<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus Dated November 8, 1996)
U.S. $300,000,000 M.A. HANNA COMPANY
M.A. HANNA COMPANY
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
M.A. Hanna Company (the "Company") may offer from time to time pursuant to this
Prospectus Supplement up to $300,000,000 aggregate initial offering price of its
Medium-Term Notes (the "Notes"). Such aggregate principal amount is subject to
reduction as a result of the sale by the Company of certain other debt
securities under the Registration Statement of which this Prospectus Supplement
and the accompanying Prospectus form a part. Each Note will mature on a Business
Day more than nine months from its date of issue (the "Stated Maturity"), as
specified in a pricing supplement hereto (each, a "Pricing Supplement") and such
maturity date may be subject to extension at the Company's option. Each Note may
also be subject to redemption at the Company's option or to repayment at the
Holder's option, in each case, in whole or in part, prior to its Stated
Maturity, as specified in the applicable Pricing Supplement.
The Notes may bear interest at a fixed rate (a "Fixed Rate Note"), which may be
zero in the case of certain Discount Notes (as defined herein), or at a floating
rate (a "Floating Rate Note") determined by reference to one or more of LIBOR,
the CD Rate, the Commercial Paper Rate, the Federal Funds Rate, the Treasury
Rate, the Prime Rate, the CMT Rate, the Eleventh District Cost of Funds Rate or
any other interest rate basis or formula (each as defined herein and each, a
"Base Rate"), as selected by the purchaser and agreed to by the Company adjusted
by the Spread or Spread Multiplier (each as defined herein), if any, applicable
to such Note. Unless otherwise indicated in the applicable Pricing Supplement,
interest on each Fixed Rate Note will accrue from its date of issue and will be
payable semiannually in arrears on June 1 and December 1 of each year (each, an
"Interest Payment Date") and at its Stated Maturity. Interest on each Floating
Rate Note will accrue from its date of issue and will be payable as provided in
applicable Pricing Supplement. A Note may be issued as an amortizing note (an
"Amortizing Note") on which a portion or all of the interest and principal
amount is payable over the life of the Note in accordance with a schedule, by
application of a formula, or by reference to an index. A Note may be issued as
an indexed note (an "Indexed Note"), the principal amount payable at maturity of
which, or premium or interest on which, will be determined by reference to the
level of a designated stock index or designated currency, commodity or other
prices or indices or will otherwise be determined by an application of a
formula. See "Description of Medium Term Notes -- Indexed Notes." The interest
rate or interest rate formula, reset provisions, issue price, Stated Maturity,
Interest Payment Dates, redemption, repayment and extension provisions and
certain other terms with respect to each Note will be established at the time of
issuance and set forth in a Pricing Supplement.
The Notes will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof, unless otherwise specified in the
applicable Pricing Supplement. 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, as Depositary (the "Depositary"), or a certificate
issued in definitive form (a "Certificated Note"), 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. Book-Entry Notes will not be issuable as
Certificated Notes except under the circumstances described herein.
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 THE PROSPECTUS, THIS PROSPECTUS SUPPLEMENT OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO AGENT'S DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSION(2) COMPANY(2)(3)
<S> <C> <C> <C>
Per Note........................ 100.000% .125%-.750% 99.875%-99.250%
Total(4)........................ $300,000,000 $375,500-$2,250,000 $299,625,000-$297,750,000
<FN>
- --------------------------------------------------------------------------------
(1) Unless otherwise specified in the applicable Pricing Supplement, the price
to public will be 100% of the principal amount.
(2) The Company will pay to Salomon Brothers Inc and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (collectively, the "Agents") a commission
ranging from .125% to .750% of the principal amount of any Note in the form
of a discount, depending upon its Stated Maturity through 30 years, sold
through the Agents. Commissions on Notes with a Stated Maturity in excess of
30 years will be negotiated at the time of sale.
(3) Before deduction of expenses payable by the Company estimated at $450,000,
including reimbursement of certain expenses of the Agents.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
</TABLE>
The Notes are being offered on a continuous basis by the Company through the
Agents, which have agreed to use their reasonable efforts to solicit purchases
of the Notes. The Company may also sell Notes at a discount to an Agent for its
own account or for resale to one or more purchasers at varying prices related to
prevailing market prices at the time of resale or, if set forth in the
applicable Pricing Supplement, at a fixed public offering price, as determined
by the Agents. In addition, the Agents may offer Notes purchased by it as
principal to other dealers. Unless otherwise specified in the applicable Pricing
Supplement, any Note purchased by the Agents as principal will be purchased at
100% of the principal amount thereof less a percentage equal to the commission
applicable to an agency sale of a Note of identical maturity. The Notes will not
be listed on any securities exchange, and there can be no assurance that the
maximum amount of Notes offered by this Prospectus Supplement will be sold or
that there will be a secondary market for the Notes. The Company reserves the
right to withdraw, cancel or modify the offer made hereby without notice. The
Company or the Agents may reject any order to purchase Notes, whether or not
solicited, in whole or in part. See "Plan of Distribution."
SALOMON BROTHERS INC MERRILL LYNCH & CO.
The date of this Prospectus Supplement is December 4, 1996.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING OF NOTES, THE AGENTS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES 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 COMPANY
The Company is a leading international specialty chemicals company focused
on formulated polymers in the plastics and rubber industries. The Company's
principal formulated polymers operations consist of two major
segments -- processing and distribution. Processing includes production of
custom plastic and rubber compounds and custom formulated colorants for the
plastics industry. Distribution includes distributors of thermoplastic and
thermoset resins and fiberglass materials and distributors of engineered plastic
shapes.
The Company conducts its domestic processing operations through North
American Plastics and its international processing operations through various
business units located in Europe and Asia. The Company's rubber compounding
business is conducted through its M.A. Hanna Rubber Compounding business unit.
The Company's distribution business is conducted primarily through its M.A.
Hanna Resin Distribution and Cadillac Plastics business units.
The Company's strategy is to be the single-source provider of color and
additive concentrates, plastic and rubber compounds, and plastic resins and
shapes for plastic and rubber processors and the preferred channel to market for
the producers of plastic resins and shapes. In executing this strategy, the
Company has sought to become the leading intermediary between polymer producers
and end-products manufacturers.
PRICING SUPPLEMENT
Provisions of each transaction will be more fully described in a Pricing
Supplement to this Prospectus Supplement and the accompanying Prospectus.
Inconsistencies will be as described in the Pricing Supplement.
DESCRIPTION OF MEDIUM-TERM NOTES
The following description of the particular terms of the Notes supplements,
and to the extent inconsistent therewith replaces, the description of the
general terms and provisions of the Debt Securities set forth in the Prospectus,
to which description reference is hereby made. The following summary does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the accompanying Prospectus
are a part. Terms capitalized herein and not otherwise defined herein have the
meanings given to them in the Indenture, the Prospectus or the Notes, as the
case may be. The term "Securities", as used in this Prospectus Supplement,
refers to all securities issued and issuable from time to time under the
Indenture and includes the Notes.
GENERAL
The Notes are a series of debt securities issued under an Indenture, dated
as of November 9, 1996 (the "Indenture"), between the Company and NBD Bank, as
Trustee (the "Trustee"). All Securities, including the Notes, issued and to be
issued under the Indenture will be unsecured general obligations of the Company
and, unless otherwise specified in the applicable Pricing Supplement, will rank
pari passu with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Indenture does not limit the
aggregate principal amount of Securities that may be issued thereunder and
Securities may be issued thereunder from time to time in one or more series up
to the
S-2
<PAGE> 3
aggregate principal amount from time to time authorized by the Company for each
series. At the date of this Prospectus Supplement, the Notes offered are
currently limited to an aggregate initial public offering price or purchase
price of up to $300,000,000, which amount is subject to reduction as a result of
the sale of other securities under the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus form a part. The U.S.
dollar equivalent of the public offering price or purchase price of a Note
having a Specified Currency other than U.S. dollars will be determined on the
basis of the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the "Market Exchange Rate") for such Specified Currency on the applicable
issue date. Such determination will be made by the Company or its agent, as
exchange rate agent for the series of Notes (the "Exchange Rate Agent").
Notes will be issued in fully registered form only, without coupons, and
will be offered on a continuous basis. Each Note will be issued initially as
either a Book- Entry Note or, if specified in the applicable Pricing Supplement,
a Certificated Note. Except as set forth in the Prospectus under "Description of
Debt Securities-Global Securities", Book-Entry Notes will not be issuable as
Certificated Notes. See "Book-Entry System" below.
Unless otherwise specified in the applicable Pricing Supplement, the
authorized denominations of Notes denominated in U.S. dollars will be $1,000 and
any larger amount that is an integral multiple of $1,000, and the authorized
denominations of Notes having a Specified Currency other than U.S. dollars will
be the approximate equivalents thereof in the Specified Currency. Unless
otherwise specified in the applicable Pricing Supplement, each Note will mature
on a Business Day more than nine months from its date of issue, as selected by
the purchaser and agreed to by the Company (the "Stated Maturity"), which
maturity date may be subject to extension at the option of the Company. Each
Note may also be subject to redemption at the option of the Company, or
repayment at the option of the Holder, prior to its Stated Maturity. Each
Floating Rate Note will mature on an Interest Payment Date for such Note.
The Pricing Supplement relating to a Note will describe the following
terms: (i) the Specified Currency for such Note; (ii) whether such Note is a
Fixed Rate Note, a Floating Rate Note, an Amortizing Note and/or an Indexed
Note; (iii) the price (expressed as a percentage of the aggregate principal
amount or face amount thereof) at which such Note will be issued (the "Issue
Price"); (iv) the date on which such Note will be issued (the "Original Issue
Date"); (v) the date of the Stated Maturity; (vi) if such Note is a Fixed Rate
Note, the rate per annum at which such Note will bear interest, if any, and
whether and the manner in which such rate may be changed prior to its Stated
Maturity; (vii) if such Note is a Floating Rate Note, the Base Rate, the Initial
Interest Rate, the Interest Reset Period or the Interest Reset Dates, the
Interest Payment Dates, and, if applicable, the Index Maturity, the Maximum
Interest Rate, the Minimum Interest Rate, the Spread or Spread Multiplier (all
as defined below), and any other terms relating to the particular method of
calculating the interest rate for such Note and whether and the manner in which
such Spread or Spread Multiplier may be changed prior to Stated Maturity; (viii)
whether such Note is an Original Issue Discount Note (as defined below); (ix) if
such Note is an Amortizing Note, the terms for repayment prior to Stated
Maturity; (x) if such Note is an Indexed Note, in the case of an Indexed Rate
Note, the manner in which the amount of any interest payment will be determined
or, in the case of an Indexed Principal Note, its Face Amount and the manner in
which the principal amount payable at Stated Maturity will be determined; (xi)
whether such Note may be redeemed at the option of the Company, or repaid at the
option of the Holder, prior to Stated Maturity as described under "Optional
Redemption, Repayment and Repurchase" below and, if so, the provisions relating
to such redemption or repayment, including, in the case of an Original Issue
Discount Note or Indexed Note, the information necessary to determine the amount
due upon redemption or repayment; (xii) whether such Note is subject to an
optional extension beyond its Stated Maturity as described under "Extension of
Maturity" below; and (xiii) any other terms of such Note not inconsistent with
the provisions of the Indenture under which such Note will be issued.
"Business Day" with respect to any Note means any day, other than a
Saturday or Sunday, that is (i) not a legal holiday or a day on which banking
institutions are authorized or required by law, regulation or executive order to
be closed in (a) The City of New York or (b) if the Specified Currency for such
Note
S-3
<PAGE> 4
is other than U.S. dollars, the financial center of the country issuing such
Specified Currency (which, in the case of ECU, shall be Brussels, Belgium) and
(ii) if such Note is a LIBOR Note (as defined below), a London Banking Day.
"London Banking Day" with respect to any Note means any day on which dealings in
deposits in U.S. dollars are transacted in the London interbank market.
"Original Issue Discount Note" means (i) a Note, including any such Note
whose interest rate is zero, that has a stated redemption price at Stated
Maturity that exceeds its Issue Price by at least 0.25% of its stated redemption
price at Stated Maturity, multiplied by the number of full years from the
Original Issue Date to the Stated Maturity for such Note and (ii) any other Note
designated by the Company as issued with original issue discount for United
States Federal income tax purposes.
A "basis point" or "bp" equals one one-hundredth of a percentage point.
PAYMENT OF PRINCIPAL AND INTEREST
GENERAL. The principal of and any premium and interest on each Note are
payable by the Company in the Specified Currency for such Note. If the Specified
Currency for a Note is other than U.S. dollars, the Company will (unless
otherwise specified in the applicable Pricing Supplement) arrange to convert all
payments in respect of such Note into U.S. dollars in the manner described in
the following paragraph. The Holder of a Note having a Specified Currency other
than U.S. dollars may (if the applicable Pricing Supplement and such Note so
indicate) elect to receive all payments in respect of such Note in the Specified
Currency by delivery of a written notice to the Trustee for such Note not later
than fifteen calendar days prior to the applicable payment date, except under
the circumstances described under "Currency Risks-Payment Currency" below. Such
election will remain in effect until revoked by written notice to such Trustee
received not later than fifteen calendar days prior to the applicable payment
date.
In the case of a Note having a Specified Currency other than U.S. dollars,
the amount of any U.S. dollar payment in respect of such Note will be determined
by the Exchange Rate Agent based on the highest firm bid quotation expressed in
U.S. dollars received by the Exchange Rate Agent at approximately 11:00 a.m.,
New York City time, on the second Business Day preceding the applicable payment
date (or, if no such rate is quoted on such date, the last date on which such
rate was quoted), from three (or, if three are not available, then two)
recognized foreign exchange dealers in The City of New York (one of which may be
an Agent and another of which may be the Exchange Rate Agent) selected by the
Exchange Rate Agent, for the purchase by the quoting dealer, for settlement on
such payment date, of the aggregate amount of such Specified Currency payable on
such payment date in respect of all Notes denominated in such Specified
Currency. All currency exchange costs will be borne by the Holders of such Notes
by deductions from such payments. If no such bid quotations are available, such
payments will be made in such Specified Currency, unless such Specified Currency
is unavailable due to the imposition of exchange controls or to other
circumstances beyond the Company's control, in which case such payments will be
made as described under "Currency Risks -- Payment Currency" below.
Unless otherwise specified in the applicable Pricing Supplement, U.S.
dollar payments of interest on Notes (other than interest payable at Stated
Maturity) will be made, except as provided below, by check mailed to the
Registered Holders of such Notes (which, in the case of Global Securities
representing Book-Entry Notes, will be a nominee of the Depositary); provided,
however, that, in the case of a Note issued between a Regular Record Date and
the related Interest Payment Date, unless otherwise specified in the related
Pricing Supplement, interest for the period beginning on the Original Issue Date
for such Note and ending on such Interest Payment Date shall be paid on the next
succeeding Interest Payment Date to the Registered Holder of such Note on the
related Regular Record Date. A Holder of $10,000,000 (or the equivalent thereof
in a Specified Currency other than U.S. dollars) or more in aggregate principal
amount of Notes of like tenor and term shall be entitled to receive such U.S.
dollar payments by wire transfer of immediately available funds, but only if
appropriate wire transfer instructions have been received in writing by the
Trustee for such Notes not later than fifteen calendar days prior to the
applicable Interest Payment Date. Simultaneously with the election by any Holder
to receive payments in a Specified Currency other than U.S. dollars (as provided
above), such Holder shall provide appropriate
S-4
<PAGE> 5
wire transfer instructions to the Trustee for such Notes. Unless otherwise
specified in the applicable Pricing Supplement, principal and any premium and
interest payable at the Stated Maturity or upon redemption or repayment of a
Note will be paid in immediately available funds upon surrender of such Note at
the corporate trust office or agency of the Trustee for such Note in The City of
New York, Detroit or Chicago.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described under "Description of Debt Securities-Events of Default
and Remedies" in the Prospectus, the amount of principal due and payable with
respect to such Note shall be limited to the aggregate principal amount (or face
amount, in the case of an Indexed Principal Note) of such Note multiplied by the
sum of its Issue Price (expressed as a percentage of the aggregate principal
amount) plus the original issue discount amortized from the date of issue to the
date of declaration, which amortization shall be calculated using the "interest
method" (computed in accordance with generally accepted accounting principles in
effect on the date of declaration).
