<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1998
REGISTRATION NO. 333-47945
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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HOUSEHOLD FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
36-1239445
(I.R.S. Employer
Identification No.)
2700 Sanders Road
Prospect Heights, Illinois 60070
(847) 564-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Patrick D. Schwartz, Esq.
Associate General Counsel
Household International, Inc.
2700 Sanders Road
Prospect Heights, Illinois 60070
(847) 564-6301
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
(Agents' Counsel)
Scott N. Gierke, Esq.
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
(312) 984-7521
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 1, 1998
PROSPECTUS
- ----------------
$3,000,000,000
HOUSEHOLD FINANCE CORPORATION
MEDIUM TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
------------------------
Household Finance Corporation ("HFC" or the "Company") may offer from time
to time Medium Term Notes (the "Notes") having an aggregate initial offering
price of up to $3,000,000,000 (or the equivalent thereof if any of the Notes are
denominated in one or more foreign currencies or foreign composite currency
units), subject to reduction as a result of the sale of warrants to purchase the
Notes (the "Note Warrants"). Each Note will bear interest at either a fixed or
floating rate, and will have a final maturity on a date that is at least nine
months from the date of issue, as set forth on the face thereof and specified in
a pricing supplement (the "Pricing Supplement") to this Prospectus. A Note may
provide for principal payments to be made over the life of the Note (an
"Amortizing Note"), or the principal amount payable at the stated maturity of,
or the interest on a Note, or both, may be determined by reference to
currencies, currency units, commodity prices, financial or non-financial indices
or other factors (an "Indexed Note"), all as indicated in the applicable Pricing
Supplement. See "Description of Medium Term Notes -- Amortizing Notes; --
Indexed Notes." If provided in the applicable Pricing Supplement and the Note,
such Note will be subject to redemption by the Company or repayment at the
option of the Holder thereof prior to its stated maturity, in whole or in part,
at the amount specified therein, together with interest to the date of
redemption or repayment. If provided in the applicable Pricing Supplement and
the Note, the stated maturity of a Note may be extended, at the option of the
Company, for one or more additional periods, subject to a final maturity. If the
Company has the option to extend the maturity of a Note, the Holder thereof will
have the option to elect repayment of the Note on the stated maturity. Each Note
will be denominated in U.S. dollars, a foreign currency or units of a foreign
composite currency (the "Specified Currency") as specified in the applicable
Pricing Supplement. See "Important Currency Information" and "Currency Risks."
Notes denominated in U.S. dollars will be issued only in denominations of $1,000
or any amount in excess thereof which is an integral multiple of $1,000. If the
Notes are to be denominated in a foreign currency or units of a foreign
composite currency, the authorized denominations and currency exchange rate
information will be set forth in the applicable Pricing Supplement. The Notes
shall be issued as senior unsecured debt securities of HFC. See "Description of
Medium Term Notes -- General."
Unless otherwise specified in the applicable Pricing Supplement, the dates,
if any, on which interest will be payable for each Note which bears interest at
a fixed rate (a "Fixed Rate Note"), will be May 15 and November 15 and at the
stated maturity or upon earlier redemption or repayment. The dates on which
interest will be payable for each Amortizing Note, Indexed Note or a Note which
bears interest at a floating rate (a "Floating Rate Note") will be set forth in
the applicable Pricing Supplement and specified in the terms of that Note.
Interest rates and interest rate formulae are subject to change by HFC, but no
change will affect any Note already issued or as to which an offer to purchase
has been accepted by the Company. See "Description of Medium Term Notes --
Interest Rates."
Each Note will be issued in fully registered form and, unless otherwise
specified in the applicable Pricing Supplement, will be represented by a global
security (a "Global Note") registered in the name of a nominee of The Depository
Trust Corporation ("DTC"). If so specified in the applicable Pricing Supplement,
a Note may be represented by a certificate issued in definitive form or by a
Global Note registered in the name of another depository (DTC and such other
depositories are referred to herein as the "Depository"). A beneficial interest
in a Global Note will be shown on, and transfers thereof will be effected only
through, records maintained by the Depository and its participants. A beneficial
interest in a Global Note will be exchanged for Notes in definitive form only
under the limited circumstances described herein. See "Description of Medium
Term Notes -- Book-Entry Notes."
HFC may also issue from time to time Note Warrants. The Note Warrants may be
issued together with or separately from any Notes and, if issued together with
Notes, may be attached to or separate from such Notes. The particular terms of
any issue of Note Warrants, the terms of any Warrant Agreement under which such
Note Warrants are issued, the Notes issuable upon exercise of such Note
Warrants, any initial public offering price, any net proceeds to the Company and
any other specific terms of such issue of Note Warrants will be set forth in a
supplement to this Prospectus (a "Note Warrant Supplement"). Unless accompanied
by a Note Warrant Supplement, no Note Warrants are being offered by this
Prospectus.
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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.
<TABLE>
<CAPTION>
=================================================================================================================
Price to Agents' Proceeds to
Public(1)(2) Commissions or Company(2)(3)(4)
Discounts(2)(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note........................ 100% Not to exceed .750% Not less than 99.250%
- -----------------------------------------------------------------------------------------------------------------
Total........................... $3,000,000,000 Not to exceed $22,500,000 Not less than $2,977,500,000
=================================================================================================================
</TABLE>
(1) The Notes will be issued at 100% of principal amount, unless otherwise
specified in a Pricing Supplement.
(2) Or the equivalent thereof in the Specified Currency.
(3) The Company will pay a commission to each Agent, in the form of a discount,
not to exceed .750% of the principal amount of any Note, depending upon the
stated maturity, for each Note sold through such Agent, and may sell Notes
to an Agent, as principal. Commissions or discounts with respect to Notes
with a stated maturity in excess of 30 years from the date of issue which
are sold through an Agent will be agreed to by the Company and such Agent at
the time of such sale. Unless otherwise indicated in an applicable Pricing
Supplement, any Note sold to an Agent as principal shall be purchased by
such Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to an agency sale of a Note of
identical maturity.
(4) Before deducting expenses payable by the Company estimated at $2,000,000.
------------------------
The Notes are being offered on a continuing basis by the Company through
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated and UBS Securities LLC (the "Agents"), which have
agreed to use their reasonable efforts to solicit purchases of the Notes. Notes
may also be sold by the Company to any Agent, as principal, for resale to
investors and other purchasers at varying prices related to prevailing market
prices at the time of resale, as determined by such Agent, or, if so agreed, at
a fixed public offering price. Notes also may be sold directly to investors by
the Company or an affiliated entity of the Company. The Notes will not be listed
on any securities exchange, and there can be no assurance that the Notes offered
by this Prospectus will be sold or that there will be a secondary market for the
Notes. The Company reserves the right to cancel or modify the offer made hereby
without notice. The Company or the Agents may reject any order in whole or in
part. See "Offering of Medium Term Notes and Warrants."
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MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
UBS SECURITIES
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The date of this Prospectus is April , 1998.
<PAGE> 3
AVAILABLE INFORMATION
HFC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 14th Floor, Seven World
Trade Center, Suite 1300, New York, New York 10048, or through the Web site
maintained by the Commission at (http://www.sec.gov). Copies of such material
can also be obtained at prescribed rates from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
certain debt securities of HFC are listed on the New York Stock Exchange, and
reports and other material concerning HFC can be inspected at the offices of
such Exchange at 20 Broad Street, New York, New York 10005. Although HFC is not
required to send an annual report to its security holders, HFC will, upon
request, send to any Holder of a Note a copy of its latest Annual Report on Form
10-K, as filed with the Commission, which contains financial information that
has been examined and reported upon, with an opinion expressed, by independent
certified public accountants.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission (File No. 1-75)
pursuant to the Exchange Act and are incorporated herein by reference and made a
part of this Prospectus:
(a) HFC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997; and
(b) HFC's Current Report on Form 8-K dated February 12, 1998.
All documents filed by HFC with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Notes shall be deemed to be
incorporated herein by reference and made a part of this Prospectus from the
respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
HFC WILL PROVIDE WITHOUT CHARGE TO EACH PERSON (INCLUDING ANY BENEFICIAL
OWNER) TO WHOM THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF
ANY SUCH PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO:
HOUSEHOLD FINANCE CORPORATION
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
ATTENTION: OFFICE OF THE SECRETARY
TELEPHONE: 847-564-5000
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<PAGE> 4
HOUSEHOLD FINANCE CORPORATION
HFC was incorporated in Delaware in 1925, as successor to an enterprise
which traces its origin through the same ownership to an office established in
1878. The address of its principal executive office is 2700 Sanders Road,
Prospect Heights, Illinois 60070 (telephone 847-564-5000). HFC is a subsidiary
of Household International, Inc. ("Household International" or the "parent
company").
HFC and its subsidiaries offer a diversified range of financial services.
The principal product of HFC's consumer financial services business is the
making of cash loans, including home equity loans secured by first and second
mortgages, auto finance loans and unsecured credit advances (including revolving
and closed-end personal loans) to middle-income consumers in the United States.
