by the
Company to the plaintiffs is in excess of the fair value of the stock
repurchased by the Company, the Company will be required to record an expense
equal to that difference. No such expense was recorded for the previous
transactions with the plaintiffs and no provision has been made in the Company's
financial statements for any payments to be made to the plaintiffs in the
future. For the reasons set forth above, the repurchase could result in material
changes in the Company's financial condition, results of operations, cash flow,
capital expenditure plans, net income, or earnings per common share.
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DESCRIPTION OF SECURITIES
The following is a description of certain general terms of the Securities
to which any Prospectus Supplement may relate. The particular terms of the
Securities offered by any Prospectus Supplement (the "Offered Securities") and
the extent, if any, to which such general provisions may apply to the Securities
so offered will be described in the Prospectus Supplement relating to such
Offered Securities.
The Offered Securities are to be issued under an indenture (the
"Indenture"), between the Company and The First National Bank of Chicago, as
trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement. The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all provisions of the Indenture, including the
definitions therein of certain terms. Wherever particular provisions or defined
terms of the Indenture are referred to, such provisions or defined terms are
incorporated herein by reference. Certain defined terms in the Indenture are
capitalized herein.
GENERAL
Unless otherwise indicated in the Prospectus Supplement relating to Offered
Securities, the Securities will be unsecured obligations of the Company.
The Indenture does not limit the amount of Securities that may be issued
thereunder and provides that Securities may be issued thereunder from time to
time in one or more series.
Reference is made to the Prospectus Supplement relating to the Offered
Securities for the following terms, where applicable, of the Offered Securities:
(1) the title of the Offered Securities; (2) any limit on the aggregate
principal amount of the Offered Securities; (3) the Person to whom any interest
on any Offered Security will be payable, if other than the Person in whose name
such Offered Security (or one or more Predecessor Securities) is registered at
the close of business on the Regular Record Date for such interest; (4) the date
or dates on which the Offered Securities will mature; (5) the rate or rates
(which may be fixed or variable) at which the Offered Securities will bear
interest, if any, and the date or dates from which such interest will accrue;
(6) the dates on which such interest, if any, will be payable and the Regular
Record Dates for such Interest Payment Dates; (7) the place or places where the
principal of (and premium, if any) and interest on the Offered Securities shall
be payable, where any Offered Securities may be surrendered for registration of
transfer or exchange and where notices to or demand upon the Company may be
delivered; (8) the period or periods within which, the price or prices at which,
and the terms and conditions upon which, the Offered Securities may be redeemed
in whole or in part, at the option of the Company; (9) the obligation, if any,
of the Company to redeem or purchase such Offered Securities pursuant to any
sinking fund or analogous provision or at the option of a Holder thereof and the
period or periods within which, the price or prices at which, and the terms and
conditions upon which, such Offered Securities shall be redeemed or purchased,
in whole or in part, pursuant to such obligation; (10) the denominations in
which such Offered Securities will be issuable, if other than denominations of
$1,000 and any integral multiples thereof; (11) the portion of the principal
amount of the Offered Securities, if other than the entire principal amount
thereof, payable upon acceleration of maturity thereof; (12) the right of the
Company to defease the Offered Securities or certain restrictive covenants and
certain Events of Default under the Indenture; (13) the currency or currencies
in which payment of principal and premium, if any, and interest on the Offered
Securities will be payable, if other than United States dollars; (14) if the
principal of (and premium, if any) or interest, if any, on such Offered
Securities is to be payable, at the election of the Company or a Holder thereof,
in a currency or currencies other than that in which such Offered Securities are
stated to be payable, the currency or currencies in which payment of the
principal of (and premium, if any) or interest, if any, on such Offered
Securities as to which such election is made will be payable and the period or
periods within which, and the terms and conditions upon which, such election may
be made; (15) any index used to determine the amount of payments of principal of
and premium, if any, and interest, if any, on the Offered Securities; (16) if
the Offered Securities will be issuable only in the form of a Global Security as
described under "Book-Entry Securities," the Depository or its nominee with
respect to the Offered Securities, and the circumstances under which the Global
Security may be registered for transfer or exchange in the name of a
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Person other than the Depository or its nominee; (17) any additional Events of
Default; and (18) any other terms of the Offered Securities.
Unless otherwise indicated in the Prospectus Supplement relating to Offered
Securities, principal of and premium, if any, and interest, if any, on the
Securities will be payable, and the Securities will be exchangeable and
transfers thereof will be registrable, at the office of the Trustee at One First
National Plaza, Chicago, Illinois 60670-0126, provided that, at the option of
the Company, payment of interest may be made by: (1) wire transfer on the date
of payment in immediately available federal funds or next day funds to an
account specified by written notice to the Trustee from any Holder of
Securities; (2) any similar manner that such Holder may designate in writing to
the Trustee; or (3) by check mailed to the address of the Person entitled
thereto as it appears in the Security Register. Any payment of principal and
premium, if any, and interest, if any, required to be made on an Interest
Payment Date, Redemption Date, or at Maturity that is not a Business Day need
not be made on such day, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date,
Redemption Date, or at Maturity, as the case may be, and no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, or Maturity.
Unless otherwise indicated in the Prospectus Supplement relating to Offered
Securities, the Securities will be issued only in fully registered form, without
coupons, in denominations of $1,000 or any integral multiple thereof. No service
charge will be made for any transfer or exchange of Securities, but the Company
may require payment of a sum sufficient to cover any tax or other government
charge payable in connection therewith.