The Regular Record Date with respect to any Interest Payment Date for a
Floating Rate Note or for an Indexed Rate Note shall be the date (whether or not
a Business Day) fifteen calendar days immediately preceding such Interest
Payment Date, and for a Fixed Rate Note (unless otherwise specified in the
applicable Pricing Supplement) shall be the May 15 and November 15 (whether or
not a Business Day) immediately preceding such Interest Payment Date.
FIXED RATE NOTES. Each Fixed Rate Note will bear interest from its Original
Issue Date, or from the last Interest Payment Date to which interest has been
paid or duly provided for, at the rate per annum stated in the applicable
Pricing Supplement until the principal amount thereof is paid or made available
for payment, except as described below under "Subsequent Interest Periods" and
"Extension of Maturity", and except that if so specified in the applicable
Pricing Supplement, the rate of interest payable on certain Fixed Rate Notes may
be subject to adjustment from time to time as described in such Pricing
Supplement. Unless otherwise set forth in the applicable Pricing Supplement,
interest on each Fixed Rate Note will be payable semiannually in arrears on each
Interest Payment Date and at Stated Maturity. If an Interest Payment Date with
respect to any Fixed Rate Note would otherwise be a day that is not a Business
Day, such Interest Payment Date shall not be postponed; provided, however, that
any payment required to be made in respect of such Note on a date (including the
day of Stated Maturity) that is not a Business Day for such Note need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on such date, and no additional interest shall
accrue as a result of such delayed payment. Each payment of interest in respect
of an Interest Payment Date shall include interest accrued through the day
before such Interest Payment Date. Interest on Fixed Rate Notes will be computed
on the basis of a 360-day year of twelve 30-day months.
FLOATING RATE NOTES. Unless otherwise specified in the applicable Pricing
Supplement, each Floating Rate Note will bear interest from its Original Issue
Date to the first Interest Reset Date (such period, the "Initial Interest
Period") for such Note at the Initial Interest Rate set forth on the face
thereof and in the applicable Pricing Supplement. The interest rate on such Note
for each Interest Reset Period (as defined below) (and for the Initial Interest
Period if so specified in the applicable Pricing Supplement) will be determined
by reference to an interest rate basis (the "Base Rate"), plus or minus the
Spread, if any, or multiplied by the Spread Multiplier, if any. The "Spread" is
the number of basis points that may be specified in the applicable Pricing
Supplement as being applicable to such Note, and the "Spread Multiplier" is the
percentage that may be specified in the applicable Pricing Supplement as being
applicable to such Note, except in each case as described below under
"Subsequent Interest Periods" and "Extension of Maturity", and except that if so
specified in the applicable Pricing Supplement, the Spread or Spread Multiplier
on certain Floating Rate Notes may be subject to adjustment from time to time as
described in such Pricing Supplement. The applicable Pricing Supplement will
designate one of the following Base Rates as applicable to a Floating Rate Note:
(i) LIBOR (a "LIBOR Note"), (ii) the Commercial Paper Rate (a "Commercial Paper
Rate Note"), (iii) the Treasury Rate (a "Treasury Rate Note"), (iv) the Prime
Rate (a "Prime Rate Note"), (v) CMT
S-5
<PAGE> 6
Rate (a "CMT Note"), (vi) the Federal Funds Rate (a "Federal Funds Rate Note"),
(vii) the CD Rate (a "CD Rate Note"), (viii) the Eleventh District Cost of Funds
Rate (an "Eleventh District Cost of Funds Rate Note") or (ix) such other Base
Rate as is set forth in such Pricing Supplement and in such Note. The "Index
Maturity" for any Floating Rate Note is the period of maturity of the instrument
or obligation from which the Base Rate is calculated. "H.15(519)" means the
publication entitled "Statistical Release H.15(519), 'Selected Interest
Rates' ", or any successor publication, published by the Board of Governors of
the Federal Reserve System. "Composite Quotations" means the daily statistical
release entitled "Composite 3:30 p.m. Quotations for U.S. Government Securities"
published by the Federal Reserve Bank of New York.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following (in each case expressed as a rate per
annum on a simple interest basis): (i) a maximum limitation, or ceiling, on the
rate at which interest may accrue during any interest period ("Maximum Interest
Rate") and (ii) a minimum limitation, or floor, on the rate at which interest
may accrue during any interest period ("Minimum Interest Rate"). In addition to
any Maximum Interest Rate that may be applicable to any Floating Rate Note, the
interest rate on a Floating Rate Note will in no event be higher than the
maximum rate permitted by applicable law, as the same may be modified by United
States law of general application. The Notes will be governed by the law of the
State of New York and, under such law as of the date of this Prospectus
Supplement, the maximum rate of interest under provisions of the penal law, with
certain exceptions, is 25% per annum on a simple interest basis. Such maximum
rate of interest only applies to obligations that are less than $2,500,000.
Unless otherwise specified in the Pricing Supplement, the Trustee will be
the "Calculation Agent". Upon request of the holder of any Floating Rate Note,
the Calculation Agent will provide the interest rate then in effect and, if
determined, the interest rate that will become effective as a result of a
determination for the next Interest Reset Date with respect to such Floating
Rate Note. Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date", if applicable, pertaining to any Interest Determination Date
will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day or (ii) the Business Day immediately preceding the applicable
Interest Payment Date or Stated Maturity, as the case may be.
The interest rate on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually (such period being the "Interest
Reset Period" for such Note, and the first day of each Interest Reset Period
being an "Interest Reset Date"), as specified in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing Supplement, the
Interest Reset Dates will be, in the case of Floating Rate Notes that reset
daily, each Business Day; in the case of Floating Rate Notes (other than
Treasury Rate Notes) that reset weekly, Wednesday of each week; in the case of
Treasury Rate Notes that reset weekly, Tuesday of each week (except as provided
below under "Treasury Rate Notes"); in the case of Floating Rate Notes that
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes that reset quarterly, the third Wednesday of March, June, September and
December of each year; in the case of Floating Rate Notes that reset
semiannually, the third Wednesday of each of two months of each year specified
in the applicable Pricing Supplement; and, in the case of Floating Rate Notes
that reset annually, the third Wednesday of one month of each year specified in
the applicable Pricing Supplement. If an Interest Reset Date for any Floating
Rate Note would otherwise be a day that is not a Business Day, such Interest
Reset Date shall be postponed to the next succeeding Business Day, except that,
in the case of a LIBOR Note, if such Business Day is in the next succeeding
calendar month, such Interest Reset Date shall be the immediately preceding
Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest that goes into effect on any Interest Reset Date shall be determined
on a date (the "Interest Determination Date") preceding such Interest Reset
Date, as further described below. Unless otherwise specified in the applicable
Pricing Supplement the Interest Determination Date pertaining to an Interest
Reset Date for a CD Rate Note or any Floating Rate Note for which the interest
rate is determined with reference to the CD Rate (the "CD Rate Interest
Determination Date"), for a Commercial Paper Rate Note or any Floating Rate Note
for which the interest rate is determined with reference to the Commercial Paper
Rate (the
S-6
<PAGE> 7
"Commercial Paper Rate Interest Determination Date"), for a Federal Funds Rate
Note or any Floating Rate Note for which the interest rate is determined with
reference to the Federal Funds Rate (the "Federal Funds Rate Interest
Determination Date"), or for a Prime Rate Note or any Floating Rate Note for
which the interest rate is determined with reference to the Prime Rate (the
"Prime Rate Interest Determination Date"), or for a CMT Rate Note or any
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (the "CMT Rate Interest Determination Date"), will be the second
Business Day preceding the Interest Reset Date. The Interest Determination Date
pertaining to an Interest Reset Date for a LIBOR Note or any Floating Rate Note
for which the interest rate is determined with reference to LIBOR (the "LIBOR
Rate Interest Determination Date") will be the second London Banking Day
immediately preceding the Interest Reset Date with respect to such Note. The
Interest Determination Date pertaining to an Interest Reset Date for an Eleventh
District Cost of Funds Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the Eleventh District Cost of
Funds Rate (the "Eleventh District Cost of Funds Rate Interest Determination
Date") will be the last working day of the month immediately preceding the
applicable Interest Reset Date on which the Federal Home Loan Bank of San
Francisco (the "FHLB of San Francisco") publishes the Index (as defined below).
The Interest Determination Date pertaining to an Interest Reset Date for a
Treasury Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the Treasury Rate (the "Treasury Rate Interest
Determination Date") will be the day of the week on which Treasury bills (as
defined below) would normally be auctioned in the week in which such Interest
Reset Date falls. 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, as the result of a legal holiday, an auction is so held on
the preceding Friday, such Friday will be the Treasury Rate Interest
Determination Date pertaining to an Interest Reset Date occurring in the next
succeeding week. If an auction date shall fall on a day which would otherwise be
an Interest Reset Date for a Treasury Rate Note, then such Interest Reset Date
shall instead be the first Business Day immediately following such auction date.
The Interest Determination Date pertaining to a Floating Rate Note the interest
rate of which is determined by reference to two or more Interest Rate Bases will
be the most recent Business Day which is at least two Business Days prior to the
applicable Interest Reset Date for such Floating Rate Note on which each
Interest Rate Basis is determinable. Each Interest Rate Basis will be determined
on such date, and the applicable interest rate will take effect on the
applicable Interest Reset Date.
Unless otherwise specified in the applicable Pricing Supplement, interest
payable in respect of Floating Rate Notes shall be the accrued interest from and
including the Original Issue Date or the last date to which interest has been
paid, as the case may be, to but excluding the applicable Interest Payment Date.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Note (or, in the case of a Floating
Rate Note that is an Indexed Principal Note, its Face Amount) by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which accrued
interest is being calculated. Unless otherwise specified in the applicable
Pricing Supplement the interest factor (expressed as a decimal calculated to
seven decimal places without rounding) for each such day is computed by dividing
the interest rate in effect on such day by 360, in the case of LIBOR Notes,
Prime Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes,
Eleventh District Cost of Funds Rate Notes, and CD Rate Notes or by the actual
number of days in the year, in the case of CMT Rate Notes or Treasury Rate
Notes. For purposes of making the foregoing calculation, the interest rate in
effect on any Interest Reset Date will be the applicable rate as reset on such
date.
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation of the rate of interest on a Floating
Rate Note will be rounded, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward, and
all currency amounts used in or resulting from such calculation on Floating Rate
Notes will be rounded to the nearest one-hundredth of a unit (with .005 of a
unit being rounded upward).
S-7
<PAGE> 8
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
that reset daily, weekly or monthly, on the third Wednesday of each month or on
the third Wednesday of March, June, September and December of each year, as
specified in the applicable Pricing Supplement; in the case of Floating Rate
Notes that reset quarterly, on the third Wednesday of March, June, September,
and December of each year; in the case of Floating Rate Notes that reset
semiannually, on the third Wednesday of each of two months of each year
specified in the applicable Pricing Supplement; and, in the case of Floating
Rate Notes that reset annually, on the third Wednesday of one month of each year
specified in the applicable Pricing Supplement (each such day being an "Interest
Payment Date"). If an Interest Payment Date with respect to any Floating Rate
Note would otherwise be a day that is not a Business Day, such Interest Payment
Date shall be postponed to the next succeeding Business Day, except that, in the
case of a LIBOR Note, if such Business Day is in the next succeeding calendar
month, such Interest Payment Date shall be the immediately preceding Business
Day.
CD RATE NOTES. Each CD Rate Note will bear interest for each Interest Reset
Period at the interest rate calculated with reference to the CD Rate and the
Spread or Spread Multiplier, if any, specified in such Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "CD
Rate" for each Interest Reset Period shall be the rate on the CD Rate Interest
Determination Date for negotiable certificates of deposit having the Index
Maturity designated in the applicable Pricing Supplement as published in
H.15(519) under the heading "CDs (Secondary Market)". In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date pertaining to such Interest Determination Date, then the "CD Rate" for such
Interest Reset Period will be the rate on such Interest Rate Determination Date
for negotiable certificates of deposit of the Index Maturity designated in the
applicable Pricing Supplement as published in Composite Quotations under the
heading "Certificates of Deposit". If by 3:00 p.m., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or Composite
Quotations, then the "CD Rate" for such Interest Reset Period will be calculated
by the Calculation Agent for such CD Rate Note and will be the arithmetic mean
of the secondary market offered rates as of 10:00 a.m., New York City time, on
such 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 such CD Rate Note for negotiable certificates of deposit
of major United States money center banks of the highest credit standing (in the
market for negotiable certificates of deposit) with a remaining maturity closest
to the Index Maturity designated in the Pricing Supplement in a denomination of
$5,000,000; provided, however, that if the dealers selected as aforesaid by such
Calculation Agent are not quoting offered rates as mentioned in this sentence,
the "CD Rate" for such Interest Reset Period will be the same as the CD Rate for
the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Interest Rate).
COMMERCIAL PAPER RATE NOTES. Each Commercial Paper Rate Note will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Commercial Paper Rate and the Spread or Spread Multiplier, if
any, specified in such Commercial Paper Rate Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Commercial Paper Rate" for each Interest Reset Period will be determined by the
Calculation Agent for such Commercial Paper Rate Note as of the Commercial Paper
Rate Interest Determination Date and shall be the Money Market Yield (as defined
below) on such Interest Determination Date of the rate for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement, as
such rate shall be published in H.15(519) under the heading "Commercial Paper".
In the event that such rate is not published prior to 3:00 p.m., New York City
time, on the Calculation Date (as defined below) pertaining to such Interest
Determination Date, then the "Commercial Paper Rate" for such Interest Reset
Period shall be the Money Market Yield on such Interest Determination Date of
the rate for commercial paper of the specified Index Maturity as published in
Composite Quotations under the heading "Commercial Paper". If by 3:00 p.m., New
York City time, on such Calculation Date such rate is not yet published in
either H.15(519) or
S-8
<PAGE> 9
Composite Quotations, then the "Commercial Paper Rate" for such Interest Reset
Period shall be the Money Market Yield of the arithmetic mean of the offered
rates, as of 11:00 a.m., New York City time, on such Interest Determination Date
of three leading dealers of commercial paper in The City of New York selected by
the Calculation Agent for such Commercial Paper Rate Note for commercial paper
of the specified Index Maturity placed for an industrial issuer whose bonds are
rated "AA" or the equivalent by a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "Commercial Paper
Rate" for such Interest Reset Period will be the same as the Commercial Paper
Rate for the immediately preceding Interest Reset Period (or, if there was no
such Interest Reset Period, the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C> <C> <C>
D X 360
Money Market Yield = ------------------------ X 100
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
FEDERAL FUNDS RATE NOTES. Each Federal Funds Rate Note will bear interest
for each Interest Reset Period at the interest rate calculated with reference to
the Federal Funds Rate and the Spread or Spread Multiplier, if any, specified in
such Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective rate
on the Federal Funds Rate Interest Determination 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 3:00 p.m., New York City time, on
the Calculation Date pertaining to such Interest Determination Date, the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on such
Interest Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". If by 3:00 p.m., New York City time, on
such Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Federal Funds Rate" for such Interest Reset
Period shall be the rate on such Interest Determination Date made publicly
available by the Federal Reserve Bank of New York which is equivalent to the
rate which appears in H.15(519) under the heading "Federal Funds (Effective)";
provided, however, that if such rate is not made publicly available by the
Federal Reserve Bank of New York by 3:00 p.m., New York City time, on such
Calculation Date, the "Federal Funds Rate" for such Interest Reset Period will
be the same as the Federal Funds Rate in effect for the immediately preceding
Interest Reset Period (or, if there was no such Interest Reset Period, the
Initial Interest Rate). In the case of a Federal Funds Rate Note that resets
daily, the interest rate on such Note for the period from and including a Monday
to but excluding the succeeding Monday will be reset by the Calculation Agent
for such Note on such second Monday (or, if not a Business Day, on the next
succeeding Business Day) to a rate equal to the average of the Federal Funds
Rates in effect with respect to each such day in such week.