Loans are made through branch lending offices and through direct marketing
efforts. HFC also seeks to acquire portfolios of open-end and closed-end,
secured and unsecured loans.
HFC, through banking subsidiaries, offers both VISA* and MasterCard* credit
cards to residents throughout the United States.
Household Retail Services is the revolving credit card merchant
participation business of HFC. This business provides sales financing for
consumer goods and purchases and originates and services merchants' private
label revolving charge accounts.
In conjunction with its consumer finance operations and where applicable
laws permit, HFC makes available to customers credit life, credit accident and
health, and household contents insurance. Credit life and credit accident and
health insurance are generally directly written by or reinsured with HFC's
insurance subsidiary, Household Life Insurance Company.
USE OF PROCEEDS
Unless otherwise indicated in the Pricing Supplement, HFC will apply the
net proceeds from the sale of the Notes to its general funds to be used in its
financial services business, including the funding of investments in, or
extensions of credit to, affiliates of HFC. Pending such applications, the net
proceeds will be used initially to reduce outstanding commercial paper of HFC.
The proceeds of such commercial paper are used in connection with HFC's
financial services business.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for HFC and subsidiaries for the
periods indicated below was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HFC and subsidiaries--calculated on income from continuing
operations.............................................. 1.76 1.59 1.50 1.54 1.61
</TABLE>
For purposes of calculating the ratio, earnings consist of income from
continuing operations to which has been added income taxes and fixed charges.
Fixed charges consist of interest on all indebtedness and one-third of rental
expense (approximate portion representing interest).
- ---------------
* VISA and MasterCard are registered trademarks of VISA USA, Inc. and MasterCard
International Incorporated, respectively.
3
<PAGE> 5
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each Note in the Specified Currency for
such Note. Currently, there are limited facilities in the United States for
conversion of U.S. dollars into foreign currencies and vice versa, and banks
currently do not offer non-U.S. dollar checking or savings account facilities in
the United States. However, if requested by a prospective purchaser of Notes
denominated in a Specified Currency other than U.S. dollars, the Agent
soliciting the offer to purchase will arrange for the conversion of U.S. dollars
into such Specified Currency to enable the purchaser to pay for such Notes. Such
requests must be made on or before the third Business Day (as defined below)
preceding the date of delivery of the Notes, or by such other date as determined
by such Agent. Each such conversion will be made by the relevant Agent on such
terms and subject to such conditions, limitations and charges as such Agent may
from time to time establish in accordance with its regular foreign exchange
practice. All costs of exchange will be borne by purchasers of the Notes.
Unless otherwise indicated, currency amounts in this Prospectus or any
Pricing Supplement are stated in United States dollars ("$", "dollars", "U.S.
dollars" or "U.S. $").
DESCRIPTION OF MEDIUM TERM NOTES
GENERAL
The Notes will constitute senior unsecured debt securities of HFC and will
be issued under the indenture dated as of December 1, 1993 (the "Indenture")
between HFC and The Chase Manhattan Bank, as successor to the Chase Manhattan
Bank (National Association) ("Chase Manhattan" or the "Trustee"), as Trustee,
which incorporates therein the terms and conditions of the Standard
Multiple-Series Indenture Provisions for Senior Debt Securities dated as of June
1, 1992 (the "Standard Provisions"). The Indenture and the Standard Provisions
have been filed as exhibits to HFC's Registration Statement which registers the
Notes with the Commission. The following summaries do not purport to be complete
and, where particular provisions of the Indenture or the Standard Provisions are
referred to, such provisions, including definitions of certain terms, are
incorporated by reference as part of such summaries, which are qualified in
their entirety by such reference. The terms and conditions set forth herein will
apply to each Note unless otherwise specified in the applicable Pricing
Supplement and such Note.
The Indenture provides that debt securities may be issued thereunder from
time to time in one or more series and does not limit the aggregate principal
amount of such debt securities except as may be otherwise provided with respect
to any particular series of debt securities. The Notes will constitute a part of
a series of debt securities, unlimited as to aggregate principal amount.
The Notes will be offered on a continuing basis and each Note will have a
stated maturity that is at least nine months from the date of issue, as selected
by the purchaser and agreed to by HFC and as specified in the applicable Pricing
Supplement. The Notes will be issued in registered form only and, if issued in
U.S. dollars, in denominations of $1,000 or any amount in excess thereof which
is an integral multiple of $1,000. Notes denominated in a Specified Currency
other than U.S. dollars will be issued in the authorized denominations set forth
in the applicable Pricing Supplement. Interest rates offered by HFC with respect
to the Notes may differ depending upon, among other things, the aggregate
principal amount of Notes purchased in any transaction. HFC expects generally to
distinguish, with respect to such offered rates, between purchases which are for
less than, and purchases which are equal to or greater than $100,000. Such
different rates may be offered concurrently at any time. HFC may also
concurrently offer Notes having different variable terms to different investors,
and such different offers may depend upon whether an offered purchase is for an
aggregate principal amount of Notes equal to or greater than, or for an amount
less than, $100,000.
"Business Day" means (i) with respect to any Note, any day that is not a
Saturday or Sunday and that is not a legal holiday for banking institutions in
The City of New York, (ii) with respect to LIBOR Notes (as defined herein) only,
any such date on which dealings in deposits in U.S. dollars are transacted in
the London interbank market (a "London Business Day"), and (iii) if the Note is
denominated in a Specified Currency other than U.S. dollars, including LIBOR
Notes (a) a day on which banking institutions are not authorized or required by
law or regulation to close in the principal financial center of the country
issuing the Specified
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<PAGE> 6
Currency and (b) a day on which banking institutions in such financial center
are carrying out transactions in such Specified Currency. For Notes denominated
in a Specified Currency that is a unit of a foreign composite currency,
"Business Day" shall have the meaning set forth in the applicable Pricing
Supplement.
"Original Issue Discount Note" means a Note to be offered and sold at a
discount below its stated principal amount, which Note provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the maturity thereof upon the occurrence and continuation of
an Event of Default, or on the date of redemption or repayment (if any).
Unless issuance in definitive certificated form is previously approved by
HFC and provision therefor is made in the applicable Pricing Supplement, Notes
denominated in U.S. dollars will be initially represented by a Global Note
registered in the name of the Depository. A single Global Note will represent
all Notes issued on the same day and having the same terms, including, but not
limited to, the same Interest Payment Dates, rate of interest, maturity, and
redemption or repayment provisions (if any). A beneficial interest in a Global
Note will be shown on, and transfers thereof will be effected only through,
records maintained by the Depository (with respect to interests of participants)
and its participants (with respect to interests of persons other than
participants). Payments of principal, premium, if any, and interest on Notes
represented by a Global Note will be made through Chase Manhattan to the
Depository. See "--Book-Entry Notes" below.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in U.S. dollars and payments of principal, premium, if any,
and interest will be made in U.S. dollars. The principal, premium, if any, and
interest on each Note denominated in any other Specified Currency is payable by
HFC in U.S. dollars based on the equivalent of that Specified Currency converted
into U.S. dollars. If the Specified Currency for a Note is other than U.S.
dollars, HFC will (unless otherwise specified in the applicable Pricing
Supplement) appoint an agent (the "Exchange Rate Agent") to determine the
exchange rate for converting all payments in respect of such Note into U.S.
dollars in the manner described in the following paragraph. Unless otherwise
specified in the applicable Pricing Supplement, Chase Manhattan will act as the
Exchange Rate Agent. Notwithstanding the foregoing, the Holder of a Note
denominated in a Specified Currency other than U.S. dollars may (if the
applicable Pricing Supplement and Note so indicate) elect to receive all such
payments in the Specified Currency by delivery of a written request to Chase
Manhattan not later than fifteen calendar days prior to the applicable payment
date. Such election will remain in effect until revoked by written notice to
Chase Manhattan received not later than fifteen calendar days prior to the
applicable payment date.
In the case of a Note denominated in a Specified Currency other than U.S.
dollars, unless the Holder has elected otherwise, payment in respect of such
Note shall be made in U.S. dollars calculated from the exchange rate as
determined by the Exchange Rate Agent based on the highest firm bid quotation of
U.S. dollars received by such Exchange Rate Agent at approximately 11:00 A.M.
(or, in the case of a payment of principal, prior to the close of business), 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 recognized foreign exchange dealers in The City of New
York selected by the Exchange Rate Agent and approved by HFC (one of which may
be the Exchange Rate Agent) for the purchase by the quoting dealer, for
settlement on such payment date, of the aggregate amount of the Specified
Currency payable on such payment date in respect of all Notes denominated in
such Specified Currency. Unless otherwise set forth in the Pricing Supplement
for the Note, all currency exchange costs will be borne by the Holders of such
Notes by deduction from such payments. If no such bid quotations are available,
payment will be made in the Specified Currency, unless such Specified Currency
is unavailable due to the imposition of exchange controls or other circumstances
beyond HFC's control, in which case payment will be made as described under
"Currency Risks--Payment Currency".