Securities may be issued under the Indenture as Original Issue Discount
Securities to be offered and sold at a substantial discount from their stated
principal amount. In addition, under Treasury Regulations, it is possible that
Securities that are offered and sold at their stated principal amount would,
under certain circumstances, be treated as issued at an original issue discount
for federal income tax purposes. Federal income tax consequences and other
special considerations applicable to any such Original Issue Discount Securities
(or other Securities treated as issued at an original issue discount) and to
"investment units" will be described in the Prospectus Supplement relating
thereto. "Original Issue Discount Security" means any security that provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof upon the occurrence of an
Event of Default and the continuation thereof.
BOOK-ENTRY SYSTEM
The Securities will be represented by one or more permanent global notes
(each, a "Global Security") deposited with, or on behalf of, The Depository
Trust Company, as Depository under the Indenture (the "Depository"), and
registered in the name of the Depository's nominee. Except as set forth below,
(1) owners of beneficial interests in a Global Security will not be entitled to
have Securities represented by such Global Security registered in their names,
will not receive or be entitled to receive physical delivery of Securities in
definitive form and will not be considered the owners or holders thereof under
the Securities Indenture and the Supplemental Indenture and (2) each Global
Security may be transferred, in whole and not in part, only to another nominee
of the Depository or to a successor of the Depository or its nominee.
Accordingly, beneficial interests in the Securities will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depository and its participants. The laws of some states require certain
purchasers of securities to take physical delivery thereof in definitive form.
The depository arrangements described above and such laws may impair the ability
to own or transfer beneficial interests in a Global Security. Owners of
beneficial interests in any Global Security will not be entitled to receive
Securities in definitive form and will not be considered holders of Securities
unless (1) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for such Global Security or if at any time the Depository
ceases to be a clearing agency registered under the Exchange Act, (2) the
Company executes and delivers to the Trustee a Company Order that such Global
Security shall be so exchangeable or (3) there shall have occurred and be
continuing an Event of Default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default with respect to the
Securities (a "Default"). In such
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circumstances, upon surrender by the Depository or a successor depository of any
Global Security, Securities in definitive form will be issued to each person
that the Depository or a successor depository identifies as the beneficial owner
of the related Securities. Upon such issuance, the Trustee is required to
register such Securities in the name of, and cause such Securities to be
delivered to, such person or persons (or nominees thereof). Such Securities
would be issued in fully registered form without coupons, in denominations of
$1,000 and integral multiples thereof.
The Depository is a limited-purpose trust company organized under the laws
of the State of New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of section 17A of the Exchange Act. The
Depository was created to hold securities for its participants (the
"Participants") and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the need
for physical movement of securities certificates. The Depository's direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own the Depository. Access to the Depository's book-entry
system is also available to others (the "Indirect Participants"), such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. The Depository
agrees with and represents to its Participants that it will administer its
book-entry system in accordance with its rules and by-laws and requirements of
law.
Principal and interest payments on Securities registered in the name of or
held by the Depository or its nominee will be made to the Depository or its
nominee, as the case may be, as the registered owner of the Global Security
representing such Securities. Under the terms of the Securities Indenture and
the Supplemental Indenture, the Company and the Trustee will treat the persons
in whose names the Securities are registered as the holders of such Securities
for the purpose of receiving payment of principal and interest on such
Securities and for all other purposes whatsoever. Therefore, none of the
Company, the Trustee or any paying agent has any direct responsibility or
liability for the payment of principal of or interest on the Securities to
owners of beneficial interests in any Global Security. The Depository has
advised the Company and the Trustee that its current practice is to credit the
accounts of Participants with payments of principal or interest on the date
payable in amounts proportionate to their respective holdings in principal
amount of beneficial interests in a Global Security as shown in the records of
the Depository, unless the Depository has reason to believe that it will not
receive payment on such date. The Depository's current practice is to credit
such accounts, as to interest, in next-day funds and, as to principal, in
same-day funds. Payments by Participants and Indirect Participants to owners of
beneficial interests in a Global Security will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name" and
will be the responsibility of the Participants and Indirect Participants.
The Depository has advised the Company that it will take any action
permitted to be taken by an owner or Holder of Securities only at the direction
of one or more Participants to whose account with the Depository such Holder's
Securities are credited. Additionally, the Depository has advised the Company
that it will take such actions with respect to any percentage of the beneficial
interest of holders who hold Securities through Participants only at the
direction of and on behalf of Participants whose account holders include
undivided interests that satisfy any such percentage. The Depository may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Participants whose account Holders include
such undivided interests.
PURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control Triggering Event, each Holder
shall have the right to require the Company to purchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Securities pursuant
to the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the purchase date (the "Change of Control Purchase Price").
Without the appropriate consent of the Holders of the Securities, neither the
Board of Directors of the Company nor the Trustee may waive the provisions of
the Indenture
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requiring the Company to make a Change of Control Offer upon a Change of Control
Triggering Event. Events that constitute a Change of Control may not require
approval by the Company's Board of Directors.