LIBOR NOTES. Each LIBOR Note will bear interest for each Interest Reset
Period at the interest rate calculated with reference to LIBOR and the Spread or
Spread Multiplier, if any, specified in such LIBOR Note and in the applicable
Pricing Supplement.
"LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for such LIBOR Notes as follows:
(i) On the LIBOR Rate Interest Determination Date, the Calculation Agent
for such LIBOR Note will determine LIBOR, and it shall be either: (a) if "LIBOR
Reuters" is specified in the applicable Pricing Supplement, the arithmetic mean
of the offered rates for deposits in U.S. dollars for the period of the Index
Maturity specified in the applicable Pricing Supplement, commencing on such
Interest Reset Date, which appear on the Designated LIBOR Page at approximately
11:00 a.m., London time, on such Interest Determination Date, if at least two
such offered rates appear on such Designated LIBOR Page; or (b) if
S-9
<PAGE> 10
"LIBOR Telerate" is specified in the applicable Pricing Supplement or if neither
"LIBOR Reuters" nor "LIBOR Telerate" is specified as the method for calculating
LIBOR, the rate for deposits in the Index Currency having the Index Maturity
designated in the applicable Pricing Supplement, commencing on such Interest
Reset Date that appears on the Designated LIBOR Page specified in the applicable
Pricing Supplement as of 11:00 a.m., London time, on such LIBOR Interest
Determination Date. If fewer than two such offered rates appear, or if no such
rate appears, as applicable, LIBOR in respect of the related LIBOR Interest
Determination Date will be determined in accordance with the provisions
described in clause (ii) below. "Designated LIBOR Page" means "LIBOR Telerate",
which shall be the display designated as page "3750" on the Dow Jones Telerate
Service (or such other page as may replace page "3750" on such service or such
other service as may be nominated by the British Bankers' Association for the
purpose of displaying the London interbank offered rates of major banks), unless
"LIBOR Reuters" is designated in the applicable Pricing Supplement, in which
case "Designated LIBOR Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the LIBO
page on such service or such other service as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates of major banks).
(ii) If fewer than two offered rates appear, or no rate appears, as the
case may be on the Designated LIBOR Page on such Interest Determination Date,
the Calculation Agent for such LIBOR Note will request the principal London
offices of each of four major banks in the London interbank market selected by
such Calculation Agent to provide such Calculation Agent with its offered
quotations for deposits in U.S. dollars for the period of the specified Index
Maturity, commencing on such Interest Reset Date, to prime banks in the London
interbank market at approximately 11:00 a.m., London time, on such Interest
Determination Date and in a principal amount equal to an amount of not less than
$1,000,000 that is representative of a single transaction in such market at such
time. If at least two such quotations are provided, "LIBOR" for such Interest
Reset Period will be the arithmetic mean of such quotations. If fewer than two
such quotations are provided, "LIBOR" for such Interest Reset Period will be the
arithmetic mean of rates quoted by three major banks in The City of New York
selected by the Calculation Agent for such LIBOR Note at approximately 11:00
a.m., New York City time, on such Interest Determination Date for loans in U.S.
dollars to leading European banks, for the period of the specified Index
Maturity, commencing on such Interest Reset Date, and in a principal amount
equal to an amount of not less than $1,000,000 that is representative of a
single transaction in such market at such time; provided, however, that if fewer
than three banks selected as aforesaid by such Calculation Agent are quoting
rates as mentioned in this sentence, "LIBOR" for such Interest Reset Period will
be the same as LIBOR for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the Initial Interest Rate).
TREASURY RATE NOTES. Each Treasury Rate Note will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the
Treasury Rate and the Spread or Spread Multiplier, if any, specified in such
Treasury Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" for each Interest Reset Period will be the rate for the auction
held on the Treasury Rate Interest Determination Date for such Interest Reset
Period of direct obligations of the United States ("Treasury securities") having
the Index Maturity specified in the applicable Pricing Supplement, as such rate
shall be published in H.15(519) under the heading "U.S. Government
Securities -- Treasury bills -- auction average (investment)" or, in the event
that such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the auction
average rate (expressed as a bond equivalent on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) on such Interest
Determination Date as otherwise announced by the United States Department of the
Treasury. In the event that the results of the auction of Treasury securities
having the specified Index Maturity are not published or reported as provided
above by 3:00 p.m., New York City time, on such Calculation Date, or if no such
auction is held on such Interest Determination Date, then the "Treasury Rate"
for such Interest Reset Period shall be calculated by the Calculation Agent for
such Treasury Rate Note and shall be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or
S-10
<PAGE> 11
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 Interest Determination Date, of three leading primary United
States government securities dealers selected by such Calculation Agent for the
issue of Treasury securities with a remaining maturity closest to the specified
Index Maturity; provided, however, that if the dealers selected as aforesaid by
such Calculation Agent are not quoting bid rates as mentioned in this sentence,
then the "Treasury Rate" for such Interest Reset Period will be the same as the
Treasury Rate for the immediately preceding Interest Reset Period (or, if there
was no such Interest Reset Period, the Initial Interest Rate).
PRIME RATE NOTES. Each Prime Rate Note will bear interest at the interest
rate calculated with reference to the Prime Rate and the Spread or Spread
Multiplier, if any specified in such Note and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the "Prime
Rate" means, with respect to any Prime Rate Interest Determination Date, the
rate on such date as published in H.15(519) under the heading "Bank Prime Loan."
In the event that such rate is not published by 9:00 a.m., New York City time,
on the Calculation Date pertaining to such Interest Determination Date, then the
Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as defined below) as such bank's
prime rate or base lending rate as in effect for that Interest Determination
Date. "Reuters Screen USPRIME1" means the display designated as page "USPRIME1"
on the Reuters Monitor Money Rates Service (or such other page as may replace
the USPRIME1 page on that service for the purpose of displaying prime rates or
base lending rates of major United States banks). If fewer than four such rates
but more than one such rate appear on the Reuters Screen USPRIME1 Page for such
Interest Determination Date, the Prime Rate shall be determined by the
Calculation Agent and will be the arithmetic mean of the prime rates quoted on
the basis of actual number of days in the year divided by 360 as of the close of
business on such Interest Determination Date by at least two major money center
banks in New York City selected by the Calculation Agent (after consulting with
the Company). If fewer than two such rates appear on the Reuters Screen USPRIME1
Page, the Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the prime rates furnished in New York City by three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any State thereof, in each case having total equity
capital of at least U.S. $500,000,000 and being subject to supervision or
examination by Federal or State authority, selected by the Calculation Agent
(after consulting with the Company) to provide such rate or rates; provided,
however, that if the banks selected as aforesaid are not quoting as mentioned
in this sentence, the Prime Rate will remain the Prime Rate in effect on such
Interest Determination Date.
CMT RATE NOTES. Each CMT Rate Note will bear interest at the rate
calculated with reference to the CMT Rate and the Spread or Spread Multiplier,
if any, specified in such CMT Rate Note and in any applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Rate 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 Telerate Page is
7055, the rate on such Interest Determination Date and (ii) if the Designated
CMT Telerate Page is 7052, the week, or the month, as applicable, ended
immediately preceding the week in which the related Interest Determination Date
occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such treasury
constant maturity rate for the Designated CMT Maturity Index as published in
H15.(519). If such rate is no longer published, or if not published by 3:00
P.M., New York City time, on the related Calculation Date, then the CMT Rate for
such Interest Determination Date will be such treasury constant maturity rate
for the designated CMT Maturity Index (or other United States Treasury rate for
the Designated CMT Maturity Index) for the Interest Determination Date with
respect to such
S-11
<PAGE> 12
Interest Reset Date as may then be published by either the Board of Governors of
the Federal Reserve System or the United States Department of the Treasury that
the Calculation Agent determines to be comparable to the rate formerly displayed
on the Designated CMT Telerate Page and published in the relevant H.15(519). If
such information is not provided by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for such 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 side offer prices
as of approximately 3:30 P.M., New York City time, on the Interest Determination
Date reported, according to their written records, by three leading primary
United States government securities dealers (each, a "Reference Dealer") in the
City of New York selected by the Calculation Agent (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for the most recently issued
direct noncallable fixed rate obligations of the United States ("Treasury
Notes") with an original maturity of approximately the Designated CMT Maturity
Index and a remaining term to maturity of not less than such Designated CMT
Maturity Index minus one year. If the Calculation Agent cannot obtain three such
Treasury Note quotations, the CMT Rate for such Interest Determination Date will
be calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 P.M., New York City time, on the Interest Determination Date
of three Reference Dealers in the City of New York (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for such Treasury Notes with an
original maturity of the number of years that is the next highest to the
Designated CMT Maturity Index and a remaining term to maturity closest to the
Designated CMT Maturity Index in an amount of at least U.S. $100 million. If
three or four (and not five) of such Reference Dealers are quoting as described
above, then the CMT Rate will be based on the arithmetic mean of the offer
prices obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided, however, that if fewer than three Reference Dealers
selected by the Calculation Agent are quoting as described herein, the CMT Rate
will be the CMT Rate in effect on such Interest Determination Date. If two
Treasury Notes with an original maturity as described in the third preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the quotes for the CMT Rate Note with the shorter remaining term
to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service designated in the applicable Pricing Supplement for the purpose of
displaying Treasury Constant Maturities as reported in H.15 (519) (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)). If no such page is
specified in the applicable Pricing Supplement, the Designated CMT Telerate Page
shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 2 years.
ELEVENTH DISTRICT COST OF FUNDS RATE NOTES. Each Eleventh District Cost of
Funds Rate Note will bear interest at interest rates calculated with reference
to the Eleventh District Cost of Funds Rate and the Spread or Spread Multiplier,
if any, specified in such Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Eleventh
District Cost of Funds Rate" means, with respect to an Eleventh District Cost of
Funds Interest Determination Date the rate equal to the monthly weighted average
cost of funds for the calendar month immediately preceding the month in which
such Interest Determination Date falls, as set forth under the caption "11th
district" on Telerate Page 7058 (as defined below) as of 11:00 A. M., San
Francisco time, on such Interest Determination Date. If such rate does not
appear on Telerate Page 7058 on such Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Interest Determination Date will be
the monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan
S-12
<PAGE> 13
Bank District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding the
date of such announcement. If the FHLB of San Francisco fails to announce such
rate for the calendar month immediately preceding such Interest Determination
Date, then the Eleventh District Cost of Funds Rate determined as of such
Interest Determination Date will be the Eleventh District Cost of Funds Rate in
effect on such Interest Determination Date.
"Telerate Page 7058" means the display designated as page "7058" on the Dow
Jones Telerate Service (or such other page as may replace the 7058 page on that
service for the purpose of displaying the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District).
SUBSEQUENT INTEREST PERIODS
The Pricing Supplement relating to each Note will indicate whether the
Company has the option to reset the interest rate (in the case of a Fixed Rate
Note) with respect to such Note or the Spread or Spread Multiplier (in the case
of a Floating Rate Note) with respect to such Note and, if so, the date or dates
on which such interest rate or such Spread or Spread Multiplier, as the case may
be, may be reset (each an "Optional Reset Date").
The Company shall notify the Trustee for a Note whether or not it intends
to exercise such option with respect to such Note at least 45 but not more than
60 calendar days prior to an Optional Reset Date for such Note. Not later than
40 calendar days prior to such Optional Reset Date, the Trustee for such Note
will mail to the Holder of such Note a notice (the "Reset Notice"), first class,
postage prepaid, indicating whether the Company has elected to reset the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) and if so, (i) such new
interest rate or such new Spread or Spread Multiplier, as the case may be; and
(ii) the provisions, if any, for redemption during the period from such Optional
Reset Date to the next Optional Reset Date or, if there is no such next Optional
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 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 or Spread
Multiplier (in the case of a Floating Rate Note) provided for in the Reset
Notice with respect to such Optional Reset Date and establish a higher interest
rate (in the case of a Fixed Rate Note) or a higher Spread or Spread Multiplier
(in the case of a Floating Rate Note) for the Subsequent Interest Period
commencing on such Optional Reset Date by causing the Trustee for such Note to
mail notice of such higher interest rate or higher Spread or Spread Multiplier,
as the case may be, first class, postage pre-paid, to the Holder of such Note.
Such notice shall be irrevocable. All Notes with respect to which the interest
rate or Spread or Spread Multiplier is reset on an Optional Reset Date will bear
such higher interest rate (in the case of Fixed Rate Notes) or higher Spread or
Spread Multiplier (in the case of Floating Rate Notes), whether or not tendered
for repayment.
The Holder of a Note will have the option to elect repayment of such Note
by the Company on each Optional Reset Date at a price equal to the principal
amount thereof, plus interest accrued to such Optional Reset Date. In order for
a Note to be repaid on an Optional Reset Date, the Holder thereof must follow
the procedures set forth below under "Optional Redemption, Repayment and
Repurchase" for optional repayment, except that the period for delivery of such
Note or notification to the Trustee for such Note shall be at least 25 but not
more than 35 calendar days prior to such Optional Reset Date, and except that a
Holder who has tendered a Note for repayment pursuant to a Reset Notice may, by
written notice to the Trustee for such Note, revoke any such tender for
repayment until the close of business on the tenth day prior to such Optional
Reset Date.
S-13
<PAGE> 14
AMORTIZING NOTES
The Company may from time to time offer Notes ("Amortizing Notes") on which
a portion or all the principal amount is payable prior to Stated Maturity in
accordance with a schedule, by application of a formula, or by reference to an
Index (as defined below). Unless otherwise specified in the applicable Pricing
Supplement, payments with respect to Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. Further information concerning additional terms and
conditions of any Amortizing Notes, including terms for repayment thereof, will
be set forth in the applicable Pricing Supplement.
INDEXED NOTES
The Company may from time to time offer Notes ("Indexed Notes") on which
certain or all interest payments (in the case of an "Indexed Rate Note"), and/or
the principal amount payable at Stated Maturity or earlier redemption or
retirement (in the case of an "Indexed Principal Note"), is determined by
reference to the principal amount of such Notes (or, in the case of an Indexed
Principal Note, to the amount designated in the applicable Pricing Supplement as
the "Face Amount" of such Indexed Note) and by reference to prices, changes in
prices, or differences between prices, of securities, currencies, intangibles,
goods, articles or commodities or by such other objective price, economic or
other measures as are described in the applicable Pricing Supplement (the
"Index"). A description of the Index used in any determination of an interest or
principal payment, and the method or formula by which interest or principal
payments will be determined by reference to such Index, will be set forth in the
applicable Pricing Supplement.
In the case of a Fixed Rate Note, Floating Rate Note or Indexed Rate Note
that is also an Indexed Principal Note, the amount of any interest payment will
be determined by reference to the Face Amount of such Indexed Note unless
specified otherwise in the applicable Pricing Supplement. In the case of an
Indexed Principal Note, the principal amount payable at Stated Maturity or any
earlier redemption or repayment of the Indexed Note may be different from the
Face Amount.
If the determination of the Index on which any interest payment or the
principal amount of an Indexed Note is calculated or announced by a third party,
and such third party either suspends the calculation or announcement of such
Index or changes the basis upon which such Index is calculated (other than
changes consistent with policies in effect at the time such Indexed Note was
issued and permitted changes described in the applicable Pricing Supplement),
then such Index shall be calculated for purposes of such Indexed Note by another
third party selected by the Company, subject to the same conditions and controls
as applied to the original third party. If for any reason such Index cannot be
calculated on the same basis and subject to the same conditions and controls as
applied to the original third party, then the indexed interest payments, if any,
or any indexed principal amount of such Indexed Note shall be calculated in the
manner set forth in the applicable Pricing Supplement. Any determination of such
third party shall in the absence of manifest error be binding on all parties.