Unless otherwise specified in the applicable Pricing Supplement, payment of
principal (premium, if any) and interest in U.S. dollars on certificated Notes
will be made at the office or agency of the Company in the Borough of Manhattan,
City and State of New York; provided, however, that payment of interest may be
made at the option of the Company by check or draft mailed to the person
entitled thereto at the address appearing in the Note Register or, if such
person designates an account not later than ten days prior to the date of such
payment, by wire transfer to such account. Simultaneously with the election by
any Holder to receive
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<PAGE> 7
payments in a Specified Currency other than U.S. dollars (as provided above),
such Holder shall provide appropriate payment instructions to Chase Manhattan,
and all such payments will be made in immediately available funds to an account
maintained by the Holder with a bank located outside the United States.
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 "--Events of Default" below, the amount of
principal due and payable with respect to such Note shall be limited to the sum
of the principal amount of such Note multiplied by the issue price (expressed as
a percentage of the aggregate principal amount), plus the original issue
discount accrued from the date of issue to the date of repayment.
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the stated maturity only if a date (the
"Redemption Date") is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the Company
on any date on and after the Redemption Date in whole or from time to time in
part in increments of $1,000 or such other minimum denomination specified in
such Pricing Supplement (provided that any remaining principal amount thereof
shall be at least $1,000 or such minimum denomination), at the applicable
Redemption Price (as hereinafter defined), together with unpaid interest accrued
to the date of redemption, on notice given not more than 60 nor less than 30
calendar days prior to the date of redemption and in accordance with the
provisions of the Indenture. "Redemption Price", with respect to a Note, means
an amount equal to the Initial Redemption Percentage specified in the applicable
Pricing Supplement (as adjusted by the Annual Redemption Percentage Reduction,
if applicable) multiplied by the unpaid principal amount to be redeemed. The
Initial Redemption Percentage, if any, applicable to a Note shall decline at
each anniversary of the Redemption Date by an amount equal to the applicable
Annual Redemption Percentage Reduction, if any, until the Redemption Price is
equal to 100% of the unpaid principal amount to be redeemed.
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by HFC at the option of the Holders thereof
prior to the stated maturity only if one or more optional repayment dates (the
"Repayment Date") are specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to repayment at the option of the Holders
thereof on any Repayment Date in whole or from time to time in part in
increments of $1,000 or such other minimum denomination specified in the
applicable Pricing Supplement (provided that any remaining principal amount
thereof shall be at least $1,000 or such other minimum denomination), at a
repayment price equal to 100% of the unpaid principal amount to be repaid,
together with unpaid interest accrued to the date of repayment. For any Note to
be repaid, such Note must be received, together with the form thereon entitled
"Option to Elect Repayment" duly completed, by the Trustee at its Corporate
Trust Office (or such other address of which the Company shall from time to time
notify the Holders) not more than 60 nor less than 30 calendar days prior to the
date of repayment. Exercise of such repayment option by the Holder will be
irrevocable.
Only the Depository may exercise the repayment option in respect of Global
Notes representing Book-Entry Notes. Accordingly, beneficial owners of Global
Notes that desire to have all or any portion of the Book-Entry Notes represented
by such Global Notes repaid must instruct the participant through which they own
their interest to direct the Depository to exercise the repayment option on
their behalf by delivering the related Global Note and duly completed election
form to the Trustee as aforesaid. In order to ensure that such Global Note and
election form are received by the Trustee on a particular day, the applicable
beneficial owner must so instruct the participant through which it owns its
interest before such participant's deadline for accepting instructions for that
day. Different firms may have different deadlines for accepting instructions
from their customers. Accordingly, beneficial owners should consult the
participants through which they own their interest for the respective deadlines
for such participants. All instructions given to participants from beneficial
owners of Global Notes relating to the option to elect repayment shall be
irrevocable. In addition, at the time such instructions are given, each such
beneficial owner shall cause the participant through which it owns its
6
<PAGE> 8
interest to transfer such beneficial owner's interest in the Global Note or
Notes representing the related Book-Entry Notes, on the Depository's records, to
the Trustee. See "--Book-Entry Notes."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Exchange Act, and any other securities laws or regulations in
connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Trustee for
cancellation.
EXTENDIBLE NOTES
If so indicated in the Pricing Supplement relating to a Note, the Company
will have the option to extend the original maturity specified in the Note for
one or more periods of one to five whole years (each an "Extension Period") up
to but not beyond a final maturity date set forth in such Pricing Supplement
(the "Final Maturity"). As used in this section, the "Stated Maturity" shall
mean the original maturity specified in the Note or any later designated
maturity as set forth in an Extension Notice (as defined below).
The Company may exercise such option with respect to a Note by notifying
the Trustee not more than 60 nor less than 30 days prior to the Stated Maturity
of such Note. Not later than 20 days prior to the Stated Maturity of such Note,
the Trustee will mail to the Holder of such Note a notice (the "Extension
Notice") setting 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 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 the 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 following paragraph, such Note will have the same terms as prior to the
mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to the Stated
Maturity of 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 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 to mail notice of such higher interest
rate or higher Spread or Spread Multiplier, as the case may be, 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
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 Stated Maturity
once the Company has extended the Stated Maturity thereof, the Holder thereof
must provide notice to the Company not less than ten days prior to the Stated
Maturity.
INDEXED NOTES
The Notes may be issued, from time to time, as Indexed Notes as set forth
in the applicable Pricing Supplement. Holders of Indexed Notes may receive a
principal amount at the stated maturity that is greater than or less than the
face amount of such Notes depending upon the fluctuation of the relative value,
rate or price of the specified index. Specific information pertaining to the
method for determining the principal amount payable at the stated maturity, a
historical comparison of the relative value, rate or price of the specified
index and the face amount of the Indexed Note and certain additional United
States Federal income tax considerations, if any, may be described in the
applicable Pricing Supplement.
7
<PAGE> 9
An investment in Notes indexed, as to principal or interest or both, to one
or more values of currencies (including exchange rates between currencies),
commodities or interest rate indices entails significant risks that are not
associated with similar investments in a conventional fixed-rate debt security.
If the interest rate of such a Note is so indexed, it may result in an interest
rate that is less than that payable on a conventional fixed-rate debt security
issued at the same time, including the possibility that no interest will be
paid, and, if the principal amount of such a Note is so indexed, the principal
amount payable at stated maturity may be less than the original purchase price
of such Note if allowed pursuant to the terms of such Note, including the
possibility that no principal will be paid. The secondary market for such Notes
will be affected by a number of factors, independent of the creditworthiness of
the Company and the value of the applicable currency, including the volatility
of the applicable currency, commodity or interest rate index, the time remaining
to the stated maturity of such Notes, the amount outstanding of such Notes and
market interest rates. The value of the applicable currency, commodity or
interest rate index depends on a number of interrelated factors, including
economic, financial and political events, over which the Company has no control.
Additionally, if the formula used to determine the principal amount or interest
payable with respect to such Notes contains a multiple or leverage factor, the
effect of any change in the applicable currency, commodity or interest rate
index may be increased. The historical experience of the relevant currencies,
commodities or interest rate indices should not be taken as an indication of
future performance of such currencies, commodities or interest rate indices
during the term of any Note. The credit ratings assigned to the Company's Medium
Term Note program are a reflection of the Company's credit status and in no way
are a reflection of the potential impact of the factors discussed above, or any
other factors, on the market value of the Notes. Accordingly, prospective
investors should consult their own financial and legal advisors as to the risks
entailed by an investment in such Notes and the suitability of such Notes in
light of their particular circumstances.
AMORTIZING NOTES
The Company may from time to time offer Amortizing Notes. Information
concerning terms and conditions of any issue of Amortizing Notes will be
provided in the applicable Pricing Supplement. A table setting forth repayment
information in respect of each Amortizing Note will be included in the
applicable Pricing Supplement and set forth on such Notes.
INTEREST RATES
Each Note will bear interest from the date of issue at the rate per annum,
or pursuant to the interest rate formula, specified therein and in the
applicable Pricing Supplement until the principal thereof is paid or made
available for payment. Interest will be payable on each Interest Payment Date
and at stated maturity (or on the Redemption Date or Repayment Date if
applicable). Interest will be payable to the person in whose name a Note is
registered at the close of business on the Regular Record Date next preceding
each Interest Payment Date; provided, however, interest payable at stated
maturity or on a Redemption Date or Repayment Date will be payable to the person
to whom principal shall be payable. Principal and any premium and interest
payable at stated maturity or on a Redemption Date or Repayment Date will be
paid upon the surrender of the Note at the office or agency of the Company in
the Borough of Manhattan, City and State of New York. If the stated maturity,
Redemption Date or Repayment Date of a Note falls on a day that is not a
Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business Day and no interest on such payment shall
accrue for the period from and after such stated maturity, Redemption Date or
Repayment Date. Unless otherwise specified in the applicable Pricing Supplement,
the first payment of interest on any Note issued between a Regular Record Date
and an Interest Payment Date will be made on the Interest Payment Date following
the next succeeding Regular Record Date to the registered owner on such next
Regular Record Date. Unless otherwise specified in the applicable Pricing
Supplement, a "Record Date" shall be the fifteenth calendar day (whether or not
a Business Day) immediately preceding the related Interest Payment Date.