Within 30 days following any Change of Control Triggering Event, the
Company shall (i) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service in the
United States and (ii) mail a notice to the Trustee and each Holder stating: (1)
that a Change of Control Triggering Event has occurred and a Change of Control
Offer is being made pursuant to the covenant in the Indenture entitled "Purchase
of Securities at the Option of Holders Upon a Change of Control" and that all
Securities timely tendered will be accepted for payment; (2) the purchase price
and the purchase date, which date shall be, subject to any contrary requirements
of applicable law, a business day no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"); (3)
that any Securities (or portion thereof) accepted for payment (and duly paid on
the Change of Control Payment Date) pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (4)
that any Securities (or portions thereof) not tendered will continue to accrue
interest; (5) a description of the transaction or transactions constituting the
Change of Control Triggering Event; and (6) the procedures that holders of
Securities must follow in order to tender their Securities (or portions thereof)
for payment and the procedures that Holders of Securities must follow in order
to withdraw an election to tender Securities (or portions thereof) for payment.
The Company will comply, to the extent then applicable and required by law,
with the requirements of Rule 14e-1 under the Exchange Act, and any other
securities laws and regulations thereunder in connection with the purchase of
Notes pursuant to the Change of Control Offer. To the extent that the provisions
of any securities laws or regulations conflict with the provisions relating to
the Change of Control Offer, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described above by virtue thereof.
Except as described above with respect to a Change of Control Triggering
Event, the Indenture does not contain any other provisions that permit the
Holders of the Securities to require that the Company purchase or redeem the
Securities in the event of a takeover, recapitalization or similar
restructuring.
Management has no present intention to engage in a transaction involving a
Change of Control, although it is possible that the Company would decide to do
so in the future. Subject to the limitations discussed below, the Company could,
in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of indebtedness
for money borrowed outstanding at such time or otherwise affect the Company's
capital structure or credit ratings. The Indenture does not contain any
covenants or provisions that may afford holders of the Securities protection in
the event of a highly leveraged transaction.
The Company may not currently have adequate financial resources to effect a
repurchase of the Securities upon a Change of Control Triggering Event and there
can be no assurance that the Company will have such resources in the future. The
inability of the Company to repurchase the Securities upon a Change of Control
Triggering Event would constitute an Event of Default.
The occurrence of certain of the events that would constitute a Change of
Control could trigger a prepayment obligation under certain of the Company's
credit agreements and debt obligations, and failure to effect such prepayment
could constitute an event of default under such credit agreements and debt
obligations. If the Company is not able to obtain requisite consents or waivers
from the lenders under such credit agreements and the holders of such debt
obligations, the Company may be unable to fulfill its repurchase obligations
following a Change of Control Triggering Event, thereby resulting in a default
under the Indenture and permitting the pursuit of remedies under the Indenture
in the manner described under "Description of Securities -- Events of Default."
Future indebtedness of the Company may also contain prohibitions of certain
events that would constitute a Change of Control or require such indebtedness to
be repurchased upon a Change of Control. Moreover, the exercise by the holders
of Securities of their right to require the Company to repurchase the Securities
could cause a default under such indebtedness, even if the Change of Control
Triggering Event itself does not, due to the financial effect of such repurchase
on the Company. Finally, the Company's ability to pay cash to the holders upon a
repurchase may be limited by the Company's then
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existing financial resources. In the event that a Change of Control Offer occurs
at a time when the Company does not have sufficient available funds to pay the
Change of Control Purchase Price for all Securities tendered pursuant to such
offer or a time when the Company is prohibited from purchasing the Securities
(and the Company is unable either to obtain the consent of the holders of the
relevant indebtedness or to repay such indebtedness), an Event of Default would
occur under the Indenture.
COVENANTS
The Indenture contains certain restrictive covenants that are set forth
below. Any additional restrictive covenants relating to any series of Securities
will be described in the Prospectus Supplement relating to such series. If any
such covenants are described, the Prospectus Supplement will also state whether
the "covenant defeasance" provisions described below will apply.
Limitation on Liens Securing Indebtedness. The Company will not, and will
not permit any Consolidated Subsidiary to, create or incur, or suffer to be
incurred or to exist, at any time, any Lien on its or their property, whether
now owned or hereafter acquired, or upon any income or profits therefrom, to
secure the payment of any indebtedness for money borrowed of the Company or of
any Consolidated Subsidiary or of any other Person, unless all obligations of
the Company on or in respect of the Securities are equally and ratably and
validly secured by such Lien by proceedings and documents reasonably
satisfactory to the Trustee, except that the provisions of this paragraph shall
not prohibit the following:
(a) Liens existing as of the Issue Date securing indebtedness for
money borrowed of the Company and its Consolidated Subsidiaries outstanding
on such date;
(b) Liens (i) incurred after the Issue Date given (on or within 120
days of the date of acquisition, construction or improvement) to secure the
payment of the purchase price or construction costs incurred by the Company
or a Consolidated Subsidiary in connection with the acquisition,
construction or improvement of real and personal property useful and
intended to be used in carrying on the business of the Company or such
Consolidated Subsidiary, or (ii) on fixed assets useful and intended to be
used in carrying on the business of the Company or a Consolidated
Subsidiary existing at the time of acquisition or construction thereof by
the Company or such Consolidated Subsidiary or at the time of acquisition
by the Company or a Consolidated Subsidiary of any business entity then
owning such fixed assets, whether or not such existing Liens were given to
secure the payment of the purchase price or construction costs of the fixed
assets to which they attach, so long as Liens permitted by this clause (ii)
were not incurred, extended or renewed in contemplation of such acquisition
or construction, provided that any such Liens permitted by this clause (b)
shall attach solely to the property acquired, constructed, improved or
purchased;
(c) Liens for taxes, assessments or other governmental levies or
charges not yet due or which are subject to a good faith contest;
(d) Liens incidental to the conduct of the Company's and its
Subsidiaries' businesses or their ownership of property and other assets
not securing any indebtedness for money borrowed and not otherwise incurred
in connection with the borrowing of money or obtaining of credit, and which
do not in the aggregate materially diminish the value of the Company's or
Subsidiaries' property or assets when taken as a whole, or materially
impair the use thereof in the operation of their businesses;
(e) Liens in respect of any interest or title of a lessor in any
property subject to a Capitalized Lease permitted under "-- Limitation on
Sale and Leaseback";
(f) Liens arising in respect of judgments against the Company, except
for any judgment in an amount in excess of $1,000,000 which is not
discharged or execution thereof stayed pending appeal within 45 days after
entry thereof;
(g) Liens in favor of the Company or any Consolidated Subsidiary of
the Company;
(h) Liens consisting of minor survey exceptions or minor encumbrances,
easements or reservations, or rights of others for rights-of-way, utilities
and other similar purposes, or zoning or other restrictions as
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to use of real property, that are necessary for the conduct of the
operations of the Company and its Subsidiaries or that customarily exist on
properties of corporations engaged in similar businesses and are similarly
situated and that do not in any event materially impair their use in the
operations of the Company and its Subsidiaries; and
(i) Liens renewing, extending or refunding any Lien permitted by the
preceding clauses of this paragraph; provided, however, that the principal
amount of indebtedness for money borrowed secured by such Lien immediately
prior thereto is not increased and such Lien is not extended to any other
assets or property.