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 whole years from one to five (each an "Extension Period") up to
but not beyond the date (the "Final Maturity") set forth in such Pricing
Supplement.
The Company may exercise such option with respect to a Note by notifying
the Trustee for such Note at least 45 but not more than 60 calendar days prior
to the old Stated Maturity of such Note. Not later than 40 calendar days prior
to the old Stated Maturity of such Note, the Trustee for such Note will mail to
the Holder of such Note a notice (the "Extension Notice"), first class, postage
prepaid. The Extension Notice will set forth (i) the election of the Company 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 to the Extension
Period or, in the case of a Floating Rate Note, the Spread or Spread Multiplier
applicable to the Extension
S-14
<PAGE> 15
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 mailing by such Trustee of an Extension Notice to the
Holder of a Note, the Stated Maturity of such Note shall be extended
automatically, and, except as modified by the Extension Notice and as described
in the next paragraph, such Note will have the same terms as prior to the
mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 20 calendar days prior to the
old Stated Maturity of such Note, the Company may, at its option, revoke the
interest rate (in the case of a Fixed Rate Note) or the Spread or Spread
Multiplier (in the case of a Floating Rate Note) provided for in the Extension
Notice for such Note and establish a higher interest rate (in the case of a
Fixed Rate Note) or a higher Spread or Spread Multiplier (in the case of a
Floating Rate Note) for the Extension Period, by causing the Trustee for such
Note to mail notice of such higher interest rate or higher Spread or Spread
Multiplier, as the case may be, first class, postage prepaid, to the Holder of
such Note. Such notice shall be irrevocable. All Notes with respect to which the
Stated Maturity is extended will bear such higher interest rate (in the case of
Fixed Rate Notes) or higher Spread or Spread Multiplier (in the case of Floating
Rate Notes) for the Extension Period, whether or not tendered for repayment.
If the Company extends the Stated Maturity of a Note, the Holder of such
Note will have the option to elect repayment of such Note by the Company on the
old Stated Maturity at a price equal to the principal amount thereof, plus
interest accrued to such date. In order for a Note to be repaid on the old
Stated Maturity once the Company has extended the Stated Maturity thereof, the
Holder thereof must follow the procedures set forth below under "Optional
Redemption, Repayment and Repurchase" for optional repayment, except that the
period for delivery of such Note or notification to the Trustee for such Note
shall be at least 25 but not more than 35 days prior to the old Stated Maturity
and except that a Holder who has tendered a Note for repayment pursuant to an
Extension Notice may, by written notice to the Trustee for such Note, revoke any
such tender for repayment until the close of business on the tenth day before
the old Stated Maturity.
OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE
The Pricing Supplement relating to each Note will indicate either that such
Note cannot be redeemed prior to its Stated Maturity or that such Note will be
redeemable at the option of the Company, in whole or in part, and the date or
dates (each an "Optional Redemption Date") on which such Note may be redeemed
and the price (the "Redemption Price") at which (together with accrued interest
to such Optional Redemption Date) such Note may be redeemed on each such
Optional Redemption Date. The Company may exercise such option with respect to a
Note by notifying the Trustee for such Note at least 45 days prior to any
Optional Redemption Date. Unless otherwise specified in the applicable Pricing
Supplement, at least 30 but not more than 60 days prior to the date of
redemption, such Trustee shall mail notice of such redemption, first class,
postage prepaid, to the Holder of such Note. In the event of redemption of a
Note in part only, a new Note or Notes for the unredeemed portion thereof shall
be issued to the Holder thereof upon the cancellation thereof. The Notes will
not be subject to any sinking fund.
The Pricing Supplement relating to each Note will also indicate whether the
Holder of such Note will have the option to elect repayment of such Note by the
Company prior to its Stated Maturity, and, if so, such Pricing Supplement will
specify the date or dates on which such Note may be repaid (each an "Optional
Repayment Date") and the price (the "Optional Repayment Price") at which,
together with accrued interest to such Optional Repayment Date, such Note may be
repaid on each such Optional Repayment Date.
In order for a Note to be repaid, the Trustee for such Note must receive,
at least 30 but not more than 45 days prior to an Optional Repayment Date (i)
such Note with the form entitled "Option to Elect Repayment" on the reverse
thereof duly completed, or (ii) a telegram, telex, facsimile transmission or
letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder of
S-15
<PAGE> 16
such Note, the principal amount of such Note to be repaid, the certificate
number or a description of the tenor and terms of such 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 such Trustee not later
than five Business Days after the date of such telegram, telex, facsimile
transmission or letter. If the procedure described in clause (ii) of the
preceding sentence is followed, then such Note and form duly completed must be
received by such Trustee by such fifth Business Day. Any tender of a Note by the
Holder for repayment (except pursuant to a Reset Notice or an Extension Notice)
shall be irrevocable. The repayment option may be exercised by the Holder of a
Note for less than the entire principal amount of such Note provided that the
principal amount of such Note remaining outstanding after repayment is an
authorized denomination. Upon such partial repayment, such Note shall be
cancelled and a new Note or Notes for the remaining principal amount thereof
shall be issued in the name of the Holder of such repaid Note.
If a Note is represented by a Global Security, the Depositary's nominee
will be the Holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Note in
order to ascertain the cut-off time by which such an instruction must be given
in order for timely notice to be delivered to the Depositary.
Notwithstanding anything in this Prospectus Supplement to the contrary, if
a Note is an Original Issue Discount Note (other than an Indexed Note), the
amount payable on such Note in the event of redemption or repayment prior to its
Stated Maturity shall be the Amortized Face Amount of such Note as of the date
of redemption or the date of repayment, as the case may be. The "Amortized Face
Amount" of a Discount Note shall be the amount equal to (i) the Issue Price set
forth in the applicable Pricing Supplement plus (ii) that portion of the
difference between the Issue Price and the principal amount of such Note that
has accrued at the Yield to Maturity set forth in the Pricing Supplement
(computed in accordance with generally accepted United States bond yield
computation principles) by such date of redemption or repayment, but in no event
shall the Amortized Face Amount of a Discount Note exceed its principal amount.
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the Trustee for cancellation.
BOOK-ENTRY SYSTEM
Upon issuance, and subject to the rules of the Depositary, all Fixed Rate
Book-Entry Notes having the same Original Issue Date and otherwise identical
terms will be represented by a single Global Security. Each Global Security
representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary"), and registered
in the name of a nominee of the Depositary. Book-Entry Notes will not be
exchangeable for Certificated Notes and, except under the circumstances
described in the Prospectus under "Description of Debt Securities -- Global
Securities", will not otherwise be issuable as Certificated Notes.
The Depositary has advised the Company and the Agents as follows: The
Depositary is a limited-purpose trust company organized under New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. The Depositary was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
S-16
<PAGE> 17
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
A further description of the Depositary's procedures with respect to Global
Securities representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities -- Global Securities". The Depositary has
confirmed to the Company, the Agents and the Trustees that it intends to follow
such procedures.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a Note having a Specified Currency other than U.S. dollars
entails significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and such Specified Currency and the possibility of the imposition or
modification of foreign exchange controls with respect to such Specified
Currency. Such risks generally depend on factors over which the Company has no
control and which cannot be readily foreseen, such as economic and political
events and the supply of and demand for the relevant currencies. In recent
years, rates of exchange between the U.S. dollar and certain currencies have
been highly volatile, and such volatility may be expected in the future.
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 Note. Depreciation of the Specified Currency for a Note
against the U.S. dollar would result in a decrease in the effective yield of
such Note below its coupon rate and, in certain circumstances, could result in a
substantial loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Specified Currency for making payments in respect of Notes denominated in
such currency. At present, the Company has identified the following currencies
in which payments of principal, premium and interest on Notes may be made:
Australian dollars, Canadian dollars, Danish kroner, English pounds sterling,
French francs, German deutsche marks, Italian lira, Japanese yen, New Zealand
dollars, U.S. dollars and ECU. However, the Company may determine at any time to
issue Notes with Specified Currencies other than those listed. There can be no
assurances that exchange controls will not restrict or prohibit payments of
principal, premium or interest in any Specified Currency. Even if there are no
actual exchange controls, it is possible that, on a payment date with respect to
any particular Note, the currency in which amounts then due in respect of such
Note are payable would not be available to the Company. In that event, the
Company will make such payments in the manner set forth under "Description of
Medium Term Notes -- Payment of Principal and Interest" above.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT DESCRIBE
ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED IN A CURRENCY OTHER THAN
U.S. DOLLARS, AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE
PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN NOTES DENOMINATED IN A CURRENCY OTHER THAN U.S. DOLLARS. SUCH
NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH
RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
S-17
<PAGE> 18
The information set forth in this Prospectus Supplement is directed to
prospective purchasers of Notes 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 or holding of, or receipt of payments of principal, premium
or interest in respect of, Notes. Such persons should consult their own advisors
with regard to such matters.
Any Pricing Supplement relating to Notes having a Specified Currency other
than U.S. dollars will contain a description of any material exchange controls
affecting such currency and any other required information concerning such
currency.
PAYMENT CURRENCY
Except as set forth below, if payment in respect of a Note is required to
be made in a Specified Currency other than U.S. dollars and such currency is
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or is no longer used by the government of the
country issuing such currency or for the settlement of transactions by public
institutions of or within the international banking community, then all payments
in respect of such Note shall be made in U.S. dollars until such currency is
again available or so used. The amounts so payable on any date in such currency
shall be converted into U.S. dollars on the basis of the most recently available
Market Exchange Rate for such currency or as otherwise indicated in the
applicable Pricing Supplement. Any payment in respect of such Note made under
such circumstances in U.S. dollars will not constitute an Event of Default under
the Indenture under which such Note shall have been issued.
If payment in respect of a Note is required to be made in ECU and ECU are
no longer used in the European Monetary System, then all payments in respect of
such Note shall be made in U.S. dollars until ECU are again so used. The amount
of each payment in U.S. dollars shall be computed on the basis of the equivalent
of ECU in U.S. dollars, determined as described below, as of the second Business
Day prior to the date on which such payment is due.
The equivalent of ECU in U.S. dollars as of any date (the "Day of
Valuation") shall be determined by the Trustee for such Note on the following
basis. The component currencies of ECU for this purpose (the "Components") shall
be the currency amounts that were components of ECU as of the last date on which
ECU were used in the European Monetary System. The equivalent of ECU in U.S.
dollars shall be calculated by aggregating the U.S. dollar equivalents of the
Components. The U.S. dollar equivalent of each of the Components shall be
determined by such Trustee or such Exchange Rate Agent, as the case may be, on
the basis of the most recently available Market Exchange Rates for such
Components or as otherwise indicated in the applicable Pricing Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as Components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that currency as a Component shall be replaced
by amounts of such two or more currencies, each of which shall be equal to the
amount of the former component currency divided by the number of currencies into
which that currency was divided.
All determinations referred to above made by the Trustee for the Notes or
the Exchange Rate Agent, as the case may be, shall be at its sole discretion and
shall, in the absence of manifest error, be conclusive for all purposes and
binding on holders of Notes.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the law of
the State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated
S-18
<PAGE> 19
in any currency other than the U.S. dollar. A 1987 amendment to the Judiciary
Law of the State of New York provides, however, that an action based upon an
obligation denominated in a currency other than U.S. dollars will be rendered in
the foreign currency of the underlying obligation and converted into U.S.
dollars at the rate of exchange prevailing on the date of the entry of the
judgment or decree.
UNITED STATES TAX CONSIDERATIONS
In the opinion of Jones, Day, Reavis & Pogue, tax counsel to the Company,
the following summary accurately describes the principal United States federal
income tax consequences to the initial holders purchasing Notes at the "issue
price" (as defined below) of ownership and disposition of the Notes. This
summary is based on the Internal Revenue Code of 1986, as amended to the date
hereof (the "Code"), administrative pronouncements, judicial decisions and
existing and proposed Treasury Regulations (the "Regulations"), including
regulations concerning the treatment of debt instruments issued with original
issue discount (the "OID Regulations"), changes to any of which subsequent to
the date of this Prospectus Supplement may affect the tax consequences described
herein. This summary discusses only Notes held as capital assets within the
meaning of Section 1221 of the Code. It does not discuss all of the tax
consequences that may be relevant to a holder in light of his 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 a hedge against, or which are hedged against, currency
risks, that are part of a straddle or conversion transaction, persons who are
not "Holders" (as defined below) or holders whose functional currency (as
defined in Code Section 985) is not the U.S. dollar. Finally, this summary does
not discuss Original Issue Discount Notes (as defined below) which qualify as
"applicable high-yield discount obligations" under Section 163(i) of the Code.
Holders of Original Issue Discount Notes which are "applicable high-yield
discount obligations" may be subject to special rules. 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 arising under the laws of any state,
local or foreign taxing jurisdiction.
As used herein, the term "Holder" means a beneficial owner of a Note that
is (i) for United States federal income tax purposes a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.
TAX CONSEQUENCES TO HOLDERS
PAYMENTS OF INTEREST. The Notes should constitute debt for United States
federal income tax purposes. Interest paid on a Note will generally be taxable
to a Holder as ordinary interest income at the time it accrues or is received in
accordance with the Holder's method of accounting for federal income tax
purposes. Under the OID Regulations, all payments of interest on a Note that
matures one year or less from its date of issuance will be included in the
stated redemption price at maturity of the Notes and will be taxed in the manner
described below under "Original Issue Discount Notes." Special rules governing
the treatment of interest paid with respect to Original Issue Discount Notes,
including certain Floating Rate Notes, Foreign Currency Notes, Amortizing Notes
and Indexed Notes are discussed below.
ORIGINAL ISSUE DISCOUNT NOTES. A Note which is issued for an amount less
than its stated redemption price at maturity will generally be considered to
have been issued at an original issue discount for federal income tax purposes.
The "issue price" of a Note will equal the first price at which a substantial
amount of the Notes is sold to the public (not including 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
payments of "qualified stated interest." "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
S-19
<PAGE> 20
of the Note multiplied by a single fixed rate or certain variable rates of
interest, 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 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 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.
If the difference between a Note's stated redemption price at maturity and
its issue price is less than a de minimis amount, i.e., 1/4 of 1 percent of the
Note's stated redemption price at maturity multiplied by the number of complete
years to maturity, then the Note will not be considered to have original issue
discount. Holders of Notes with a de minimis amount of original issue discount
will generally include such original issue discount in income, as capital gain,
on a pro rata basis as principal payments are made on the Note.
A Holder of Original Issue Discount Notes will be required to include any
qualified stated interest payments in income in accordance with the Holder's
method of accounting for federal income tax purposes. Holders of Original Issue
Discount Notes that mature more than one year from their date of issuance will
be required to include original issue discount in income for federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, before the receipt of cash payments attributable to
such income. Under this method, 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 includible in income by a Holder of an Original Issue Discount
Note is the sum of the daily portions of original issue discount with respect to
the Original Issue Discount Note for each day during the taxable year or portion
of the taxable year on which the Holder holds such Original Issue Discount Note
("accrued original issue discount"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the
original issue discount allocable to that accrual period. Accrual periods with
respect to a Note may be of any length selected by the Holder and may vary in
length over the term of the Note as long as (i) no accrual period is longer than
one year and (ii) each scheduled payment of interest or principal on the Note
occurs on either the final or first day of an accrual period. The amount of
original issue discount allocable to an accrual period equals the excess of (a)
the product of the Original Issue Discount Note's adjusted issue price at the
beginning of the accrual period and such Note's yield to maturity (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over (b) the sum of the payments
of qualified stated interest on the Note allocable to the accrual period. The
"adjusted issue price" of an Original Issue Discount Note at the beginning of
any accrual period is the issue price of the Note increased by (x) the amount of
accrued original issue discount for each prior accrual period and decreased by
(y) the amount of any payments previously made on the Note that were not
qualified stated interest payments. For purposes of determining the amount of
original issue discount allocable to an accrual period, if an interval between
payments of qualified stated interest on the Note contains more than one accrual
period, the amount of qualified stated interest payable at the end of the
interval (including any qualified stated interest that is payable on the first
day of the accrual period immediately following the interval) is allocated pro
rata on the basis of relative lengths to each accrual period in the interval,
and the adjusted issue price at the beginning of each accrual period in the
interval must be increased by the amount of any qualified stated interest that
has accrued prior to the first day of the accrual period but that is not payable
until the end of the interval. The amount of original issue discount allocable
to an initial short accrual period may be computed using any reasonable method
if all other accrual periods other than a final short accrual period are of
equal length. The amount of original issue discount allocable to the final
accrual period is the difference between (A) the amount payable at the maturity
of the Note (other than any
S-20
<PAGE> 21
payment of qualified stated interest) and (B) the Note's adjusted issue price as
of the beginning of the final accrual period.