Interest rates, or interest rate formulas, are subject to change by HFC
from time to time, but, except in the event HFC establishes a higher interest
rate, Spread or Spread Multiplier in conjunction with the exercise
8
<PAGE> 10
of an option to extend the maturity of a Note, no such change will affect any
Note already issued or as to which an offer to purchase has been accepted by
HFC.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate will be determined in accordance with the applicable provisions
below. Except as set forth above or in the applicable Pricing Supplement, the
interest rate in effect on each day shall be (i) if such day is an Interest
Reset Date (as hereinafter defined), the interest rate determined as of the
Interest Determination Date (as hereinafter defined) immediately preceding such
Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Each Note will be a Fixed Rate Note, a Floating Rate Note, an Amortizing
Note or an Indexed Note. A Floating Rate Note will be determined by reference to
an interest rate basis, which may be a fixed rate of interest (the "Base Rate"),
or two or more Base Rates, which may be adjusted by a Spread and/or Spread
Multiplier (each as defined below). A Floating Rate Note or Indexed Note may
also have either or both of the following: (i) a maximum limitation, or ceiling,
on the rate of interest which may accrue during any interest period; and (ii) a
minimum limitation, or floor, on the rate of interest which may accrue during
any interest period. The applicable Pricing Supplement will designate one of the
following as applicable to each Note: (a) a fixed rate or rates per annum, in
which case such Note will be a Fixed Rate Note, (b) the Commercial Paper Rate,
in which case such Note will be a Commercial Paper Rate Note, (c) LIBOR, in
which case such Note will be a LIBOR Note, (d) the Treasury Rate, in which case
such Note will be a Treasury Rate Note, (e) the CMT Rate, in which case such
Note will be a CMT Rate Note, (f) the Federal Funds Rate, in which case such
Note will be a Federal Funds Rate Note, (g) the Prime Rate, in which case such
Note will be a Prime Rate Note, or (h) such other Base Rate or formula as is set
forth in such Pricing Supplement. In addition, the Pricing Supplement may
specify that two or more Base Rates (determined in the same manner as the Base
Rates are determined for the types of Notes described above) will be applicable
to the Note or that interest on Indexed Notes will be determined by reference to
one or more currencies, currency units, commodity prices, financial or
non-financial indices or other indices. The rate of interest on a Note may be
reset daily, weekly, monthly, quarterly, semi-annually or annually (each an
"Interest Reset Period"), on such dates (each 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 which reset:
(i) daily, each Business Day; (ii) weekly, the Wednesday of each week (with the
exception of weekly reset Floating Rate Notes as to which the Treasury Rate is
an applicable Base Rate, which will reset the Tuesday of each week, except as
described below); (iii) monthly, the third Wednesday of each month, (iv)
quarterly, the third Wednesday of March, June, September and December of each
year, (v) semiannually the third Wednesday of the two months specified in the
applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement. If any Interest Reset Date
for any Floating Rate Note would otherwise be a day that is not a Business Day,
such Interest Reset Date will be postponed to the next succeeding Business Day,
except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Base Rate and such Business Day falls in the next succeeding calendar
month, such Interest Reset Date will be the immediately preceding Business Day.
In addition, in the case of a Floating Rate Note as to which the Treasury Rate
is an applicable Base Rate and the Interest Determination Date would otherwise
fall on an Interest Reset Date, then such Interest Reset Date will be postponed
to the next succeeding Business Day.
The interest rate applicable to such Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date on or prior to the Calculation Date (as hereinafter
defined). The "Interest Determination Date" with respect to the CD Rate, the CMT
Rate, the Commercial Paper Rate, the Federal Funds Rate and the Prime Rate will
be the second Business Day immediately preceding the applicable Interest Reset
Date; and the "Interest Determination Date" with respect to LIBOR will be the
second London Business Day immediately preceding the applicable Interest Reset
Date. With respect to the Treasury Rate, the "Interest Determination Date" will
be the day in the week in which the applicable Interest Reset Date falls on
which day Treasury bills (as hereinafter defined) are
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<PAGE> 11
normally auctioned (Treasury bills are normally sold at an auction held on
Monday of each week, unless that day is a legal holiday, in which case the
auction is normally held on the following Tuesday, except that such auction may
be held on the preceding Friday); provided, however, that if an auction is held
on the Friday of the week preceding the applicable Interest Reset Date, the
Interest Determination Date will be such preceding Friday. The "Interest
Determination Date" pertaining to a Floating Rate Note the interest rate of
which is determined by reference to two or more Base Rates 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 Base Rate is
determinable. Each Base Rate will be determined as of such date, and the
applicable interest rate will take effect on the applicable Interest Reset Date.
The applicable Pricing Supplement will specify the Base Rate or Rates and
the Spread and/or Spread Multiplier, if any, the terms of the extension option,
if any, and the maximum or minimum interest rate limitation, if any, applicable
to each Note. In addition, such Pricing Supplement will define or particularize
for each Note the following terms, if applicable: Initial Interest Rate,
Interest Payment Dates, Regular Record Dates, Index Maturity, Interest
Determination Dates, stated maturity, Final Maturity and Redemption Date or
Repayment Date. Unless otherwise provided in the applicable Pricing Supplement,
Chase Manhattan shall be the calculation agent (the "Calculation Agent") with
respect to the Notes. All determinations made by the Calculation Agent shall be
at its sole discretion (except to the extent expressly provided herein that any
determination is subject to approval by the Company) and in absence of manifest
error, shall be conclusive for all purposes and binding on Holders of the Notes
and the Calculation Agent shall have no liability therefor.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date" 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 preceding the applicable Interest Payment Date or the stated
maturity or Redemption Date, as the case may be. Upon the request of the Holder
of any Floating Rate Note, the Calculation Agent will provide the interest rate
then in effect and, if determined, the interest rate which will become effective
as a result of a determination made on the most recent Interest Determination
Date with respect to such Floating Rate Note.
All percentages resulting from any calculation on Notes will be rounded to
the nearest one hundred-thousandth of a percentage point, with five one
millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545)
would be rounded to 9.87655% (or .0987655)), and all dollar amounts used in or
resulting from such calculation will be rounded to the nearest cent or, in the
case of Notes denominated other than in dollars, the nearest unit (with one-half
cent or unit being rounded upward).
The interest rate on each Floating Rate Note will be calculated by
reference to the specified Base Rate or two or more Base Rates, in either case,
(i) plus or minus the Spread, if any, and/or (ii) multiplied by the Spread
Multiplier, if any. The "Spread" is the number of basis points specified in the
applicable Pricing Supplement as being applicable to the interest rate for such
Floating Rate Note, and the "Spread Multiplier" is the percentage specified in
the applicable Pricing Supplement as being applicable to the interest rate for
such Floating Rate Note. "Index Maturity" means, with respect to a Floating Rate
Note, the period to maturity of the instrument or obligation on which the
interest rate is based, as specified in the applicable Pricing Supplement and in
the Floating Rate Note.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) 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; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year, (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date") and, in each case, at stated maturity (or on the Redemption Date
or Repayment Date, if applicable). If an Interest Payment Date specified in the
applicable Pricing Supplement with respect to any Note would otherwise fall on a
day that is not a Business Day, (i) with respect to a Fixed Rate Note, interest
with respect to such Note will be paid on
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<PAGE> 12
the next succeeding Business Day with the same force and effect as if paid on
the due date, and no additional interest will be payable as a result of such
delayed payment, and (ii) with respect to a Floating Rate Note, such Interest
Payment Date will be postponed to the next succeeding Business Day with respect
to such Note, except that in the case of a LIBOR Note, if such day falls in the
next calendar month, such Interest Payment Date will be the immediately
preceding day that is a Business Day with respect to such LIBOR Note.
Unless otherwise indicated in the applicable Pricing Supplement, interest
payments shall be the amount of interest accrued from, and including, the date
of issue, or from, and including, the last date to which interest has been paid,
to, but excluding, the Interest Payment Date, the stated maturity, the
Redemption Date or the Repayment Date, as applicable. With respect to a Floating
Rate Note, accrued interest from the date of issue or from the last date to
which interest has been paid is calculated by multiplying the face amount of
such Floating Rate Note by an accrued interest factor. Such accrued interest
factor is computed by adding the interest factor calculated for each day for
which accrued interest is being calculated. The interest factor for each such
day is computed by dividing the interest rate applicable to such day by 360, in
the case of Commercial Paper Rate Notes, LIBOR Notes, Federal Funds Rate Notes
and Prime Rate Notes, or by the actual number of days in the year, in the case
of CMT Rate Notes and Treasury Rate Notes. The interest factor for Notes whose
interest rate is calculated with reference to two or more Base Rates will be
calculated in each period in the same manner as if only one of the applicable
Base Rates applied.