Notwithstanding the foregoing, the Company or any Consolidated Subsidiary
may create or assume Liens, in addition to those otherwise permitted by the
preceding clauses of this paragraph, securing indebtedness for money borrowed of
the Company or any Consolidated Subsidiary issued or incurred after the Issue
Date, provided that at the time of such issuance or incurrence, the aggregate
amount of all Secured Indebtedness and Attributable Debt would not exceed 15% of
Consolidated Net Tangible Assets.
In the event that any property of the Company or any Consolidated
Subsidiary is subjected to a Lien not otherwise permitted by this paragraph, the
Company will make or cause to be made a provision whereby the Securities will be
secured (together with other indebtedness for money borrowed then entitled
thereto and equal in rank to the Securities), to the full extent permitted under
applicable law, equally and ratably with all other obligations secured thereby,
and in any case the Securities shall (but only in such event) have the benefit,
to the full extent that the holders of the Securities may be entitled thereto
under applicable law, of an equitable Lien on such property equally and ratably
securing the Securities and such other obligations.
Limitation on Sale and Leaseback. The Company will not, and will not
permit any Consolidated Subsidiary to, enter into any arrangement, directly or
indirectly, whereby the Company or such Consolidated Subsidiary shall, in one
transaction or a series of related transactions, (i) sell, transfer or otherwise
dispose of any property owned by the Company or any Consolidated Subsidiary and
(ii) more than 120 days after the later of the date of initial acquisition of
such property or completion or occupancy thereof, as the case may be, by the
Company or such Consolidated Subsidiary, rent or lease, as lessee, such property
or substantially identical property or any material part thereof (a "Sale and
Leaseback Transaction"), provided that the foregoing restriction shall not apply
to any Sale and Leaseback Transaction if (a) immediately after the consummation
of such Sale and Leaseback Transaction and after giving effect thereto, no
Default or Event of Default shall exist and (b) any one of the following
conditions is satisfied:
(i) the lease concerned constitutes a Capitalized Lease and at the
time of entering into such Sale and Leaseback Transaction and after giving
effect thereto and to any Liens incurred pursuant to "-- Limitation on
Liens Securing Indebtedness", the aggregate amount of all Secured
Indebtedness and Attributable Debt would not exceed 15% of Consolidated Net
Tangible Assets; or
(ii) the lease has a term which in the aggregate would not exceed 36
months (including any extensions or renewals thereof at the option of the
lessee); or
(iii) the sale of such property is for cash consideration which equals
or exceeds the fair market value thereof (as determined in good faith by
the Company) and the net proceeds from such sale are applied, within 30
days of the date of the sale thereof, to the payment (other than payments
due at maturity or in satisfaction of, or applied to, any mandatory or
scheduled payment or prepayment obligation) of indebtedness for money
borrowed of the Company which ranks, in right of payment, on a parity with
or senior to the Securities.
Restrictive Agreements. The Company will not and will not permit any of
its Consolidated Subsidiaries to enter into any indenture, agreement, instrument
or other arrangement which, directly or indirectly, prohibits or restrains, or
has the effect of prohibiting or restraining, or imposes materially adverse
conditions upon, the ability of any Consolidated Subsidiary to make loans or
advances to the Company or to declare and pay dividends or make distribution on
shares of such Consolidated Subsidiary's capital stock (whether now or hereafter
outstanding); provided, however, that any agreement to subordinate indebtedness
for money borrowed owing from any Consolidated Subsidiary to the Company or
owing between Consolidated
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Subsidiaries pursuant to any Priority Debt or to any guarantee of such
indebtedness for money borrowed shall not be deemed to violate this paragraph so
long as any such agreement to subordinate does not directly or indirectly
prohibit or restrain the ability of any such Consolidated Subsidiary to make
loans or advances to the Company or to declare and pay dividends or make
distributions on shares of such Consolidated Subsidiary's capital stock (whether
now or hereafter outstanding).