Acquisition Premium. A Holder that purchases a Note for an amount less than
or equal to the sum of all amounts payable on the Note after the purchase date
other than payments of qualified stated interest but in excess of its adjusted
issue price (any such excess being "acquisition premium") and that does not make
the election described below under "Constant Yield Election" is permitted to
reduce the daily portions of original issue discount by a fraction, the
numerator of which is the excess of the Holder's adjusted basis in the Note
immediately after its purchase over the adjusted issue price of the Note, and
the denominator of which is the excess of the sum of all amounts payable on the
Note after the purchase date, other than payments of qualified stated interest,
over the Note's adjusted issue price.
Market Discount. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount for
which a Holder purchased the Note is less than the Note's issue price and (ii)
the Note's stated redemption price at maturity or, in the case of an Original
Issue Discount Note, the Note's "revised issue price," exceeds the amount for
which the Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount". The Code provides that,
for these purposes, the "revised issue price" of a Note generally equals its
issue price, increased by the amount of any original issue discount that has
accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a Holder of
Market Discount Note may elect to include market discount in income currently
over the life of the Note. Such an election shall apply to all debt instruments
with market discount acquired by the electing Holder on or after the first day
of the first taxable year to which the election applies. This election may not
be revoked without the consent of the Internal Revenue Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A Holder of a Market
Discount Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-issuance
accrued interest, then the Holder may elect to decrease the issue price of the
Note by the amount of pre-issuance accrued interest. In that event, a portion of
the first stated interest payment will be treated as a return of the excluded
pre-issuance accrued interest and not as an amount payable on the Note.
Amortizable Bond Premium. If a 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 then owned and thereafter acquired by the taxpayer
and may be revoked only with the consent of the Internal Revenue Service.
S-21
<PAGE> 22
If a Holder makes a Consent 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 amortizable bond premium and may
be revoked only with the permission of the Internal Revenue Service with respect
to debt instruments acquired after revocation.
Under proposed Regulations that are not yet effective and are not
anticipated to have retroactive effect, the amount of bond premium allocable to
an accrual period that exceeds the amount of qualified stated interest allocable
to that period may not be deducted but may be carried forward to future accrual
periods. Under such proposed Regulations, the yield on bonds providing for one
or more alternative payment schedules will be determined, for purposes of
computing the amortization of premium, under several assumptions. Generally, if
one payment schedule is significantly more likely than not to occur, yield of
the debt instrument is determined using this payment schedule. Yield is
determined without regard to a mandatory sinking fund provision, if any.
Further, if a debt instrument provides for an unconditional option to alter a
payment schedule, yield is determined by assuming that the issuer will exercise
an option in a manner that minimizes yield and that a holder will exercise an
option in a manner that maximizes yield.
Short-Term Original Issue Discount Notes. Under the OID Regulations, a Note
bearing original issue discount that matures one year or less from its date of
issuance will be treated as a "short-term Original Issue Discount Note". In
general, a cash method Holder of a short-term Original Issue Discount Note is
not required to accrue original issue discount for United States federal income
tax purposes unless it elects to do so, but may be required to include any
stated interest in income as the interest is received. Holders who report income
for federal income tax purposes on the accrual method and certain other Holders,
including banks, regulated investment companies, common trust funds, Holders who
hold Notes as part of certain identified hedging transactions, certain
pass-through entities 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 straight-line basis, unless an election is made to
accrue the original issue discount according to a constant yield method based on
daily compounding. In the case of a Holder who is not required and who does not
elect to include original issue discount in income currently, any gain realized
on the sale, exchange or retirement of the short-term Original Issue Discount
Note will be ordinary income to the extent of the original issue discount
accrued on a straight-line basis (or, if elected, according to a constant yield
method based on daily compounding) through the date of sale, exchange or
retirement. In addition, such Holders will be required to defer deductions for
any interest paid on indebtedness incurred to purchase or carry short-term
Original Issue Discount Notes in an amount not exceeding the deferred interest
income, until such deferred interest income is recognized. For purposes of
determining the amount of original issue discount subject to these rules, all
interest payments on a short-term Original Issue Discount Note, including stated
interest, are included in the short-term Original Issue Discount Note's stated
redemption price at maturity.
Constant Yield Election. Under the OID Regulations, 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.
In applying the constant-yield method to a Note with respect to which the
Constant Yield Election has been made, the issue price of the Note will equal
the electing Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing Holder, and no payments on the Note will be treated as payments of
qualified stated interest. This election will generally apply only to the Note
with respect to which it is made and may not be revoked without the consent of
the Internal Revenue Service. If this election is made with respect to a Note
with amortizable bond premium, then the electing Holder will be deemed to have
elected to apply amortizable bond premium against interest with respect to all
debt instruments with amortizable bond premium, other than debt instruments the
interest on which is excludible from gross income, held by the electing Holder
as of the beginning of the taxable year in which the Note with respect to which
the election is made is
S-22
<PAGE> 23
acquired or thereafter acquired. The deemed election with respect to amortizable
bond premium may not be revoked without the consent of the Internal Revenue
Service.
If the Constant Yield Election is made with respect to a Market Discount
Note, the electing Holder will be treated as having made the election discussed
above under "Market Discount" to include market discount in income currently
over the life of all debt instruments held or thereafter acquired by such
Holder.
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.
The OID Regulations contain aggregation rules stating that in certain
circumstances if more than one debt instrument is issued in connection with the
same transaction or related transactions, some or all of such Notes may be
treated together as a single debt instrument with a single issue price, maturity
date, yield to maturity and stated redemption price at maturity for purposes of
calculating and accruing any original issue discount. This rule ordinarily
applies only to instruments of a single issuer issued to a single holder. Unless
otherwise provided in the related Pricing Supplement, the Company does not
expect to treat any of the Notes as being subject to the aggregation rules for
purposes of computing original issue discount.
AMORTIZING NOTES AND INDEXED NOTES. The United States federal income tax
consequences to a Holder of the ownership and disposition of Amortizing Notes
and Indexed Notes will vary depending on the exact terms of the Notes. Such
Notes should constitute debt obligations of the Company for United States
federal income tax purposes and no portion of the issue price thereof should be
separately allocated to any indexed feature of the Notes. However, it is
possible that these Notes could be characterized for United States federal
income tax purposes as debt coupled with a forward contract or option to which a
portion of the issue price of the Notes must be allocated.
Under the Regulations, the yield of an Amortizing Note or Indexed Note
deemed to be a "contingent payment debt instrument" is determined by reference
to comparable yields at which the Company would issue a fixed rate debt
instrument having similar terms and conditions, with the payment schedule then
set to fit the yield. Projected payments are generally based on the forward
price of payments where price quotes are readily available for contingencies.
Where price quotes are not readily available for contingencies, projected
payments will be based on the expected amount of the payment as of the issue
date, set in some cases by reference to a yield assumed to be the applicable
federal rate. Under proposed Regulations, the amount of interest included in a
Holder's income for any year with respect to an Amortizing Note or Indexed Note
deemed to be a contingent payment debt instrument would generally be determined
by projecting the amounts of contingent payments and the yield on the
instrument. Interest income would be measured with reference to the projected
yield, which might be less than or greater than the stated interest rate under
the instrument. In the event that the actual amount of a contingent payment
differed from the projected amount of that payment, the difference would
generally increase or reduce taxable interest income, or create a loss.
Because the proper treatment of payments of principal and interest on
Amortizing Notes and Indexed Notes will vary depending on their exact terms,
Holders should consult with their tax advisors as to the federal income tax
consequences of ownership and disposition of such Notes and should refer to any
discussion relating to taxation in the applicable Pricing Supplement.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES. Upon the sale, exchange or
retirement of a Note, a Holder will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement and
such Holder's adjusted tax basis in the Note. For these purposes, the amount
realized does not include any amount attributable to accrued interest on the
Note. Amounts attributable
S-23
<PAGE> 24
to accrued interest are treated as interest as described under "Payments of
Interest" above, in accordance with the Holder's method of accounting for
federal income tax purposes as described therein. A Holder's adjusted tax basis
in a Note will equal the cost of the Note to such Holder, increased by the
amount of any original issue discount previously included in income by the
Holder with respect to such Note and reduced by any amortized premium and any
principal payments received by the Holder and, in the case of an Original Issue
Discount Note, by the amounts of any other payments that do not constitute
qualified stated interest (as defined above).
Subject to the discussion under "Foreign Currency Notes" below, gain or
loss realized on the sale, exchange or retirement of a 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, or in the case of a Market Discount Note,
to the extent of any accrued market discount, not previously included in the
Holder's taxable income), 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.
FOREIGN CURRENCY NOTES. The following summary relates to Notes that are
denominated in a currency or currency unit other than the U.S. dollar and are
held by a Holder with the U.S. dollar as its functional currency ("Foreign
Currency Notes").
A Holder who uses the cash method of accounting and who receives a payment
of qualified stated 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 upon receipt (determined on the date of receipt)
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 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.
In the case of accrual method taxpayers and Holders of Original Issue
Discount Notes, a Holder 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 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 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 date 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 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 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
S-24
<PAGE> 25
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 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 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 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 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 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 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, or in the case of a Market Discount Note, to the extent of accrued
market discount.
A 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 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.
EXTENSION OF MATURITY. Under present law, whether the extension of the
maturity of a Note not occurring by operation of the original terms of the
instrument will result in a taxable exchange will depend on the changes, if any,
in the interest rate or maturity date or both, as well as on any changes in
other relevant terms. Under proposed Regulations, the extension of the maturity
of a Note not occurring by operation of the original terms of the instrument
will be viewed as a taxable exchange if the extension exceeds the lesser of five
years or 50 percent of the original term of the instrument. Under final
Regulations applicable to modifications of the terms of a debt instrument, the
extension of the maturity of a Note will result in a taxable exchange if the
extension results in the material deferral of a scheduled payment or payments.
Whether deferral is material depends on all the facts and circumstances.
However, deferral will not be material if the deferral payments are
unconditionally payable no later than the earlier of the expiration of five
years or 50 percent of the original term of the instrument. Also under final
Regulations, if the terms of a debt instrument are modified to defer one or more
payments, then for purposes of the original issue discount provisions the debt
instrument will be treated as retired and
S-25
<PAGE> 26
reissued on the date of the modification for an amount equal to the instrument's
adjusted issue price on that date. This result obtains even though the
modification does not otherwise cause an exchange for tax purposes under the
Code or the Regulations. In the event the Company exercises an option to extend
the maturity date of a Note, Holders of such Note should consult their tax
advisers to determine whether such extension will be treated as a taxable
exchange.
ANTI-ABUSE REGULATION. If a principal purpose in structuring a debt
instrument or engaging in a transaction is to achieve a result that is
unreasonable in light of the purposes of Section 163(e) and Sections 1271
through 1275 of the Code (relating to, inter alia, original issue discount,
amortizable bond premium, acquisition premium, market discount and preissuance
accrued interest), the Internal Revenue Service may apply or depart from the
Regulations as necessary or appropriate to achieve a reasonable result. Whether
a result is reasonable is determined based on all the facts and circumstances,
giving significant attention to whether the treatment of a particular debt
instrument is expected to have a substantial effect on the U.S. tax liability of
the issuer or holder.
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, information
reporting requirements will apply to payments of principal, any premium and
interest on a Note and the proceeds of the sale of a Note before maturity within
the United States to, and to the accrual of original issue discount on an
Original Issue Discount Note with respect to, non-corporate Holders, and such
Holders may be subject to backup withholding at a rate of 31% on such payments.
Backup withholding will apply only if the Holder (i) fails to furnish its
Taxpayer Identification Number ("TIN") which, for an individual, would be his
Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified by
the Internal Revenue Service that it has failed to properly report payments of
interest and dividends or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that it has furnished a correct TIN and has not been
notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments. 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 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.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company through
the Agents, which have agreed to use their reasonable efforts to solicit orders
to purchase Notes. The Company will have the sole right to accept orders to
purchase Notes and may reject proposed purchases in whole or in part. The Agents
shall have the right, in their discretion reasonably exercised and without
notice to the Company, to reject any proposed purchase of Notes in whole or in
part. The Company will pay the Agents a commission in the form of a discount
ranging from .125% to .750% of the principal amount of Notes sold through the
Agents, depending upon the Stated Maturity. Commissions on Notes with a Stated
Maturity of greater than 30 years will be negotiated at the time of sale.
The Company may also sell Notes at a discount to the Agents for their own
account or for resale to one or more purchasers at varying prices related to
prevailing market prices at the time of resale or, if set forth in the
applicable Pricing Supplement, at a fixed public offering price, as determined
by the Agents. After any initial public offering of Notes to be resold to
purchasers at a fixed public offering price, the public offering price and any
concession or discount may be changed. In addition, the Agents may offer Notes
purchased by them as principal to other dealers. Notes sold by the Agents to a
dealer may be sold at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed will not be in excess of
the discount received by the Agents from the Company. Unless otherwise specified
in the applicable Pricing Supplement, any Note purchased by the Agent as
principal will be purchased at 100% of the principal amount or face amount
thereof less a percentage equal to the commission applicable to an agency sale
of a Note of identical maturity. In addition, the Company may from time to time
offer Notes other than through an Agent.
S-26
<PAGE> 27
No Note will have an established trading market when issued. Unless
otherwise specified in an applicable Pricing Supplement, the Notes will not be
listed on any securities exchange. The Agents may make a market in the Notes,
but they are not obligated to do so and may discontinue any market-making at any
time without notice. There can be no assurance of a secondary market for any
Notes or liquidity in the secondary market if one develops, or that the Notes
will be sold.
The Agents, whether acting as agent or principal, may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). The Company has agreed to indemnify each Agent against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that such Agent may be required to make in respect
thereof. The Company has also agreed to reimburse the Agents for certain other
expenses.
S-27
<PAGE> 28
PROSPECTUS
$300,000,000 M. A. HANNA COMPANY
M. A. HANNA COMPANY
DEBT SECURITIES
M.A. Hanna Company (the "Company") may offer and sell from time to time
unsecured debentures, notes or other evidences of indebtedness ("Debt
Securities"), with an initial offering price not to exceed $300,000,000 in the
aggregate (or the equivalent in foreign denominated currency or units based on
or related to currencies, including European Currency Units). All specific terms
of the offering and sale of the Debt Securities, including the specific
designations, rights and restrictions and whether the Debt Securities are senior
or subordinated, the currencies or composite currencies in which the Debt
Securities are denominated, the aggregate principal amount, the maturity, rate
and time of payment of interest, and any conversion, exchange, redemption or
sinking fund provisions, and initial public offering price, any material United
States federal income tax consequences, listing on any securities exchange, and
the agents, dealers or underwriters, if any, to be utilized in connection with
the sale of the Debt Securities, will be set forth in an accompanying Prospectus
Supplement (the "Prospectus Supplement"). The Debt Securities may be sold for
U.S. Dollars, foreign denominated currency or currency units; principal of and
any interest may likewise be payable in U.S. Dollars or foreign denominated
currency or currency units -- in each case, as the Company specifically
designates. The managing underwriters with respect to each series sold to or
through underwriters will be named in the Prospectus Supplement.