In addition to any Maximum Interest Rate that may apply to any Floating
Rate Note, the interest rate on Floating Rate Notes will in no event be higher
than the maximum rate permitted by New York law, as the same may be modified by
United States law of general application.
Fixed Rate Notes
Each Fixed Rate Note will bear interest from its date of issue at the
annual interest rate specified on the face thereof and in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing Supplement,
interest on Fixed Rate Notes will be payable semiannually on May 15 and November
15 of each year to the persons in whose names the Fixed Rate Notes are
registered at the close of business on the April 30 and October 31 (each a
"Record Date") next preceding such Interest Payment Date. Interest payable at
stated maturity (or on the Redemption Date or Repayment Date if applicable) will
be payable to the persons to whom principal is payable. Interest on Fixed Rate
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
Commercial Paper Rate Notes
Each Commercial Paper Rate Note will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and, if any, the Spread
and/or Spread Multiplier) specified in such Commercial Paper Rate Note and in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date
relating to a Commercial Paper Rate Note or any Interest Determination Date for
a Note whose interest rate is determined with reference to the Commercial Paper
Rate (a "Commercial Paper Interest Determination Date"), the Money Market Yield
(as defined below) on such date of the rate for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement as published by
the Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" ("H.15(519)"), or any successor publication,
under the heading "Commercial Paper--Nonfinancial". In the event that such rate
is not published by 3:00 P.M., New York City time on the Calculation Date
pertaining to such Commercial Paper Interest Determination Date, then the
Commercial Paper Rate shall be the Money Market Yield on such Commercial Paper
Interest Determination Date of the rate for commercial paper of the specified
Index Maturity as published by the Federal Reserve Bank of New York in its daily
statistical release, "Composite 3:30 P.M. Quotations for U.S. Government
Securities" ("Composite Quotations") under the heading "Commercial Paper" (with
an Index Maturity of one month or three months being deemed to be equivalent to
an Index Maturity of 30 days or 90 days, respectively). If by 3:00 P.M., New
York City time on such Calculation Date the rate for a Commercial
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<PAGE> 13
Paper Interest Determination Date is not yet published in either H.15(519) or
Composite Quotations, the rate for that Commercial Paper Interest Determination
Date shall be calculated by the Calculation Agent and shall be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 A.M., New York
City time, on that Commercial Paper Interest Determination Date, of three
leading dealers of commercial paper in The City of New York selected by the
Calculation Agent (after consultation with HFC) for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bond rating is
"AA", or the equivalent, from a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by the Calculation Agent are
not quoting as mentioned in this sentence, the Commercial Paper Rate will be the
Commercial Paper Rate in effect on such Commercial Paper Interest Determination
Date.
"Money Market Yield" shall be a yield (expressed as a percentage rounded to
the nearest one hundredth of a percent, with five one-thousandths of a percent
rounded upward) calculated in accordance with the following formula:
<TABLE>
<CAPTION>
<C> <C> <S>
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.
LIBOR Notes
Each LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and, if any, the Spread and/or Spread Multiplier) specified
in such LIBOR Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR will
be determined by the Calculation Agent in accordance with the following
provisions:
(i) With respect to any Interest Determination Date for a Note whose
interest rate is determined with reference to LIBOR (a "LIBOR Interest
Determination Date"), LIBOR will be, as specified in the applicable Pricing
Supplement, either: (a) the arithmetic mean of the offered rates for deposits in
U.S. dollars having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Business Day immediately following
that LIBOR Interest Determination Date, that appear on the Reuters Screen LIBO
Page as of 11:00 A.M., London time, on that LIBOR Interest Determination Date,
if at least two such offered rates appear on the Reuters Screen LIBO Page
("LIBOR Reuters"), or (b) the rate for deposits in U.S. dollars having the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Business Day immediately following that LIBOR Interest
Determination Date, that appears on the Telerate Page 3750 as of 11:00 A.M.,
London time, on that LIBOR Interest Determination Date ("LIBOR Telerate").
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks). "Telerate Page 3750" means the display designated as page
"3750" on Dow Jones Markets Limited (or such other page as may replace the 3750
page on that service or such other service or services as may be nominated by
the British Bankers' Association for the purpose of displaying London interbank
offered rates for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR
Telerate is specified in the applicable Pricing Supplement, LIBOR will be
determined as if LIBOR Telerate had been specified. If fewer than two offered
rates appear on the Reuters Screen LIBO Page, or if no rate appears on the
Telerate Page 3750, as applicable, LIBOR in respect of that LIBOR Interest
Determination Date will be determined as if the parties had specified the rate
described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date, LIBOR will be
determined on the basis of the rates, at approximately 11:00 A.M., London time,
on such LIBOR Interest Determination Date, at which deposits in U.S. dollars
having the Index Maturity specified in the applicable Pricing Supplement are
offered to prime banks in the London interbank market by four major banks in the
London interbank market selected by the Calculation Agent (after consultation
with HFC), commencing on the second London Business Day
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<PAGE> 14
immediately following such LIBOR Interest Determination Date and in a principal
amount not less than $1,000,000 equal to an amount that is representative for a
single transaction in such market at such time. The Calculation Agent will
request the principal London office of each of such banks to provide a quotation
of its rate. If at least two such quotations are provided, LIBOR for such LIBOR
Interest Determination Date will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR for such LIBOR Interest
Determination Date will be the arithmetic mean of the rates at approximately
11:00 A.M., New York City time, on such LIBOR Interest Determination Date,
quoted by three major banks in the City of New York, selected by the Calculation
Agent (after consultation with HFC), for loans in U.S. dollars to leading
European banks having the specified Index Maturity, commencing on the second
London Business Day immediately following such LIBOR Interest Determination Date
and in a principal amount not less than $1,000,000 equal to an amount that is
representative for a single transaction in such market at such time; provided,
however, that if the banks selected as aforesaid by the Calculation Agent are
not quoting as mentioned in this sentence, LIBOR will be the LIBOR in effect on
such LIBOR Interest Determination Date.
Treasury Rate Notes
Each Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and, if any, the Spread and/or Spread
Multiplier) specified in such Treasury Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the Pricing Supplement, "Treasury Rate" means
with respect to any Interest Determination Date relating to a Treasury Rate Note
or any Interest Determination Date for a Note whose interest rate is determined
with reference to the Treasury Rate (a "Treasury Interest Determination Date"),
the rate for the most recent auction of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in the applicable Pricing
Supplement as published in H.15(519), or any successor publication, under the
heading "U.S. Government Securities/Treasury Bills/Auction Average (Investment)"
or, if not so published by 3:00 P.M., New York City time, on or before the
Calculation Date pertaining to such Treasury Interest Determination Date, the
auction average rate (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) for those Treasury
bills as announced by the United States Department of the Treasury. 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. In the
event that the results of the auction of Treasury bills 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 in a
particular week, then the Treasury Rate shall be calculated by the Calculation
Agent and shall be a yield to maturity (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily basis)
of the rate set forth for Treasury bills in the H.15(519) for that Treasury
Interest Determination Date opposite the Index Maturity under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market." If on such date, such
rate for such period is not yet published in the H.15(519), then the rate shall
be a yield to maturity (expressed as a bond equivalent on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of the arithmetic
mean of the secondary market bid rates, as of approximately 3:30 P.M., New York
City time on such Treasury Interest Determination Date, of three leading primary
United States government securities dealers, selected by the Calculation Agent
(after consultation with HFC), for the issue of Treasury bills with a remaining
maturity closest to the specified Index Maturity; provided, however, that if the
dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate will be the Treasury Rate in
effect on such Treasury Interest Determination Date.
CMT Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date relating to a Floating
Rate Note for which the interest rate is determined with reference to the CMT
Rate (a "CMT Rate Interest Determination Date"), the rate displayed on the
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<PAGE> 15
Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
week, or the month, as applicable, ended immediately preceding the week in which
the related CMT Rate Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page or is not displayed by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate for such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15(519). If such
rate is no longer published or is not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not provided by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate on the CMT Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 P.M., New York City time, on
such CMT Rate Interest Determination Date reported, according to their written
records, by three leading primary United States government securities dealers
(each, a "Reference Dealer") in The City of New York (which may include the
Agent or its affiliates) selected by the Calculation Agent (from five such
Reference Dealers selected by the Calculation Agent and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest)), for the most
recently issued direct noncallable fixed rate obligations of the United States
("Treasury Notes") with an original maturity of approximately the Designated CMT
Maturity Index and a remaining term to maturity of not less than such Designated
CMT Maturity Index minus one year. If the Calculation Agent is unable to obtain
three such Treasury Note quotations, the CMT Rate on such CMT Rate Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity based on the arithmetic mean of the secondary market offer
side prices as of approximately 3:30 P.M., New York City time, on such CMT Rate
Interest Determination Date of three Reference Dealers in The City of New York
(from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for Treasury Notes with an original maturity of the number of years
that is the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $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 so selected by the Calculation Agent are quoting as
mentioned herein, the CMT Rate determined as of such CMT Rate Interest
Determination Date will be the CMT Rate in effect on such CMT Rate Interest
Determination Date. If two Treasury Notes with an original maturity as described
in the second preceding sentence have remaining terms to maturity equally close
to the Designated CMT Maturity Index, the Calculation Agent will obtain from
five Reference Dealers quotations for the Treasury Note with the shorter
remaining term to maturity.