Corporate Existence. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and material rights (charter and statutory) and material franchises of the
Company; provided, however, that the Company shall not be required to preserve
any such right or franchise if the Board of Directors shall determine that the
preservation of such rights and franchises is no longer desirable in the conduct
of the business of the Company and its Consolidated Subsidiaries considered as a
whole, and that the loss thereof is not disadvantageous in any material respect
to the holders of the Securities.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to
Securities of any series: (a) failure to pay principal of or premium, if any, on
any Security of that series when due; (b) failure to pay any interest on any
Security of that series when due, continued for 30 days; (c) (i) the failure by
the Company or any Subsidiary to pay indebtedness for money borrowed (including
Securities of other series) in an aggregate principal amount exceeding
$10,000,000 at the later of final maturity or upon the expiration of any
applicable period of grace with respect to such principal amount or (ii)
acceleration of the maturity of any indebtedness for money borrowed of the
Company or any Subsidiary in excess of $10,000,000, if such failure to pay or
acceleration is not discharged or such acceleration is not annulled within 15
days after due notice; (d) the failure to perform any covenant or warranty of
the Company in the Indenture described herein under "Purchase at the Option of
Holders Upon a Change of Control" (including the failure to purchase the
Securities required to be purchased pursuant to a Change of Control Offer in
accordance with the terms of such Change of Control Offer); (e) failure to
deposit any sinking fund payment, when due, in respect of any Security of that
series; (f) failure to perform any other covenant or warranty of the Company in
the Indenture (other than a covenant or warranty included in the Indenture
solely for the benefit of a series of Securities other than that series),
continued for 60 days after written notice as provided in the Indenture; (g)
certain events in bankruptcy, insolvency or reorganization; and (h) any other
Event of Default provided with respect to Securities of that series.
If an Event of Default specified in clause (g) above occurs and is
continuing with respect to Securities, then the principal amount of the
Outstanding Securities shall become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. If an Event
of Default (other than one specified in clause (g) in the immediately preceding
paragraph) with respect to Outstanding Securities of any series shall occur and
be continuing, either the Trustee or the Holders of at least 25% in principal
amount of the Outstanding Securities of that series may declare the principal
amount (or, if the Securities of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Securities of that series to be due and payable
immediately by written notice to the Company (and to the Trustee if given by the
Holders). At any time after a declaration of acceleration with respect to
Securities of any series has been made, but before a judgment or decree based on
acceleration has been obtained, the Holders of a majority in principal amount of
the Outstanding Securities of that series may, under certain circumstances,
rescind and annul such acceleration. For information as to waiver of defaults,
see "Modification and Waiver" below.
Reference is made to the Prospectus Supplement relating to each series of
Offered Securities that are Original Issue Discount Securities for the
particular provisions relating to acceleration of the Maturity of a portion of
the principal amount of such Original Issue Discount Securities upon the
occurrence of an Event of Default and the continuation thereof.
The Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights or powers under the
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<PAGE> 64
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for indemnification of the Trustee, the Holders of a majority in
principal amount of the Outstanding Securities of any series will have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, with respect to the Securities of that series.
The Company will furnish to the Trustee annually a certificate as to
compliance by the Company with all terms, provisions, and conditions of the
Indenture.
DEFEASANCE
The Prospectus Supplement will state if any defeasance provision will apply
to the Offered Securities.
DEFEASANCE AND DISCHARGE
The Indenture provides that, if applicable, the Company will be discharged
from any and all obligations in respect of the Securities of any series (except
for certain obligations to register the transfer or exchange of Securities of
such series, to replace stolen, lost, or mutilated Securities of such series, to
maintain paying agencies and to hold monies for payment in trust) upon the
irrevocable deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations (as defined), which through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of and premium, if any, and each installment of
interest on the Securities of such series on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the Securities of
such series. Such a trust may only be established if, among other things, the
Company has delivered to the Trustee an Opinion of Counsel (who may be an
employee of or counsel for the Company) to the effect that Holders of the
Securities of such series will not recognize income, gain, or loss for federal
income tax purposes as a result of such deposit, defeasance, and discharge and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit, defeasance,
and discharge had not occurred.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
The Indenture provides that the Company may omit to comply with the
covenants described under "Purchase at the Option of Holders Upon a Change of
Control", "Certain Covenants -- Limitation on Liens Securing Indebtedness",
"Certain Covenants -- Limitation on Sale and Leaseback", and "Certain
Covenants -- Restrictive Agreements" and that violations of such covenants will
not be deemed to be an Event of Default under the Indenture to the extent that
the conditions described herein are met. The Indenture also provides with
respect to the Securities of any series, to the extent provided for in the
Prospectus Supplement, that the Company may omit to comply with certain
restrictive covenants provided for in this Prospectus or the Prospectus
Supplement and, to the extent provided in the Prospectus Supplement, that
violations of certain restrictive covenants provided for in the Prospectus
Supplement shall not be deemed to be an Event of Default under the Indenture and
the Securities of such series, upon the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations (as defined) which through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and premium, if
any, and each installment of interest on the Securities of such series on the
Stated Maturity of such payments in accordance with the terms of the Indenture
and the Securities of such series. The obligations of the Company under the
Indenture and the Securities of such series other than with respect to the
covenants referred to above and the Events of Default other than the Event of
Default referred to above shall remain in full force and effect. Such a trust
may only be established if, among other things, the Company has delivered to the
Trustee an Opinion of Counsel (who may be an employee of or counsel for the
Company) to the effect that the Holders of the Securities of such series will
not recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance of certain covenants and Events of Default and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit and defeasance
had not occurred.