The Debt Securities may be offered directly, through dealers, through
underwriters or through agents designated from time to time as set forth in the
Prospectus Supplement. The names of any such dealers, underwriters or agents and
any applicable commissions or discounts and the net proceeds to the Company from
such sale will be set forth in the Prospectus Supplement. See "Plan of
Distribution" for possible indemnification arrangements for dealers,
underwriters and agents.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY OF THE DEBT SECURITIES OTHER THAN THE DEBT SECURITIES DESCRIBED
IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 8, 1996.
<PAGE> 29
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
DEALER OR AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF OR THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF OR THEREOF. NEITHER THIS PROSPECTUS NOR THE
ACCOMPANYING PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THE DEBT SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
IN CONNECTION WITH AN OFFERING OF DEBT SECURITIES, THE UNDERWRITERS, IF
ANY, FOR SUCH OFFERING MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICES OF SUCH DEBT SECURITIES AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
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"). Such reports, proxy
statements and other information can 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 the following regional offices of the
Commission: New York Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048, and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained by mail at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
at http:// www.sec.gov. The Company's Common Stock is listed on the New York
Stock Exchange, and such reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, and the Chicago Stock
Exchange, 440 South LaSalle Street, Chicago, Illinois 60605.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933 (the "Securities Act"). This Prospectus and the
accompanying Prospectus Supplement omit certain of the information contained in
the Registration Statement in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and the Debt
Securities. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
are incorporated by reference in this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, as amended; and
(ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996 and September 30, 1996.
2
<PAGE> 30
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Debt Securities
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of the filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
the Registration Statement and this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein or in the accompanying Prospectus
Supplement modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of any such person, a copy of any or all of the documents which
have been incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests should be directed to M. A. Hanna Company, Suite
36-5000, 200 Public Square, Cleveland, Ohio 44114-2340, Attention: John S. Pyke,
Jr., Esq., Vice President, General Counsel and Secretary, telephone (216)
589-4000.
THE COMPANY
The Company is one of the largest independent custom compounders of rubber
in the world, a leading distributor of engineered plastic sheet, rod, tube, film
products, and polymer resins, a leading producer of custom formulated color and
additive concentrates in North America and Europe and a leading compounder of
plastics in North America in terms of pounds produced. The Company conducts its
operations through various business units located in North America, Europe and
Asia.
The Company's executive offices are located a Suite 36-5000, 200 Public
Square, Cleveland, Ohio 44114, and its telephone number is (216) 589-4000.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the net
proceeds from the sale of the Debt Securities will be used for general corporate
purposes, which may include repayment of indebtedness, additions to working
capital, capital expenditures and acquisitions. Further details relating to the
uses of the net proceeds of any such offering will be set forth in the
applicable Prospectus Supplement.
3
<PAGE> 31
RATIOS OF EARNINGS TO FIXED CHARGES
The following table represents the Company's consolidated ratio of earnings
to fixed charges(1) for the periods shown:
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
- ------------------------------- -----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1995 1995 1994 1993 1992 1991
- -------------- ------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
4.78 4.15 4.07 2.94 2.00 1.73 0.42
<FN>
- ---------------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of income from continuing operations before income taxes
and fixed charges (excluding capitalized interest). "Fixed charges" consist
of (i) interest on indebtedness, whether expensed or capitalized, and (ii)
that portion of rental expense the Company believes to be representative of
interest.
</TABLE>
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be described
in the Prospectus Supplement relating to such Debt Securities. Accordingly, for
a description of the terms of a particular issue of Debt Securities, reference
must be made to both the Prospectus Supplement relating thereto and to the
following description.
The Debt Securities will be general obligations of the Company and may be
subordinated to "Senior Indebtedness" (as defined below) of the Company to the
extent set forth in the Prospectus Supplement relating thereto. See "Description
of Debt Securities -- Subordination" below. Debt Securities will be issued under
an indenture (the "Indenture") to be entered into between the Company and NBD
Bank (the "Trustee"). A copy of the form of Indenture has been filed as an
exhibit to the Registration Statement filed with the Commission. The following
discussion of certain provisions of the Indenture is a summary only and does not
purport to be a complete description of the terms and provisions of the
Indenture. Accordingly, the following discussion is qualified in its entirety by
reference to the provisions of the Indenture, including the definition therein
of terms used below with their initial letters capitalized.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that can be issued thereunder. The Debt Securities may be issued in
one or more series as may be authorized from time to time by the Company.
Reference is made to the applicable Prospectus Supplement for the following
terms of the Debt Securities of the series with respect to which such Prospectus
Supplement is being delivered:
(a) The title of Debt Securities of the series;
(b) Any limit on the aggregate principal amount of the Debt Securities
of the series that may be authenticated and delivered under the Indenture;
(c) The date or dates on which the principal and premium, if any, with
respect to the Debt Securities of the series are payable;
(d) The rate or rates (which may be fixed or variable) at which the
Debt Securities of the series shall bear interest (if any) or the method of
determining such rate or rates, the date or dates from which such interest
shall accrue, the interest payment dates on which such interest shall be
payable or the method by which such date will be determined, the record
dates for the determination of holders thereof to whom such interest is
payable (in the case of Registered Securities), and the
4
<PAGE> 32
basis upon which interest will be calculated if other than that of a
360-day year of twelve 30-day months;
(e) The Place or Places of Payment, if any, in addition to or instead
of the corporate trust office of the Trustee where the principal, premium,
if any, and interest with respect to Debt Securities of the series shall be
payable;
(f) The price or prices at which, the period or periods within which,
and the terms and conditions upon which Debt Securities of the series may
be redeemed, in whole or in part, at the option of the Company or
otherwise;
(g) The obligation, if any, of the Company to redeem, purchase, or
repay Debt Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof and the price or
prices at which, the period or periods within which, and the terms and
conditions upon which Debt Securities of the series shall be redeemed,
purchased, or repaid, in whole or in part, pursuant to such obligations;
(h) The terms, if any, upon which the Debt Securities of the series
may be convertible into or exchanged for Common Stock, Preferred Stock
(which may be represented by depositary shares), other Debt Securities or
warrants for Common Stock, Preferred Stock or Indebtedness or other
securities of any kind of the Company or any other obligor and the terms
and conditions upon which such conversion or exchange shall be effected,
including the initial conversion or exchange price or rate, the conversion
or exchange period and any other provision in addition to or in lieu of
those described herein;
(i) If other than denominations of $1,000 or any integral multiple
thereof, the denominations in which Debt Securities of the series shall be
issuable;
(j) If the amount of principal, premium, if any, or interest with
respect to the Debt Securities of the series may be determined with
reference to an index or pursuant to a formula, the manner in which such
amounts will be determined;
(k) If the principal amount payable at the stated maturity of Debt
Securities of the series will not be determinable as of any one or more
dates prior to such stated maturity, the amount that will be deemed to be
such principal amount as of any such date for any purpose, including the
principal amount thereof that will be due and payable upon any maturity
other than the stated maturity or that will be deemed to be outstanding as
of any such date (or, in such case, the manner in which such deemed
principal amount is to be determined), and if necessary, the manner of
determining the equivalent thereof in United States currency;
(l) Any changes or additions to the provisions of the Indenture
dealing with defeasance, including the addition of additional covenants
that may be subject to the Company's covenant defeasance option;
(m) The coin or currency or currencies or units of two or more
currencies in which payment of the principal and premium, if any, and
interest with respect to Debt Securities of the series shall be payable;
(n) If other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series which shall be payable
upon declaration of acceleration or provable in bankruptcy;
(o) The terms, if any, of the transfer, mortgage, pledge or assignment
as security for the Debt Securities of the series of any properties,
assets, moneys, proceeds, securities or other collateral, including whether
certain provisions of the Trust Indenture Act are applicable and any
corresponding changes to provisions of the Indenture as currently in
effect;
5
<PAGE> 33
(p) Any addition to or change in the Events of Default with respect to
the Debt Securities of the series and any change in the right of the
Trustee or the holders to declare the principal of and interest on, such
Debt Securities due and payable;
(q) If the Debt Securities of the series shall be issued in whole or
in part in the form of a Global Security, the terms and conditions, if any,
upon which such Global Security may be exchanged in whole or in part for
other individual Debt Securities in definitive registered form and the
Depositary for such Global Security;
(r) Any trustees, authenticating or paying agents, transfer agents or
registrars;
(s) The applicability of, and any addition to or change in the
covenants and definitions currently set forth in the Indenture or in the
terms relating to permitted consolidations, mergers, or sales of assets,
including conditioning any merger, conveyance, transfer or lease permitted
by the Indenture upon the satisfaction of an Indebtedness coverage standard
by the Company and Successor Company;
(t) The terms, if any, of any Guarantee of the payment of principal
of, and premium, if any, and interest on, Debt Securities of the series and
any corresponding changes to the provisions of the Indenture as currently
in effect;
(u) The subordination, if any, of the Debt Securities of the series
pursuant to the Indenture and any changes or additions to the provisions of
the Indenture relating to subordination;
(v) With regard to Debt Securities of the series that do not bear
interest, the dates for certain required reports to the Trustee; and
(w) Any other terms of the Debt Securities of the series (which terms
shall not be prohibited by the Indenture).
The Prospectus Supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the series of Debt Securities to which such Prospectus Supplement relates,
including those applicable to (a) Debt Securities with respect to which payments
of principal, premium, or interest are determined with reference to an index or
formula (including changes in prices of particular securities, currencies, or
commodities), (b) Debt Securities with respect to which principal, premium, or
interest is payable in a foreign or composite currency, (c) Debt Securities that
are issued at a discount below their stated principal amount, bearing no
interest or interest at a rate that at the time of issuance is below market
rates ("Original Issue Discount Debt Securities"), and (d) variable rate Debt
Securities that are exchangeable for fixed rate Debt Securities.
Payments of interest on Debt Securities shall be made at the corporate
trust office of the Trustee or at the option of the Company by check mailed to
the registered holders thereof or, if so provided in the applicable Prospectus
Supplement, at the option of a holder by wire transfer to an account designated
by such holder.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities may be transferred or exchanged at the office of the Trustee at which
its corporate trust business is principally administered in the United States or
at the office of the Trustee or the Trustee's agent in the Borough of Manhattan,
the City and State of New York, at which its corporate agency business is
conducted, subject to the limitations provided in the Indenture, without the
payment of any service charge, other than any tax or governmental charge payable
in connection therewith.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered global securities (a "Global Security")
that will be deposited with a depositary (the "Depositary"), or with a nominee
for a Depositary identified in the Prospectus Supplement relating to such
series. In such case, one or more Global Securities will be issued in a
denomination or aggregate
6
<PAGE> 34
denomination equal to the portion of the aggregate principal amount of
outstanding registered Debt Securities of the series to be represented by such
Global Security or Securities. Unless and until it is exchanged in whole or in
part for Debt Securities in definitive registered form, a Global Security may
not be transferred except as a whole by the Depositary for such Global Security
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the Prospectus Supplement relating to such series. The
Company anticipates that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of persons that have accounts with such Depositary
("participants"). The amounts to be credited shall be designated by any
underwriters or agents participating in the distribution of such Debt
Securities. Ownership of beneficial interests in a Global Security will be
limited to participants or persons that may hold interest through participants.
Ownership of beneficial interests in such Global Security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depositary for such Global Security (with respect to interests of
participants) or by participants or persons that hold through participants (with
respect to interests of persons other than participants). So long as the
Depositary for a Global Security, or its nominee, is the registered owner of
such Global Security, such Depositary or such nominee, as the case may be, will
be considered the sole owner or Holder of the Debt Securities represented by
such Global Security for all purposes under the Indenture. Except as set forth
below, owners of beneficial interests in a Global Security will not be entitled
to have the Debt Securities represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
such Debt Securities in definitive form and will not be considered the owners or
Holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Debt Securities
represented by a Global Security registered in the name of a Depositary or its
nominee will be made to such Depositary or its nominee, as the case may be, as
the registered owner of such Global Security. None of the Company, the Trustee
or any paying agent for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in such Global Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Debt Securities represented
by a Global Security, upon receipt of any payment of principal, premium, or
interest, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of such Depositary. The
Company also expects that payments by participants to owners of beneficial
interests in such Global Security held through such participants will be
governed by standing instructions and customary practices, as is now the case
with the securities held for the accounts of customers registered in "street
name", and will be the responsibility of such participants.
If the Depositary for any Debt Securities represented by a Global Security
is at any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by the Company within ninety days, the Company will
issue such Debt Securities in definitive form in exchange for such Global
Security. In addition, the Company may at any time and in its sole discretion
determine not to have any of the Debt Securities of a series represented by one
or more Global Securities and, in such event, will issue Debt Securities of such
series in definitive form in exchange for the Global Security or Securities
representing such Debt Securities.
7
<PAGE> 35
SUBORDINATION
Debt Securities may be subordinated ("Subordinated Debt Securities") to
senior debt to the extent set forth in the Prospectus Supplement relating
thereto.
Subordinated Debt Securities will be subordinate in right of payment, to
the extent and in the manner set forth in the Indenture and the Prospectus
Supplement relating to such Subordinated Debt Securities, to the prior payment
of all Indebtedness of the Company that is designated as "Senior Indebtedness"
(as defined in the Indenture) with respect to such Subordinated Debt Securities.
Senior Indebtedness, with respect to any series of Subordinated Debt Securities,
will consist of (a) any and all amounts payable under or with respect to the
Company's "Bank Indebtedness" (defined as the Credit Agreement, dated June 30,
1994, among the Company as Borrower, and the Banks party thereto, as amended,
modified, supplemented, refinanced or replaced at any time from time to time)
and (b) any other indebtedness of the Company that is designated in a resolution
of the Company's Board of Directors or the supplemental Indenture establishing
such series as Senior Indebtedness with respect to such series.
Upon any payment or distribution of assets of the Company to creditors or
upon a total or partial liquidation or dissolution of the Company or in a
bankruptcy, receivership, or similar proceeding relating to the Company or its
property, holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of the Senior Indebtedness before holders of Subordinated Debt
Securities shall be entitled to receive any payment of principal, premium, or
interest with respect to the Subordinated Debt Securities, and until the Senior
Indebtedness is paid in full, any distribution to which holders of Subordinated
Debt Securities would otherwise be entitled shall be made to the holders of
Senior Indebtedness (except that such holders may receive shares of stock and
any debt securities that are subordinated to Senior Indebtedness to at least the
same extent as the Subordinated Debt Securities).
The Company may not make any payments of principal, premium, or interest
with respect to Subordinated Debt Securities, make any deposit for the purpose
of defeasance of such Subordinated Debt Securities, or repurchase, redeem, or
otherwise retire (except, in the case of Subordinated Debt Securities that
provide for a mandatory sinking fund, by the delivery of Subordinated Debt
Securities by the Company to the Trustee in satisfaction of the Company's
sinking fund obligation) any Subordinated Debt Securities if (a) any principal,
premium, if any, or interest with respect to Senior Indebtedness is not paid
within any applicable grace period (including at maturity) or (b) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms, unless, in either
case, the default has been cured or waived and such acceleration has been
rescinded, such Senior Indebtedness has been paid in full in cash, or the
Company and the Trustee receive written notice approving such payment from the
representatives of each issue of "Designated Senior Indebtedness" (which will
include the Bank Indebtedness and any other specified issue of Senior
Indebtedness). During the continuance of any default (other than a default
described in clause (a) or (b) above) with respect to any Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company may
not pay the Subordinated Debt Securities for a period (the "Payment Blockage
Period") commencing on the receipt by the Company and the Trustee of written
notice of such default from the representative of any Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period (a
"Blockage Notice"). The Payment Blockage Period may be terminated before its
expiration by written notice to the Trustee and the Company from the person who
gave the Blockage Notice, by repayment in full in cash of the Senior
Indebtedness with respect to which the Blockage Notice was given, or because the
default giving rise to the Payment Blockage Period is no longer continuing.