"Designated CMT Telerate Page" means the display on Dow Jones Markets
Limited on the page specified in the applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)) 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
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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.
Federal Funds Rate Notes
Each Federal Funds Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and, if any, the Spread
and/or Spread Multiplier) specified in the applicable Pricing Supplement.
Unless otherwise indicated in the Pricing Supplement, "Federal Funds Rate"
means, with respect to any Interest Determination Date relating to a Federal
Funds Rate Note or any Interest Determination Date for a Note whose interest
rate is determined with reference to the Federal Funds Rate (a "Federal Funds
Interest Determination Date"), the rate of interest for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)", or if not
so published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Federal Funds Interest Determination Date, the Federal Funds
Rate will be the rate on such Federal Funds Interest Determination Date as
published in Composite Quotations under the heading "Federal Funds/Effective
Rate". If such rate is not published in either the H.15(519) or the Composite
Quotations on such Calculation Date, the Federal Funds Rate will be calculated
by the Calculation Agent and will be the arithmetic mean of the rates for the
last transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in New York City selected by the Calculation Agent
(after consultation with HFC) prior to 9:00 A.M., New York City time, on such
Federal Funds Interest Determination Date; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as
described above, the Federal Funds Rate in effect for the applicable period will
be the Federal Funds Rate in effect on such Federal Funds Interest Determination
Date.
Prime Rate Notes
Each Prime Rate Note will bear interest at the interest rate (calculated
with reference to the Prime Rate and, if any, the Spread and/or Spread
Multiplier) specified in the applicable Pricing Supplement.
Unless otherwise indicated in the Pricing Supplement, "Prime Rate" means,
with respect to any Interest Determination Date relating to a Prime Rate Note or
any Interest Determination Date for a Note whose interest rate is determined
with reference to the Prime Rate (a "Prime Rate Interest Determination Date"),
the rate published in H.15(519), or any successor publication, for that day
under the heading "Bank Prime Loan". If on the Calculation Date pertaining to
such Prime Rate Interest Determination Date such rate is not yet published in
H.15(519), or any successor publication, the rate for that Prime Rate Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank that appears on the Reuters Screen USPRIME 1 as such
bank's prime rate or base lending rate as in effect for that Prime Rate Interest
Determination Date. If fewer than four (4) such rates appear on the Reuters
Screen USPRIME 1 for that Prime Rate Interest Determination Date, the Prime Rate
will be the arithmetic mean of the prime rates quoted on the basis of the actual
number of days in a year divided by 360 for that Prime Rate Interest
Determination Date by three (3) major money center banks in New York City
selected by the Calculation Agent (after consultation with HFC); provided,
however, that if the banks selected as aforesaid by the Calculation Agent are
not quoting as described above, the Prime Rate in effect for the applicable
period will be the Prime Rate in effect on such Prime Rate Interest
Determination Date. "Reuters Screen USPRIME 1" means the display designated as
page "USPRIME 1" on the Reuter Monitor Money Rates Service (or such other page
as may replace the USPRIME 1 on that service for the purpose of displaying prime
rates or base lending rates of major United States banks).
COVENANT AGAINST CREATION OF PLEDGES OR LIENS
All Notes are unsecured debt obligations of HFC. HFC covenants that, with
the exceptions listed below, it will not issue, assume or guarantee any
indebtedness for borrowed money secured by a mortgage, security interest, pledge
or lien ("security interest") of or upon any of its property, now owned or
hereafter acquired, unless the Notes then outstanding are, by supplemental
indenture, effectively secured by such security interest
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equally and ratably with all other indebtedness secured thereby for so long as
such other indebtedness shall be so secured. The term "indebtedness for borrowed
money" does not include any guarantee, cash deposit or other recourse obligation
in connection with the sale, securitization or discount by HFC of finance or
accounts receivables, trade acceptances, or other paper arising in the ordinary
course of its business.
The foregoing covenant does not apply to (a) security interests to secure
the payment of the purchase price of property, shares of capital stock, or
indebtedness acquired by HFC or the cost of construction or improvement of such
property or the refinancing of all or any part of such secured indebtedness,
provided that such security interests do not apply to any other property, shares
of capital stock, or indebtedness of HFC; (b) security interests on property,
shares of capital stock, or indebtedness existing at the time of acquisition by
HFC; (c) security interests on property of a corporation which security
interests exist at the time such corporation merges or consolidates with or into
HFC or which security interests exist at the time of the sale or transfer of all
or substantially all of the assets of such corporation to HFC; (d) security
interests to secure any indebtedness of HFC to a subsidiary; (e) security
interests in property of HFC in favor of the United States of America or any
state or agency or instrumentality thereof, or in favor of any other country or
political subdivision, to secure partial, progress, advance, or other payments
pursuant to any contract or statute or to secure any indebtedness incurred or
guaranteed for the purpose of financing all or any part of the purchase price or
the cost of construction of the property subject to such security interests; (f)
security interests on properties financed through tax-exempt municipal
obligations; provided that such security interests are limited to the property
so financed; (g) security interests existing on December 1, 1993 (the date of
execution of the Indenture); and (h) any extension, renewal, refunding, or
replacement (or successive extensions, renewals, refundings, or replacements),
in whole or in part, of any security interest referred to in the foregoing
clauses (a) through (g) inclusive; provided, however, that the principal amount
of indebtedness secured in such extension, renewal, refunding, or replacement
does not exceed the principal amount of indebtedness secured at the time by such
security interest; provided, further, that such extension, renewal, refunding,
or replacement of such security interest is limited to all or part of the
property subject to such security interest so extended, renewed, refunded, or
replaced.
Notwithstanding the foregoing, HFC may, without equally and ratably
securing the Notes, issue, assume, or guarantee indebtedness secured by a
security interest not excepted pursuant to clauses (a) through (h) above if the
aggregate amount of such indebtedness, together with all other indebtedness of,
or guaranteed by, HFC existing at such time and secured by security interests
not so excepted, does not at the time exceed 10% of HFC's Consolidated Net Worth
(as defined). In addition, an arrangement with any person providing for the
leasing by HFC of any property, which property has been or is to be sold or
transferred by HFC to such person with the intention that such property be
leased back to HFC, shall not be deemed to create any indebtedness secured by a
security interest if the obligation in respect to such lease would not be
included as a liability on a consolidated balance sheet of HFC. The Holders of
not less than a majority in principal amount of Notes at the time outstanding
under the Indenture, on behalf of the Holders of all of the Notes issued under
such Indenture, may waive compliance with the foregoing covenant. (Standard
Provisions--Section 3.08)
SATISFACTION, DISCHARGE, AND DEFEASANCE OF THE INDENTURE AND NOTES
If there is deposited irrevocably with Chase Manhattan as trust funds for
the benefit of the Holders of Notes denominated in U.S. dollars an amount, in
money or the equivalent in securities of the United States or securities the
principal of and interest on which is fully guaranteed by the United States,
sufficient to pay the principal, premium, if any, and interest on such Notes on
the dates such payments are due in accordance with the terms of such Notes
through their maturity, and if HFC has paid or caused to be paid all other sums
payable by it under the Indenture with respect to such series, then HFC will be
deemed to have satisfied and discharged the entire indebtedness represented by
the Notes and all of the obligations of HFC under such Indenture with respect to
such series, except as otherwise provided in such Indenture. In the event of any
such defeasance, Holders of the Notes would be able to look only to such trust
funds for payment of principal, premium, if any, and interest, if any, on their
Notes. (Standard Provisions--Section 6.03)
For federal income tax purposes, any such defeasance may be treated as a
taxable exchange of the related Notes for an issue of obligations of the trust
or a direct interest in the cash and securities held in the trust. In
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<PAGE> 18
that case Holders of such Notes would recognize gain or loss as if the trust
obligations or the cash or securities deposited, as the case may be, had
actually been received by them in exchange for their Notes. Such Holders
thereafter would be required to include in income a share of the income, gain or
loss of the trust. The amount so required to be included in income could be a
different amount and includable in income at different times than would be
includable in the absence of defeasance. Prospective investors are urged to
consult their own tax advisors as to the specific consequences to them of
defeasance.