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DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
In the event the Company exercises its option to omit compliance with
certain covenants of the Indenture with respect to the Securities of any series
as described above and the Securities of such series are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (f) under "Events of Default," the amount of
money and U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Securities of such series at the time of
their Stated Maturity but may not be sufficient to pay amounts due on the
Securities of such series at the time of the acceleration resulting from such
Event of Default. However, the Company shall remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in principal
amount of the Outstanding Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Security
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security, (b) reduce the
principal amount of, or the premium, if any, or interest, if any, on any
Security, (c) reduce the amount of principal of an Original Issue Discount
Security payable upon acceleration of the Maturity thereof, (d) change the place
or currency of payment of principal of, or premium, if any, or interest, if any,
on, any Security, (e) impair the right to institute suit for the enforcement of
any payment on or with respect to any Security, or (f) reduce the percentage in
principal amount of Outstanding Securities of any series, the consent of the
Holders of which is required for modification or amendment of the Indenture or
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
The Holders of a majority in principal amount of the Outstanding Securities
of any series may on behalf of the Holders of all Securities of that series
waive, insofar as that series is concerned, compliance by the Company with
certain restrictive provisions of the Indenture. The Holders of a majority in
principal amount of the Outstanding Securities of any series may on behalf of
the Holders of all Securities of that series waive any past default under the
Indenture with respect to that series, except a default in the payment of the
principal of or premium, if any, or interest on any Security of that series or
in respect of a provision that under the Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Security of that series
affected. In addition, a modification or amendment to the Indenture may not
waive the Company's obligation to make a Change of Control Offer without the
written consent of the holders of at least two-thirds in aggregate principal
amount of the then outstanding Securities.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Company, without the consent of any Holders of Outstanding Securities,
may consolidate or merge with or into, or transfer or lease its assets as an
entirety to, any corporation, provided that (i) the corporation (if other than
the Company) formed by such consolidation or into which the Company is merged or
that acquires or leases the assets of the Company substantially as an entirety
is a corporation, partnership or trust, is organized and existing under the laws
of any United States jurisdiction and expressly assumes the Company's
obligations on the Securities and under the Indenture, (ii) after giving effect
to such transaction no Event of Default, and no event that, after notice or
lapse of time or both, would become an Event of Default, shall have occurred and
be continuing (provided that a transaction will only be deemed to be in
violation of this condition (ii) as to any series of Securities as to which such
Event of Default or such event shall have occurred and be continuing), and (iii)
certain other conditions are met.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
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<PAGE> 66
"Attributable Debt" means indebtedness for money borrowed deemed to be
incurred in respect of a Sale and Leaseback Transaction and shall be, at the
date of determination, the present value (discounted at the actual rate of
interest implicit in such transaction, compounded annually), of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Leaseback Transaction.
"Capital Stock" means, with respect to any person, any and all shares or
other equivalents (however designated) of corporate stock, partnership
interests, or any other participation, right, warrant, option, or other interest
in the nature of an equity interest in such person, but excluding debt
securities convertible or exchangeable into such equity interest.
"Capitalized Lease" means any lease the obligation for Rentals with respect
to which is required to be capitalized on a consolidated balance sheet of the
lessee and its subsidiaries in accordance with GAAP.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (within the meaning of Sections 13(d) and 14(d) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act;
provided, however, that a group formed solely for the purpose of voting
securities shall not be deemed to be a group for purpose of this definition),
other than the Company, any employee benefit plan of the Company or any
Subsidiary, or Permitted Persons, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 35% or
more of the total voting power of the fully diluted Voting Stock of the Company,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors of the
Company or whose nomination for election by the shareholders of the Company was
approved by a vote of 66-2/3% of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office, (iii) the Company consolidates or merges with or into any other person
or any other person consolidates or merges with or into the Company, in either
case, other than a consolidation or merger (a) with a Wholly-Owned Consolidated
Subsidiary in which all of the Voting Stock of the Company outstanding
immediately prior to the effectiveness thereof is changed into or exchanged for
substantially the same consideration or (b) (1) pursuant to a transaction in
which the outstanding Voting Stock of the Company is changed into or exchanged
for cash, securities or other property with the effect that the "beneficial
owners" of the outstanding Voting Stock of the Company, immediately prior to
such transaction, beneficially own, directly or indirectly, more than 50% of the
total voting power of the fully diluted Voting Stock of the surviving
corporation immediately following such transaction and (2) no "person" or
"group", other than the Company, any employee benefit plan of the Company or any
Subsidiary, or Permitted Persons, beneficially owns, directly or indirectly, 35%
or more of the total voting power of the fully diluted Voting Stock of the
surviving corporation immediately following such transaction, or (iv) the
Company sells, conveys, transfers or leases, directly or indirectly, all or
substantially all of its assets to any Person other than a Wholly-Owned
Consolidated Subsidiary.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline with respect to the Securities.
"Consolidated Net Tangible Assets" means, as of the date of any
determination thereof, the total amount of all assets of the Company and its
Consolidated Subsidiaries (less depreciation, depletion and other properly
deductible valuation reserves) after deducting Intangibles.
"Consolidated Subsidiary" means any Subsidiary of the Company or of any
Consolidated Subsidiary which is consolidated with the Company for financial
reporting purposes in accordance with GAAP.