Unless the holders of such Senior Indebtedness shall have accelerated the
maturity thereof, the Company may resume payments on the Subordinated Debt
Securities after the expiration of the Payment Blockage Period. Not more than
one Blockage Notice may be given in any period of 360 consecutive days unless
the first Blockage Notice within such 360-day period is given by or on behalf of
holders of Designated Senior Indebtedness other than the Bank Indebtedness, in
which case the representative of the Bank Indebtedness may give
8
<PAGE> 36
another Blockage Notice within such period. In no event, however, may the total
number of days during which any Payment Blockage Period or Periods is in effect
exceed 179 days in the aggregate during any period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the Subordinated Debt
Securities are paid in full, holders of the Subordinated Debt Securities shall
be subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness.
By reason of such subordination, in the event of insolvency, creditors of
the Company who are holders of Senior Indebtedness, as well as certain general
creditors of the Company, may recover more, ratably, than the holders of the
Subordinated Debt Securities.
EVENTS OF DEFAULT AND REMEDIES
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities:
(a) Default in the payment of any installment of interest on any Debt
Securities of that series as and when the same shall become due and payable
(whether or not, in the case of Subordinated Debt Securities, such payment
shall be prohibited by reason of the subordination provision described
above) and continuance of such default for a period of 30 days;
(b) Default in the payment of principal or premium with respect to any
Debt Securities of that series as and when the same become due and payable,
whether at maturity, upon redemption, by declaration, upon required
repurchase, or otherwise (whether or not, in the case of Subordinated Debt
Securities, such payment shall be prohibited by reason of the subordination
provision described above);
(c) Default in the payment of any sinking fund payment with respect to
any Debt Securities of that series as and when the same shall become due
and payable;
(d) Failure on the part of the Company to comply with the provisions
of the Indenture relating to consolidations, mergers and sales of assets;
(e) Failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the Debt
Securities of that series, in any resolution of the Board of Directors of
the Company authorizing the issuance of that series of Debt Securities, in
the Indenture with respect to such series, or in any supplemental Indenture
with respect to such series (other than a covenant or agreement a default
in the performance of which is otherwise specifically dealt with)
continuing for a period of 60 days after the date on which written notice
specifying such failure and requiring the Company to remedy the same shall
have been given to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate principal amount of the
Debt Securities of that series at the time outstanding;
(f) Indebtedness of the Company or any Subsidiary of the Company is
not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default, the total amount
of such indebtedness unpaid or accelerated exceeds $30 million or the
United States dollar equivalent thereof at the time, and such default
remains uncured or such acceleration is not rescinded for 10 days after the
date on which written notice specifying such failure and requiring the
Company to remedy the same shall have been given to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Debt Securities of that series at the
time outstanding;
(g) The Company or any of its Restricted Subsidiaries shall (1)
voluntarily commence any proceeding or file any petition seeking relief
under the United States Bankruptcy Code or other federal or state
bankruptcy, insolvency, or similar law, (2) consent to the institution of,
or fail to controvert within the time and in the manner prescribed by law,
any such proceeding of the filing of any such petition, (3) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
or similar official for the Company or any such Restricted Subsidiary or
for a substantial
9
<PAGE> 37
part of its property, (4) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (5) make a general
assignment for the benefit of creditors, (6) admit in writing its inability
or fail generally to pay its debts as they become due, (7) take corporate
action for the purpose of effecting any of the foregoing, or (8) take any
comparable action under any foreign laws relating to insolvency;
(h) The entry of an order or decree by a court having competent
jurisdiction for (1) relief with respect to the Company or any of its
Restricted Subsidiaries or a substantial part of any of their property
under the United States Bankruptcy Code or any other federal or state
bankruptcy, insolvency, or similar law, (2) the appointment of a receiver,
trustee, custodian, sequestrator, or similar official for the Company or
any such Restricted Subsidiary or for a substantial part of any of their
property (except any decree or order appointing such official of any
Restricted Subsidiary pursuant to a plan under which the assets and
operations of such Restricted Subsidiary are transferred to or combined
with another Restricted Subsidiary or Subsidiary of the Company or to the
Company), or (3) the winding-up or liquidation of the Company or any such
Restricted Subsidiary (except any decree or order approving or ordering the
winding-up or liquidation of the affairs of a Restricted Subsidiary
pursuant to a plan under which the assets and operations of such Restricted
Subsidiary are transferred to or combined with another Restricted
Subsidiary or Subsidiaries of the Company or to the Company), and such
order or decree shall continue unstayed and in effect for 60 consecutive
days, or any similar relief is granted under any foreign laws and the order
or decree stays in effect for 60 consecutive days; or
(i) Any other Event of Default provided under the terms of the Debt
Securities of that series.
An Event of Default with respect to one series of Debt Securities is not
necessarily an Event of Default for another series.
If an Event of Default occurs and is continuing with respect to any series
of Debt Securities, unless the principal and interest with respect to all the
Debt Securities of such series shall have already become due and payable, either
the Trustee or the holders of not less than 25% in aggregate principal amount of
the Debt Securities of such series then outstanding may declare the principal of
(or, if Original Issue Discount Debt Securities, such portion of the principal
amount as may be specified in such series) and interest on all the Debt
Securities of such series due and payable immediately.
If an Event of Default occurs and is continuing, the Trustee shall be
entitled and empowered to institute any action or proceeding for the collection
of the sums so due and unpaid or to enforce the performance of any provision of
the Debt Securities of the affected series or the Indenture, to prosecute any
such action or proceeding to judgment or final decree, and to enforce any such
judgment or final decree against the Company or any other obligor on the Debt
Securities of such series. In addition, if there shall be pending proceedings
for the bankruptcy or reorganization of the Company or any other obligor on the
Debt Securities, or if a receiver, trustee, or similar official shall have been
appointed for its property, the Trustee shall be entitled and empowered to file
and prove a claim for the whole amount of principal, premium and interest (or,
in the case of Original Issue Discount Debt Securities, such portion of the
principal amount as may be specified in the terms of such series) owing and
unpaid with respect to the Debt Securities. No holder of any Debt Securities of
any series shall have any right to institute any action or proceeding upon or
under or with respect to the Indenture, for the appointment of a receiver or
trustee, or for any other remedy, unless (a) such holder previously shall have
given to the Trustee written notice of an Event of Default with respect to Debt
Securities of that series and of the continuance thereof, (b) the holders of not
less than 25% in aggregate principal amount of the outstanding Debt Securities
of that series shall have made written request to the Trustee to institute such
action or proceeding with respect to such Event of Default and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses, and liabilities to be incurred therein or thereby, and (c) the
Trustee, for 60 days after its receipt of such notice, request, and offer of
indemnity shall have failed to institute such action or proceeding and no
direction inconsistent with such written request shall have been given to the
Trustee pursuant to the provisions of the Indenture.
10
<PAGE> 38
Prior to the acceleration of the maturity of the Debt Securities of any
series, the holders of a majority in aggregate principal amount of the Debt
Securities of that series at the time outstanding may, on behalf of the holders
of all Debt Securities of that series, waive any past default or Event of
Default and its consequences for that series, except (a) a default in the
payment of the principal, premium, or interest with respect to such Debt
Securities or (b) a default with respect to a provision of the Indenture that
cannot be amended without the consent of each holder affected thereby. In case
of any such waiver, such default shall cease to exist, any Event of Default
arising therefrom shall be deemed to have been cured for all purposes, and the
Company, the Trustee and the holders of the Debt Securities of that series shall
be restored to their former positions and rights under the Indenture.
The Trustee shall, within 90 days after the occurrence of a default known
to it with respect to a series of Debt Securities, give to the holders of the
Debt Securities of such series notice of all uncured defaults with respect to
such series known to it, unless such defaults shall have been cured or waived
before the giving of such notice; provided, however, that except in the case of
default in the payment of principal, premium, or interest with respect to the
Debt Securities of such series or in the making of any sinking fund payment with
respect to the Debt Securities of such series, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the holders of such Debt Securities.
MODIFICATION OF THE INDENTURE
The Company and the Trustee may enter into supplemental indentures without
the consent of the holders of Debt Securities issued under the Indenture for one
or more of the following purposes:
(a) To evidence the succession of another person to the Company
pursuant to the provisions of the Indenture relating to consolidations,
mergers, and sales of assets and the assumption by such successor of the
covenants, agreements, and obligations of the Company in the Indenture and
in the Debt Securities;
(b) To surrender any right or power conferred upon the Company by the
Indenture, to add to the covenants of the Company such further covenants,
restrictions, conditions, or provisions for the protection of the holders
of all or any series of Debt Securities as the Board of Directors of the
Company shall consider to be for the protection of the holders of such Debt
Securities, and to make the occurrence, or the occurrence and continuance
of a default in any of such additional covenants, restrictions, conditions,
or provisions, a default or an Event of Default under the Indenture
(provided, however, that with respect to any such additional covenant,
restriction, condition, or provision, such supplemental indenture may
provide for a period of grace after default, which may be shorter or longer
than that allowed in the case of other defaults, may provide for an
immediate enforcement upon such default, may limit the remedies available
to the Trustee upon such default, or may limit the right of holders of a
majority in aggregate principal amount of any or all series of Debt
Securities to waive such default);
(c) To cure any ambiguity or to correct or supplement any provision
contained in the Indenture, in any supplemental indenture, or in any Debt
Securities that may be defective or inconsistent with any other provision
contained therein, to convey, transfer, assign, mortgage, or pledge any
property to or with the Trustee, or to make such other provisions in regard
to matters or questions arising under the Indenture as shall not adversely
affect the interests of any holders of Debt Securities of any series;
(d) To modify or amend the Indenture in such a manner as to permit the
qualification of the Indenture or any supplemental Indenture under the
Trust Indenture Act as then in effect;
(e) To add or change any of the provisions of the Indenture to change
or eliminate any restriction on the payment of principal or premium with
respect to Debt Securities so long as any such action does not adversely
affect the interest of the holders of Debt Securities in any material
respect or permit or facilitate the issuance of Debt Securities of any
series in uncertificated form;
11
<PAGE> 39
(f) To comply with the provisions of the Indenture relating to
consolidations, mergers, and sales of assets;
(g) In the case of Subordinated Debt Securities, to make any change in
the provisions of the Indenture relating to subordination that would limit
or terminate the benefits available to any holder of Senior Indebtedness
under such provisions (but only if such holder of Senior Indebtedness
consents to such change);
(h) To add guarantees with respect to the Debt Securities or to secure
the Debt Securities;
(i) To make any change that does not adversely affect the rights of
any holder;
(j) To add to, change, or eliminate any of the provisions of the
Indenture with respect to one or more series of Debt Securities, so long as
any such addition, change, or elimination not otherwise permitted under the
Indenture shall (1) neither apply to any Debt Securities of any series
created prior to the execution of such supplemental Indenture and entitled
to the benefit of such provision nor modify the rights of the Holders of
any such Debt Security with respect to such provision or (2) become
effective only when there is no such Debt Security outstanding;
(k) To evidence and provide for the acceptance of appointment by a
successor or separate Trustee with respect to the Debt Securities of one or
more series and to add to or change any of the provisions of the Indenture
as shall be necessary to provide for or facilitate the administration of
the Indenture by more than one Trustee; and
(l) To establish the form or terms of Debt Securities of any series,
as described under "Description of Debt Securities -- General" above.
With the consent of the Holders of a majority in aggregate principal amount
of the outstanding Debt Securities of each series affected thereby, the Company
and the Trustee may from time to time and at any time enter into a supplemental
Indenture for the purpose of adding any provisions to, changing in any manner,
or eliminating any of the provisions of the Indenture or of any supplemental
Indenture or modifying in any manner the rights of the holder of the Debt
Securities of such series; provided, however, that without the consent of the
holders of each Debt Security so affected, no such supplemental Indenture shall
(a) reduce the percentage in principal amount of Debt Securities of any series
whose holders must consent to an amendment, (b) reduce the rate of or extend the
time for payment of interest on any Debt Security, (c) reduce the principal of
or extend the stated maturity of any Debt Security, (d) reduce the premium
payable upon the redemption of any Debt Security or change the time at which any
Debt Security may or shall be redeemed, (e) make any Debt Security payable in a
currency other than that stated in the Debt Security, (f) in the case of any
Subordinated Debt Security, make any change in the provisions of the Indenture
relating to subordination that adversely affects the rights of any holder under
such provisions, (g) release any security that may have been granted with
respect to the Debt Securities, or (h) make any change in the provisions of the
Indenture relating to waivers of defaults or amendments that require unanimous
consent.
CERTAIN COVENANTS
Limitation on Liens. The Company may not, and may not permit any of its
Subsidiaries to, directly or indirectly, create or permit to exist any Lien on
any Principal Property, whether owned on the date of issuance of the Debt
Securities or thereafter acquired, securing any obligation unless the Company
contemporaneously secures the Debt Securities equally and ratably with (or prior
to) such obligation. The preceding sentence will not require the Company to
secure the Debt Securities if the Lien consists of the following: (i) Permitted
Liens; or (ii) Liens securing Indebtedness if, after giving pro forma effect to
the Incurrence of such Indebtedness (and the receipt and application of the
proceeds thereof) or the securing of outstanding Indebtedness, the sum of
(without duplication) (A) all Indebtedness of the Company and its Subsidiaries
secured by Liens on Principal Property (other than Permitted Liens) and (B) all
Attributable Indebtedness in respect of Sale/Leaseback Transactions with respect
to any Principal Property, at the time of determination does not exceed 10% of
the total consolidated
12
<PAGE> 40
stockholders' equity of the Company as shown on the audited consolidated balance
sheet contained in the latest annual report to stockholders of the Company.
Limitation on Sale/Leaseback Transactions. The Company may not, and may
not permit any of its Subsidiaries to, enter into any Sale/Leaseback Transaction
with respect to any Principal Property unless (i) the Company or such Subsidiary
would be entitled to create a Lien on such Principal Property securing
Indebtedness in an amount equal to the Attributable Indebtedness with respect to
such Sale/Leaseback Transaction without securing the Debt Securities pursuant to
the covenant described in "Limitation on Liens" above or (ii) the Company,
within six months from the effective date of such Sale/Leaseback Transaction,
applies to the voluntary defeasance or retirement (excluding retirements of Debt
Securities or other Indebtedness ranking pari passu with the Debt Securities as
a result of conversions or pursuant to mandatory sinking fund or mandatory
prepayment provisions or by payment at maturity) of Debt Securities or other
Indebtedness ranking pari passu with the Debt Securities an amount equal to the
Attributable Indebtedness in respect of such Sale/Leaseback Transaction.
Certain Definitions. The following definitions, among others, are used in
the Indenture. Many of the definitions of terms used in the Indenture have been
negotiated specifically for the purposes of inclusion in the Indenture and may
not be consistent with the manner in which such terms are defined in other
contexts. Prospective purchasers of Debt Securities are encouraged to read each
of the following definitions carefully and to consider such definitions in the
context in which they are used in the Indenture. Capitalized terms used herein
but not defined have the meanings assigned thereto in the Indenture.
"Attributable Indebtedness" in respect of a Sale/ Leaseback Transaction
means, as of the time of determination, (i) if the obligation in respect of such
Sale/Leaseback Transaction is a Capitalized Lease Obligation, the amount of such
obligation determined in accordance with GAAP and included in the financial
statements of the lessee or (ii) if the obligation in respect of such
Sale/Leaseback Transaction is not a Capitalized Lease Obligation, the total Net
Amount of Rent required to be paid by the lessee under such lease during the
remaining term thereof (including any period for which the lease has been
extended), discounted from the respective due dates thereof to such
determination date at the rate per annum borne by the Debt Securities compounded
semi-annually.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP; and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Currency Exchange Protection Agreement" means, in respect of any Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Disqualified Stock" of a Person means Redeemable Stock of such Person as
to which the maturity, mandatory redemption, conversion or exchange or
redemption at the option of the holder thereof occurs, or may occur, on or prior
to the first anniversary of the Stated Maturity of the Debt Securities.