MODIFICATION OF INDENTURE
The Indenture provides that the Holders of not less than a majority in
principal amount of each series of debt securities at the time outstanding under
the Indenture, may enter into supplemental indentures for the purpose of
amending, in any manner, provisions of such Indenture or of any supplemental
indenture or modifying the rights of Holders of such series. However, no such
supplemental indenture, without the consent of the Holder of each outstanding
debt security, Note or debenture affected thereby, shall, among other things,
(i) change the maturity of the principal of, or any installment of interest on
any debt security, Note or debenture issued thereunder, or reduce the principal
amount thereof or the interest thereon or any premium payable upon the
redemption thereof, or (ii) reduce the aforesaid percentage of the debt
securities, Notes or debentures, the consent of the Holders of which is required
for any such waiver of compliance or for the execution of any such supplemental
indenture. (Standard Provisions--Section 11.02)
The Indenture may be amended or supplemented without the consent of any
Holder of Notes under certain circumstances, including (i) to cure any
ambiguity, defect or inconsistency in such Indenture, any supplemental
indenture, or in the Notes; (ii) to evidence the succession of another
corporation to the Company and to provide for the assumption of all the
obligations of the Company under the Indenture and the Notes issued thereunder
by such corporation; (iii) to provide for uncertificated Notes in addition to
certificated Notes issued thereunder; (iv) to make any change that does not
adversely affect the rights of Holders of Notes issued thereunder; (v) to
provide for a new series of Notes to be issued thereunder; or (vi) to add to
rights of Holders of Notes issued thereunder or add additional Events of
Default. (Standard Provisions--Section 11.01)
SUCCESSOR ENTITY
The Company may not consolidate with or merge into, or transfer, sell or
lease its properties and assets as, or substantially as, an entirety to another
entity unless the successor entity is a corporation incorporated within the
United States and, after giving effect thereto, no default under the Indenture
shall have occurred and be continuing. Thereafter, except in the case of a
lease, all obligations of the Company under the Indenture terminate. (Standard
Provisions--Sections 10.01 and 10.02)
EVENTS OF DEFAULT
The Indenture defines the following as Events of Default with respect to
any series of debt securities issued thereunder: default for 30 days in the
payment of any interest upon any Note, debt security or debenture issued under
such Indenture; default in the payment of any principal of or premium on any
such Note, debt security or debenture; default for 30 days in the deposit of any
sinking fund or similar payment for such Notes or series of debt securities or
debentures; default for 60 days after notice in the performance of any other
covenant in the Indenture; certain defaults for 30 days after notice in the
payment of principal or interest, or in the performance of other covenants, with
respect to borrowed money under another indenture in which Chase Manhattan is
trustee which results in the principal amount of such indebtedness becoming due
and payable prior to maturity, which acceleration has not been rescinded or
annulled; and certain events of bankruptcy, insolvency or reorganization. HFC is
required to file with Chase Manhattan annually a certificate as to the absence
of certain defaults under the Indenture. (Standard Provisions--Sections 7.01 and
3.05)
If an Event of Default with respect to the Notes at the time outstanding
occurs and is continuing, either Chase Manhattan or the Holders of not less than
25% in principal amount of the outstanding Notes so affected, by notice as
provided in the Indenture, may declare the principal amount of all the Notes so
affected to be due and payable immediately. At any time after a declaration of
acceleration with respect to the Notes
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has been made, but before a judgment or decree for payment of money has been
obtained by Chase Manhattan, the Holders of not less than a majority in
principal amount of outstanding Notes so affected may, under certain
circumstances, rescind or annul such declaration of acceleration. (Standard
Provisions--Section 7.02)
The Holders of not less than a majority in principal amount of the
outstanding Notes may, on behalf of all Holders of similar Notes, waive any past
default under the Indenture and its consequences with respect to such Notes,
except a default (a) in the payment of principal of (or premium, if any) or
interest, on any Note, or (b) in respect of a covenant or provision of the
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Note issued thereunder. (Standard Provisions--Section 7.13)
The Indenture provides that Chase Manhattan may withhold notice to Holders
of Notes of any default, except in payment of the principal of (or premium, if
any) or interest, on any Note issued under the Indenture or in the payment of
any sinking fund or similar payment, if it considers it in the interest of
Holders of Notes to do so. (Standard Provisions--Section 8.02)
Holders of Notes may not enforce the Indenture except as provided therein.
(Standard Provisions--Section 7.07) The Indenture provides that the Holders of a
majority in principal amount of the outstanding debt securities issued under the
Indenture have the right to direct the time, method and place of conducting any
proceeding for any remedy available to Chase Manhattan or exercising any trust
or power conferred on Chase Manhattan. (Standard Provisions--Section 7.12) Chase
Manhattan will not be required to comply with any request or direction of
Holders of Notes pursuant to the Indenture unless offered indemnity against
costs and liabilities which might be incurred by such Trustee as a result of
such compliance. (Standard Provisions--Section 8.03(e))
CONCERNING THE TRUSTEE
HFC maintains a banking relationship with Chase Manhattan or affiliates
thereof. Chase Manhattan or affiliates thereof may also have other financial
relations with HFC and other corporations affiliated with HFC.
BOOK-ENTRY NOTES
Unless otherwise indicated in the Pricing Supplement, the Notes will be
issued in the form of one or more fully registered Global Notes, which will be
deposited with, or on behalf of, DTC and registered in the name of the nominee
of DTC. Except as set forth below, a Global Note may not be transferred except
as a whole by the Depository to another nominee of the Depository or to a
successor of the Depository or a nominee of such successor.
DTC has advised HFC and the Agents that it is a limited-purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC 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 computerized book-entry changes in accounts
of the participants, thereby eliminating the need for physical movement of
securities certificates. DTC's participants include securities brokers and
dealers (including the Agents), banks (including Chase Manhattan), trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. Access to DTC'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. Persons who are not participants may beneficially
own securities held by DTC only through participants. The rules applicable to
DTC and its participants are on file with the Commission.
Upon the issuance of a Global Note, the Depository will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Notes represented by such Global Note to the accounts of participants. The
accounts to be credited shall be designated by the Agent through which a Note
was sold, or
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by HFC if such Note was sold directly by HFC. Ownership of beneficial interests
in a Global Note will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depository (with respect to interests of
participants), or by participants or persons that may hold interests through
participants (with respect to interests of persons other than participants). The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in certificated form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Note.
So long as the Depository for a Global Note, or its nominee, is the
registered owner thereof, the Depository or its nominee, as the case may be,
will be considered the sole owner or Holder of the Notes represented by such
Global Note for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in a Global Note will not be entitled to have
Notes represented by such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of Notes in certificated
form and will not be considered the owners or Holders thereof under the
Indenture.
Principal and interest payments on Notes represented by a Global Note will
be made to the Depository or its nominee, as the case may be, as the registered
owner of such Global Note. Neither HFC, Chase Manhattan nor the Depository will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of a Global Note,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. HFC expects that the Depository, upon receipt of
any payment of principal or interest in respect of a Global Note, will credit
immediately the accounts of the related participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in such Global Note as shown on the records of the Depository. HFC also
expects that payments by participants to owners of beneficial interests in a
Global Note will be governed by standing customer instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name", and will be the responsibility of
such participants and not of the Depository, the Agents, HFC or Chase Manhattan,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
If the Depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by HFC within 90 days,
HFC will issue Notes in certificated form in exchange for each Global Note. In
addition, HFC may at any time determine not to have Notes represented by Global
Notes, and, in such event, will issue Notes in certificated form in exchange for
all Global Notes representing such Notes. In any such instance, an owner of a
beneficial interest in a Global Note will be entitled to physical delivery in
certificated form of Notes equal in principal amount to such beneficial interest
and to have such Notes registered in its name. Notes so issued in certificated
form will be issued in denominations of $1,000 (or such other denominations as
shall be specified by HFC) or any amount in excess thereof which is an integral
multiple of $1,000 and will be issued in registered form only, without coupons.
FOREIGN CURRENCY NOTES
EXCHANGE RATES AND EXCHANGE CONTROLS
If appropriate, Pricing Supplements relating to Indexed Notes or Notes
denominated in a Specified Currency other than U.S. dollars will contain
information concerning historical exchange rates for such Specified Currency
against the U.S. dollar, a description of the currency, any exchange controls as
of the date of the applicable Pricing Supplement affecting such currency and any
risk factors relating thereto. The information therein concerning exchange rates
is furnished as a matter of information only and should not be regarded as
indicative of the range of or trends in fluctuations in currency exchange rates
that may occur in the future.
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PAYMENT CURRENCY
Except as set forth in the applicable Pricing Supplement, if payment on 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 with respect to such Note shall be made in U.S.
dollars until such currency is again available or so used. The amount so payable
on any date in such foreign currency shall be converted into U.S. dollars at a
rate determined by the Exchange Rate Agent on the basis of the most recently
available market exchange rate or as otherwise determined in good faith by the
Company if the foregoing is impracticable. 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.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion (except to the extent expressly provided herein that
any determination is subject to the approval of the Company). In the absence of
manifest error, such determinations shall be conclusive for all purposes and
binding on Holders of the Notes and the Exchange Rate Agent shall have no
liability therefor.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of Illinois. Courts in the United States customarily have not awarded
judgments for money damages denominated in any currency other than U.S. dollars.