"GAAP" means United States generally accepted accounting principles as in
effect as of the date of determination, unless otherwise stated.
"indebtedness for money borrowed", when used with respect to the Company or
any Subsidiary, means any obligation of, or any obligation guaranteed by, the
Company or any Subsidiary for the repayment of borrowed money, whether or not
evidenced by bonds, debentures, notes or other written instruments, and any
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<PAGE> 67
deferred obligation of, or any such obligation guaranteed by, the Company for
the payment of the purchase price of property or assets.
"Intangibles" means all Intellectual Properties and all goodwill, patents,
trade names, trademarks, copyrights, franchises, experimental expense,
organization expense, unamortized debt discount and expense, deferred assets
(other than prepaid insurance, prepaid taxes, prepaid advertising, prepaid
licensing and other similar expenses prepaid in the ordinary course of
business), amounts invested in or advanced to or equity in the Company's
Subsidiaries other than Consolidated Subsidiaries less any writedowns thereof,
the excess of cost of shares acquired over book value of related assets, any
increase in the value of a fixed asset arising from a reappraisal, revaluation
or write-up thereof, and such other assets as are properly classified as
"intangible assets" in accordance with GAAP.
"Intellectual Properties" means all material patents, patent applications,
copyrights, copyright applications, trade secrets, trade names and trademarks,
technologies, methods, processes or other proprietary properties or information
which are used by the Company and its Consolidated Subsidiaries in the conduct
of their business and are either owned by them or are used, employed or
practiced by them under valid and existing licenses, grants, "shop rights", or
other rights.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's Investors Service, Inc. (or any successor to the
rating agency business thereof), BBB- (or the equivalent) by Standard & Poor's
Rating Group (or any successor to the rating agency business thereof), and BBB-
(or the equivalent) by Duff & Phelps Credit Rating Co. (or any successor to the
rating agency business thereof).
"Issue Date" means, with respect to any series of Securities, the date of
initial issuance of such series.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, a person other than the owner of the property, whether such interest
is based on the common law, statute or contract, and including but not limited
to the security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
bankers' liens, setoffs and similar arrangements, leases and other title
exceptions and encumbrances (including, with respect to stock, stockholder
agreements, voting trust agreements, buy-back agreements and all similar
arrangements) affecting property. For the purposes hereunder, the Company or a
Consolidated Subsidiary shall be deemed to be the owner of any property which it
has acquired or holds subject to a conditional sale agreement, Capitalized Lease
or other arrangement pursuant to which title to the property has been retained
by or vested in some other person for security purposes and such retention or
vesting shall constitute a Lien.
"Permitted Persons" means (i) Edward J. Shoen, Mark V. Shoen, James P.
Shoen, Paul F. Shoen, Sophia M. Shoen (and during the Plan Consummation Period
only, Samuel W. Shoen, Michael L. Shoen, and Katrina Shoen Carlson) and the
spouse and lineal descendants of each such individual, the spouses of each such
lineal descendants and the lineal descendants of such spouses, (ii) any trusts
for the primary benefit of, the executor or administrator of the estate of, or
other legal representative of, any of the individuals referred to in the
foregoing clause (i), and (iii) any corporation with respect to which all the
Voting Stock thereof is, directly or indirectly, owned by any of the individuals
referred to in the preceding clause (i).
"Plan Consummation Period" means the period beginning on the Issue Date and
ending on the date of purchase by the Company (directly or indirectly) of Common
Stock of the Company held by Samuel W. Shoen, Michael L. Shoen, and Katrina
Shoen Carlson or any corporation with respect to which all the Voting Stock
thereof is, directly or indirectly, owned by any of the foregoing individuals.
"Priority Debt" means (i) indebtedness for money borrowed of any
Consolidated Subsidiary, except indebtedness for money borrowed issued to and
held by the Company or a Wholly-Owned Consolidated Subsidiary, and (but without
duplication) (ii) Secured Indebtedness.
"Rating Agencies" means Standard & Poor's Rating Group, Duff & Phelps
Credit Rating Co., and Moody's Investors Service, Inc. or any successor to the
respective rating agency businesses thereof.
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"Rating Date" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention of the Company to effect a Change of Control.
"Rating Decline" means, with the respect to the Securities, the occurrence
of the following on, or within 90 days after, the date of public notice of the
occurrence of a Change of Control or of the intention by the Company to effect a
Change of Control (which period shall be extended so long as the rating of such
Securities is under publicly announced consideration for possible downgrade by
any of the Rating Agencies): (a) in the event the Securities were assigned an
Investment Grade Rating by at least two of the three Rating Agencies on the
Rating Date, the rating of the Securities by both Standard & Poor's Rating Group
and Moody's Investors Service, Inc. shall decrease below an Investment Grade
Rating; or (b) in the event the Securities were rated below an Investment Grade
Rating by at least two of the three Rating Agencies on the Rating Date, the
rating of the Securities by both Standard & Poor's Rating Group and Moody's
Investors Service, Inc. shall decrease by one or more gradations (including
gradations within rating categories as well as between rating categories).
"Rentals" means and includes, as of the date of any determination thereof,
all fixed payments (including as such all payments which the lessee is obligated
to make to the lessor on termination of the lease or surrender of the property)
payable by the Company or a Consolidated Subsidiary, as lessee or sublessee
under a lease of real or personal property, but shall be exclusive of any
amounts required to be paid by the Company or a Consolidated Subsidiary (whether
or not designated as rents or additional rents) on account of maintenance,
repairs, insurance, taxes and similar charges. Fixed rents under any so-called
"percentage leases" shall be computed solely on the basis of the minimum rents,
if any, required to be paid by the lessee regardless of sales volume or gross
revenues.