"GAAP" means generally accepted accounting principles in the United States
as in effect as of the date on which the Debt Securities of the applicable
series are issued, including those set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
based on GAAP contained in this Indenture shall be computed in conformity with
GAAP consistently applied.
13
<PAGE> 41
"Government Contract Lien" means any Lien required by any contract,
statute, regulation or order in order to permit the Company or any of its
Subsidiaries to perform any contract or subcontract made by it with or at the
request of the United States or any State thereof or any department, agency or
instrumentality of either or to secure partial, progress, advance or other
payments by the Company or any of its Subsidiaries to the United States or any
State thereof or any department agency or instrumentality of either pursuant to
the provisions of any contract, statute, regulation or order.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Protection Agreement, Currency Exchange Protection
Agreement or Commodity Price Protection Agreement or other similar agreement.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
(i) the principal of Indebtedness of such Person for borrowed money;
(ii) the principal of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(iii) all Capitalized Lease Obligations of such Person;
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables);
(v) all obligations of such Person in respect of letters of credit,
banker's acceptances or other similar instruments or credit transactions
(including reimbursement obligations with respect thereto), other than
obligations with respect to letters of credit securing obligations (other
than obligations described in (i) through (iv) above) entered into in the
ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing
is reimbursed no later than the third business day following receipt by
such Person of a demand for reimbursement following payment on the letter
of credit;
(vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (but
excluding, in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons; and
(viii) all Indebtedness of other Persons to the extent Guaranteed by
such Person.
For purposes of this definition, the maximum fixed redemption, repayment or
repurchase price of any Disqualified Stock or Preferred Stock that does not have
a fixed redemption, repayment or repurchase price shall be calculated in
accordance with the terms of such Stock as if such Stock were redeemed, repaid
or repurchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture; provided, however, that if such Stock is
not then permitted to be redeemed, repaid or repurchased, the redemption,
repayment or repurchase price shall be the book value of such Stock as reflected
in the most recent financial statements of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Interest Rate Protection Agreement" means, in respect of any Person, any
interest rate swap agreement, interest rate option agreement, interest rate cap
agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
14
<PAGE> 42
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Amount of Rent" as to any lease for any period means the aggregate
amount of rent payable by the lessee with respect to such period after excluding
amounts required to be paid on account of maintenance and repairs, insurance,
taxes, assessments, water rates and similar charges. In the case of any lease
that is terminable by the lessee upon the payment of a penalty, such net amount
shall also include the amount of such penalty, but no rent shall be considered
as payable under such lease subsequent to the first date upon which it may be so
terminated.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws, social security laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or bonds to
secure performance, surety or appeal bonds to which such Person is a party or
which are otherwise required of such Person, or deposits as security for
contested taxes or import duties or for the payment of rent or other obligations
of like nature, in each case incurred in the ordinary course of business; (b)
Liens imposed by law, such as carriers', warehousemen's, laborers',
materialmen's, landlords', vendors', workmen's, operators', factors and
mechanics liens, in each case for sums not yet due or being contested in good
faith by appropriate proceedings; (c) Liens for taxes, assessments and other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate proceedings; (d) survey exceptions, encumbrances,
easements or reservations of or with respect to, or rights of others for or with
respect to, licenses, rights-of-way, sewers, electric and other utility lines
and usages, telegraph and telephone lines, pipelines, surface use, operation of
equipment, permits, servitudes and other similar matters, or zoning or other
restrictions as to the use of real property or Liens incidental to the conduct
of the business of such Person or to the ownership of its properties which were
not Incurred in connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially impair
their use in the operation of the business of such Person; (e) Liens existing on
or provided for under the terms of agreements existing on the Issue Date
(including, without limitation, under the Credit Agreement); (f) Liens on
property at the time the Company or any of its Subsidiaries acquired the
property or the entity owning such property, including any acquisition by means
of a merger or consolidation with or into the Company; provided, however, that
any such Lien may not extend to any other property owned by the Company or any
of its Subsidiaries, (g) Liens securing a Hedging Obligation so long as such
Hedging Obligation is of the type customarily entered into for the purpose of
limiting risk; (h) Purchase Money Liens; (i) Liens securing only Indebtedness of
a Subsidiary of the Company to the Company or one or more wholly owned
Subsidiaries of the Company; (j) Liens on any property to secure Indebtedness
Incurred in connection with the construction, installation or financing of
pollution control or abatement facilities or other forms of industrial revenue
bond financing or Indebtedness issued or Guaranteed by the United States, any
state or any department, agency or instrumentality thereof; (k) Government
Contract Liens; (l) Liens securing Indebtedness of joint ventures in which the
Company or a Subsidiary has an interest to the extent such Liens are on property
or assets of, such joint ventures; (m) Liens resulting from the deposit of funds
or evidences of Indebtedness in trust for the purpose of defeasing Indebtedness
of the Company or any of its Subsidiaries; (n) legal or equitable encumbrances
deemed to exist by reason of negative pledges or the existence of any litigation
or other legal proceeding and any related lis pendens filing (excluding any
attachment prior to judgment lien or attachment lien in aid of execution on a
judgment); (o) any attachment Lien being contested in good faith and by
proceedings promptly initiated and diligently conducted, unless the attachment
giving rise thereto will not, within sixty days after the entry thereof, have
been discharged or fully bonded or will not have been discharged within sixty
days after the termination of any such bond; (p) any judgment Lien, unless the
judgment it secures will not, within sixty days after the entry thereof, have
been discharged or execution thereof stayed pending appeal, or will not have
been discharged within sixty days after the expiration of any such stay; (q)
Liens to banks arising from the issuance of letters of credit issued by such
banks ("issuing banks") on the following: (i) any and all shipping documents,
warehouse receipts, policies or certificates of insurance
15
<PAGE> 43
and other document accompanying or relative to drafts drawn under any credit,
and any draft drawn thereunder (whether or not such documents, goods or other
property be released to or upon the order of the Company or any Subsidiary under
a security agreement or trust or bailee receipt or otherwise), and the proceeds
of each and all of the foregoing; (ii) the balance of every deposit account, now
or at the time hereafter existing, of the Company or any Subsidiary with the
issuing banks, and any other claims of the Company or any Subsidiary against the
issuing banks; and all property claims and demands and all rights and interests
therein of the Company or any Subsidiary and all evidences thereof and all
proceeds thereof which have been or at any time will be delivered to or
otherwise come into the issuing bank's possession, custody or control, or into
the possession, custody or control of any bailee for the issuing bank or of any
of its agents or correspondents for the account of the issuing bank, for any
purpose, whether or not the express purpose of being used by the issuing bank as
collateral security or for the safekeeping or for any other or different
purpose, the issuing bank being deemed to have possession or control of all of
such property actually in transit to or from or set apart for the issuing bank,
any bailee for the issuing bank or any of its correspondents for other acting in
its behalf, it being understood that the receipt at any time by the issuing
bank, or any of its bailees, agents or correspondents, or other security, of
whatever nature, including cash, will not be deemed a waiver of any of the
issuing bank's rights or power hereunder; (iii) all property shipped under or
pursuant to or in connection with any credit or drafts drawn thereunder or in
any way related thereto, and all proceeds thereof; (iv) all additions to and
substitutions for any of the property enumerated above in this subsection; (r)
rights of a common owner of any interest in property held by such Person; (s)
any defects, irregularities or deficiencies in title to easements, rights-of-way
or other properties which do not in the aggregate materially adversely affect
the value of such properties or materially impair their use in the operation of
the business of such Person; and (t) Liens to secure any refinancing, refunding,
extension, renewal or replacement (or successive refinancings, refundings,
extensions, renewals or replacements), as a whole, or in part, of any
indebtedness secured by any Lien referred to in the foregoing clauses (e)
through (l); provided, however, that (i) such new Lien shall be limited to all
or part of the same property that secured the original Lien (plus improvements
on such property) and (ii) the Indebtedness secured by such Lien at such time is
not increased to any amount greater than the sum of (A) the outstanding
principal amount or, if greater, committed amount of the indebtedness described
under clauses (e) through (l) at the time the original Lien became a Permitted
Lien under this Indenture and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding, extension,
renewal or replacement.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Principal Property" means any single manufacturing plant or other similar
facility or warehouse, owned or leased by the Company or any Subsidiary, which
is located within the United States and at which in excess of 5% of the
Company's consolidated annual revenue is generated.
"Purchase Money Lien" means a Lien on property securing Indebtedness
Incurred by the Company or any of its Subsidiaries to provide funds for all or
any portion of the cost of acquiring, constructing, altering, expanding,
improving or repairing such property or assets used in connection with such
property.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness (other than Preferred
Stock) or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned on the Issue Date or thereafter acquired whereby the Company or any of its
Subsidiaries transfers such property to a Person and the Company or any of its
Subsidiaries leases it from such Person.
16
<PAGE> 44
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any person, or
convey, transfer, or lease all or substantially all of its assets, unless the
following conditions have been satisfied:
(a) Either (1) the Company shall be the continuing person in the case
of a merger or (2) the resulting, surviving, or transferee person, if other
than the Company (the "Successor Company"), shall be a corporation
organized and existing under the laws of the United States, any State, or
the District of Columbia and shall expressly assume all of the obligations
of the Company under the Debt Securities and the Indenture;
(b) Immediately after giving effect to such transaction (and treating
any Indebtedness that becomes an obligation of the Successor Company or any
subsidiary of the Company as a result of such transaction as having been
incurred by the Successor Company or such subsidiary at the time of such
transaction), no Default or Event of Default would occur or be continuing;
and
(c) The Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such
consolidation, merger, or transfer complies with the Indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Indenture shall generally cease to be of any further effect with
respect to a series of Debt Securities if (a) the Company has delivered to the
Trustee for cancellation all Debt Securities of such series (with certain
limited exceptions) or (b) all Debt Securities of such series not theretofore
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year, and the Company shall have deposited with the
Trustee as trust funds the entire amount in the currency in which the Debt
Securities are denominated sufficient to pay at maturity or upon redemption all
such Debt Securities (and if, in either case, the Company shall also pay or
cause to be paid all other sums payable under the Indenture by the Company).
In addition, the Company shall have a "legal defeasance option" (pursuant
to which it may terminate, with respect to the Debt Securities of the particular
series, all of its obligations under such Debt Securities and the Indenture with
respect to such Debt Securities) and "covenant defeasance option" (pursuant to
which it may terminate, with respect to the Debt Securities of a particular
series, its obligations with respect to such Debt Securities under certain
specified covenants contained in the Indenture). If the Company exercises its
legal defeasance option with respect to a series of Debt Securities, payment of
such Debt Securities may not be accelerated because of an Event of Default. If
the Company exercises its covenant defeasance option with respect to a series of
Debt Securities, payment of such Debt Securities may not be accelerated because
of an Event of Default related to the specified covenants.
The Company may exercise its legal defeasance option or its covenant
defeasance option with respect to the Debt Securities of a series only if (a)
the Company irrevocably deposits in trust with the Trustee cash or U.S.
Government Obligations (as defined in the Indenture) for the payment of
principal, premium, and interest with respect to such Debt Securities to
maturity or redemption, as the case may be, (b) the Company delivers to the
Trustee a certificate from a nationally recognized firm of independent
accountants expressing their opinion that the payment of principal and interest
when due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times and
in such amounts as will be sufficient to pay the
17
<PAGE> 45
principal, premium, and interest when due with respect to all the Debt
Securities of such series to maturity or redemption, as the case may be, (c) 91
days pass after the deposit is made and during the 91-day period no default
described in clause (g) or (h) under "Description of Debt Securities -- Events
of Default and Remedies" above with respect to the Company occurs that is
continuing at the end of such period, (d) no Default has occurred and is
continuing on the date of such deposit and after giving effect thereto, (e) the
deposit does not constitute a default under any other agreement binding on the
Company, and, in the case of Subordinated Debt Securities, is not prohibited by
the provisions of the Indenture relating to subordination, (f) the Company
delivers to the Trustee an opinion of counsel to the effect that the trust
resulting from the deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940, (g) the Company
shall have delivered to the Trustee an opinion of counsel addressing certain
federal income tax matters relating to the defeasance, and (h) the Company
delivers to the Trustee an officer's certificate and an opinion of counsel, each
stating that all conditions precedent to the defeasance and discharge of the
Debt Securities of such series as contemplated by the Indenture have been
complied with.
The Trustee shall hold in trust cash or U.S. Government Obligations
deposited with it as described above and shall apply the deposited cash and the
proceeds from deposited U.S. Government Obligations to the payment of principal,
premium, and interest with respect to the Debt Securities of the defeased
series. In the case of Subordinated Debt Securities, the money and U.S.
Government Obligations so held in trust will not be subject to the subordination
provisions of the Indenture.
THE TRUSTEE
The Company may maintain banking and other commercial relationships with
the Trustee and its affiliates in the ordinary course of business and the
Trustee may own Debt Securities.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities in the following ways: (i) through
agents; (ii) through underwriters; (iii) through dealers; and (iv) directly to
purchasers.
Offers to purchase the Debt Securities may be solicited by agents
designated by the Company from time to time. Any such agent, who may be deemed
to be an underwriter as that term is defined in the Securities Act, involved in
the offer or sale of the Debt Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent set forth, in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on the best efforts basis
for the period of its appointment.
If any underwriters are utilized in the sale, the Company will enter into
an underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriters and the terms of the transaction will be set forth
in the Prospectus Supplement, which will be used by the underwriters to make
resales to the public of the Debt Securities in respect of which this Prospectus
is delivered.
If a dealer is utilized in the sale of the Debt Securities in respect of
which the Prospectus is delivered, the Company will sell such Debt Securities to
the dealer, as principal. The Dealer may then resell such Debt Securities to the
public at varying prices to be determined by such dealer at the time of resale.
Agents, dealers and underwriters 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 such agents, dealers or underwriters may be
required to make in respect thereof. Agents, dealers and underwriters may be
customers of, engage in transactions with, or perform services for the Company
in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters or dealers to solicit offers by certain purchasers to
purchase the Debt Securities from the Company at the public offering price set
forth in the Prospectus Supplement pursuant to delayed delivery contracts
18
<PAGE> 46
providing for payment and delivery on a specified date in the future. Such
contracts will be subject to only those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission payable
for solicitation of such offers.
LEGAL MATTERS
The validity of the Debt Securities offered hereby will be passed upon for
the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio, and for any
underwriters or agents by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, as amended, have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing. The consolidated financial
statements and schedule of the Company for each of the two years in the period
ended December 31, 1994, appearing in or incorporated by reference in the
Company's Annual Report (Form 10-K) for the year ended December 31, 1995, as
amended, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
19
<PAGE> 47
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company.......................... S-2
Pricing Supplement................... S-2
Description of Medium-Term Notes..... S-2
Currency Risks....................... S-17
United States Tax Considerations..... S-19
Plan of Distribution................. S-26
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents
by Reference....................... 2
The Company.......................... 3
Use of Proceeds...................... 3
Ratios of Earnings to Fixed
Charges............................ 4
Description of Debt Securities....... 4
Plan of Distribution................. 18
Legal Matters........................ 19
Experts.............................. 19
</TABLE>
U.S. $300,000,000
M.A. HANNA COMPANY
MEDIUM-TERM NOTES
DUE NINE MONTHS OR
MORE FROM DATE OF ISSUE
M.A. HANNA COMPANY
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
PROSPECTUS SUPPLEMENT
DATED DECEMBER 4, 1996