"Secured Indebtedness" means any indebtedness for money borrowed, whether
of the Company or any Consolidated Subsidiary, secured by any Lien on any
property of the Company or any Consolidated Subsidiary.
"Subsidiary" means a person more than 50% of the outstanding Voting Stock
of which is owned, directly or indirectly, by the Company or by one or more
other Subsidiaries, or by the Company and one or more other Subsidiaries.
"Voting Stock" of a person means all classes of Capital Stock of such
person then outstanding and normally entitled to vote in the election of
directors (or persons performing similar functions) or to direct the business
and affairs of the issuer of such Capital Stock in the absence of contingencies.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary
all of the outstanding Capital Stock of which (except for directors' qualifying
shares to the extent required by applicable law) is owned by the Company and/or
its Wholly-Owned Consolidated Subsidiaries.
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PLAN OF DISTRIBUTION
The Company may sell the Securities in and/or outside the United States:
(i) through underwriters or dealers; (ii) directly to a limited number of
purchasers or to a single purchase; or (iii) through agents. The Prospectus
Supplement with respect to the Securities being offered will set forth the terms
of the offering of the Offered Securities, including the name or names of any
underwriters or agents, the purchase price of the Offered Securities and the
proceeds to the Company from such sale, any delayed delivery arrangements, 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 initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If underwriters are used in the sale, the Offered 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 offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of Securities, or, if an underwriting syndicate
is used, the managing underwriter or underwriters, will be set forth on the
cover of the applicable Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement relating thereto, the obligations of the underwriters to
purchase the Offered Securities will be subject to conditions precedent and the
underwriters will be obligated to purchase all of the Offered Securities if any
are purchased.
If dealers are utilized in the sale of Offered Securities in respect of
which this Prospectus is delivered, and if so specified in the applicable
Prospectus Supplement, the Company will sell such Offered Securities to the
dealers as principals. The dealers may then sell such Offered Securities to the
public at varying prices to be determined by such dealers at the time of resale.
The names of the dealers and the terms of the transaction will be set forth in
the applicable Prospectus Supplement.
The Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of the Offered Securities in respect to which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent will be
set forth, in the Prospectus Supplement.
Underwriters, dealers and agents may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which the underwriters, dealers or agents may be
required to make in respect thereof. Underwriters, dealers and agents may be
customers of, may engage in transactions with, or perform services for, the
Company in the ordinary course of business.
LEGAL OPINIONS
The validity of the Securities offered hereunder will be passed upon for
the Company by Lionel, Sawyer & Collins, 300 S. 4th Street, Suite 1700, Las
Vegas, Nevada 89101. Certain legal matters in connection with this offering will
be passed upon for the underwriters or agents, if any, by the counsel named in
the applicable Prospectus Supplement.
EXPERTS
The consolidated financial statements of the Company as of March 31, 1996
and 1995 and for each of the years in the three-year period ended March 31, 1996
incorporated in this Prospectus by reference to the Company's Annual Report on
Form 10-K for the year ended March 31, 1996 have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
upon the authority of said firm as experts in auditing and accounting.
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=========================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY OF THE AGENTS, OR ANY OTHER PERSON. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Company Summary......................... S-3
Use of Proceeds......................... S-4
Ratio of Earnings to Fixed Charges...... S-4
Description of Notes.................... S-5
Special Provisions Relating to
Multi-Currency Notes.................. S-23
Risk Factors............................ S-26
United States Federal Income Tax
Consequences.......................... S-27
Supplemental Plan of Distribution....... S-35
Legal Matters........................... S-36
PROSPECTUS
Available Information................... 2
Information Incorporated by Reference... 2
Company Summary......................... 3
Risk Factors............................ 5
Use of Proceeds......................... 6
Ratio of Earnings to Fixed Charges...... 6
Selected Consolidated Financial Data.... 7
Business................................ 8
Shoen Litigation........................ 17
Description of Securities............... 21
Plan of Distribution.................... 33
Legal Opinions.......................... 33
Experts................................. 33
</TABLE>
=========================================================
=========================================================
$600,000,000
A M E R C O
LOGO
MEDIUM-TERM NOTES
DUE FROM NINE MONTHS TO
30 YEARS FROM DATE OF ISSUE
LEHMAN BROTHERS
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL
MARKETS, INC.
SALOMON BROTHERS INC
Prospectus Supplement
Dated September 10, 1996
=========================================================
<PAGE> 71
APPENDIX A
DESCRIPTION OF GRAPHIC MATERIAL
<TABLE>
<S> <C> <C>
1. Location: Outside Front and Back Covers of Prospectus
Item:
Company Logo
Description:
Registered Logo U-Haul International, Inc.
2. Location:
Page 4 of the Prospectus
Item:
Corporate Structure
Description:
A chart showing the corporate structure of the Company and its major
subsidiaries. The chart shows the Company on top, above its three
principal subsidiaries; Ponderosa Holdings, Inc., U-Haul International,
Inc., and Amerco Real Estate Company situated horizontally beside one
another. Directly below Ponderosa Holdings, Inc. are its subsidiaries,
Oxford Life Insurance Company and Republic Western Insurance Company,
situated horizontally beside one another.
</TABLE>