If a Note is denominated in a Specified Currency other than U.S. dollars, it is
believed that any judgment under Illinois law will be rendered in U.S. dollars,
the amount of which would be determined by converting the foreign currency for
the underlying obligation into U.S. dollars at a rate of exchange prevailing on
the date the cause of action arose or the date of the entry of the judgment or
decree.
DESCRIPTION OF NOTE WARRANTS
GENERAL
HFC may issue, together with Notes or separately, Note Warrants. If the
Note Warrants are issued together with any Notes, they may be attached to or
separate from such Notes. The Note Warrants are to be issued under one or more
separate Warrant Agreements (each a "Note Warrant Agreement") between the
Company and a banking institution organized under the laws of the United States
or one of the States thereof (each a "Warrant Agent").
The following statements with respect to the Note Warrants are summaries of
the Note Warrant Agreement, a form of which is filed as an exhibit to the
Registration Statement. Such summaries of certain provisions of the Note Warrant
Agreement and the Note Warrants do not purport to be complete and such summaries
are subject to the detailed provisions of the Note Warrant Agreement to which
reference is hereby made for a full description of such provisions, including
the definition of certain terms used herein, and for other information regarding
the Note Warrants. Wherever particular provisions of the Note Warrant Agreement
or terms defined therein are referred to, such provisions or definitions are
incorporated by reference as a part of the statements made, and the statements
are qualified in their entirety by such reference.
The Note Warrants will be evidenced by Note Warrant Certificates (the "Note
Warrant Certificates") and, except as otherwise specified in the Note Warrant
Supplement accompanying this Prospectus, may be traded separately from any Notes
with which they may be issued. Note Warrant Certificates may be exchanged for
new Note Warrant Certificates of different denominations at the office of the
Warrant Agent. The holder of a Note Warrant does not have any of the rights of a
Holder of a Note in respect of, and is not entitled to any payments on, any
Notes issuable (but not yet issued) upon exercise of the Note Warrants. The Note
Warrants may be issued in one or more series, and reference is made to the Note
Warrant Supplement
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accompanying this Prospectus relating to the particular series of Note Warrants
offered thereby for the terms of, and other information with respect to such
Note Warrants, including:
(1) the title and the aggregate number of Note Warrants;
(2) the designation, aggregate principal amount, currency or
currencies and terms of the Notes that may be purchased upon exercise of
the Note Warrants;
(3) the price or prices at which such Note Warrants are exercisable;
(4) the currency or currencies in which such Note Warrants are
exercisable;
(5) the places at which such Note Warrants are exercisable and the
date on which the right to exercise the Note Warrants shall commence and
the date on which such right shall expire (the "Note Warrant Expiration
Date") or, if the Note Warrants are not continuously exercisable throughout
such period, the specific date or dates on which they will be exercisable
(each, a "Note Warrant Exercise Date", which term shall also mean, with
respect to Note Warrants continuously exercisable for a period of time,
every date during such period);
(6) the terms of any mandatory or optional call provisions;
(7) the price or prices, if any, at which the Note Warrants may be
redeemed at the option of the holder or will be redeemed upon expiration;
(8) the identity of the Warrant Agent;
(9) the exchanges, if any, on which such Note Warrants may be listed;
(10) whether such Note Warrants shall be issued in book-entry form;
(11) if applicable, the designation and terms of the Notes with which
the Note Warrants are issued and the number of Note Warrants issued with
each of such Notes;
(12) if applicable, the date on and after which the Note Warrants and
the related Notes will be separately transferable;
(13) whether the Note Warrant Certificates will be in registered form
or bearer form or both;
(14) any applicable United States Federal income tax considerations;
(15) when the Note Warrant Agreement, the Note Warrant Certificates
and the Note Warrants may be amended;
(16) the price at which the Note Warrants will be issued; and
(17) any other terms of the Note Warrants.
EXERCISE OF NOTE WARRANTS
Note Warrants in registered form may be exercised by payment to the Warrant
Agent of the exercise price, in each case in such currency or currencies as are
specified in the Note Warrant, and by communicating to the Warrant Agent the
identity of the holder of the Note Warrant and the number of Note Warrants to be
exercised. Upon receipt of payment and the Note Warrant Certificate properly
completed and duly executed at the office of the Warrant Agent, the Warrant
Agent will, as soon as practicable, arrange for the issuance of the applicable
Notes, the form of which shall be set forth in the Note Warrant Supplement. If
less than all of the Note Warrants evidenced by a Note Warrant Certificate are
exercised, a new Note Warrant Certificate will be issued for the remaining
amounts of Note Warrants. A more complete summary for the exercise of Note
Warrants in registered form and for exercises of Note Warrants in bearer form is
contained in the Note Warrant Supplement accompanying this Prospectus.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Sidley & Austin, special tax counsel to HFC, the
following summary correctly describes the principal United States federal income
tax consequences as of the date hereof of the acquisition, ownership and
disposition of the Notes to beneficial owners ("Holders") purchasing Notes at
their original issuance. The United States federal income tax consequences of
the acquisition, ownership and disposition of Note Warrants will be addressed in
the applicable Note Warrant Supplement. This summary is based on the Internal
Revenue Code of 1986, as amended to the date hereof (the "Code"), legislative
history, administrative pronouncements, judicial decisions and final, proposed
and temporary Treasury Regulations, changes to any of which subsequent to the
date of this Prospectus may affect the tax consequences described herein. Any
such changes may apply retroactively.
This summary discusses only the principal United States federal income tax
consequences to those Holders holding Notes as capital assets within the meaning
of Section 1221 of the Code. It does not discuss all of the tax consequences
that may be relevant to a Holder in light of the Holder's particular
circumstances or to Holders subject to special rules (including pension plans
and other tax-exempt investors, banks, thrifts, real estate investment trusts,
regulated investment companies, persons who hold Notes as part of a straddle,
hedging or conversion transaction, insurance companies, dealers in securities or
foreign currencies, and United States Holders (as defined below) whose
functional currency (as defined in Section 985 of the Code) is not the United
States dollar). Further, this summary does not discuss Notes which qualify as
"applicable high-yield discount obligations" under Section 163(i) of the Code.
Persons considering the purchase of Notes should consult their tax advisors
with regard to the application of the United States federal income tax laws to
their particular situations as well as any tax consequences to them arising
under the laws of any state, local or foreign taxing jurisdiction.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial owner of
a Note who or which is for United States federal income tax purposes either (i)
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) generally, an estate or trust
described in Section 7701(a)(30) of the Code. The term also includes certain
former citizens or long-term residents of the United States whose income and
gain on the Notes will be subject to United States taxation.
Taxation of Interest
Stated interest on a Note will generally be includible in a United States
Holder's income as ordinary interest income when actually or constructively
received (if such Holder uses the cash method of accounting for federal income
tax purposes) or when accrued (if such Holder uses an accrual method of
accounting for federal income tax purposes). Special rules apply in the case of
(i) a Fixed Rate Note that does not provide for "qualified stated interest" (as
defined below); (ii) a Floating Rate Note that either does not provide for
"qualified stated interest" or does not qualify as a "variable rate debt
instrument" (as defined below); (iii) a Fixed Rate Note or a Floating Rate Note
issued with "original issue discount" (as defined below); (iv) a Note with a
maturity of one year or less from its issue date (a "Short-Term Note"); (v) an
Extendible Note; (vi) a Foreign Currency Note (as defined below); and (vii) an
Indexed Note. These special rules are described below.
Definition of Qualified Stated Interest
Interest on a Note is "qualified stated interest" if the interest is
unconditionally payable, or will be constructively received under Section 451 of
the Code, in cash or in property (other than debt instruments of the Company) at
least annually at a single fixed rate (in the case of a Fixed Rate Note) or at a
single "qualified floating rate" or "objective rate" (in the case of a Floating
Rate Note that qualifies as a variable rate debt instrument). If a Floating Rate
Note that qualifies as a variable rate debt instrument provides for interest
other than at a single qualified floating rate or single objective rate, special
rules apply to determine
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the portion of such interest that constitutes qualified stated interest. See
"Original Issue Discount -- Floating Rate Notes that are VRDIs" below.
Definition of Variable Rate Debt Instrument (VRDI), Qualified Floating Rate
and Objective Rate
A Floating Rate Note will qualify as a variable rate debt instrument
("VRDI") if all four of the following conditions are met. First, the "issue
price" (as defined under "Original Issue Discount") of the Note must not exceed
the total noncontingent principal payments by more than an amount equal to the
lesser of (i) .015 multiplied by the product of the total noncontingent
principal payments and the number of complete years to maturity from the issue
date (or, in the case of an Amortizing Note or other Note that provides for
payment of any amount other than qualified stated interest before maturity, its
weighted average maturity) and (ii) 15% of the total noncontingent principal
payments. A Note that does not provide for contingent principal will satisfy
this requirement as long as it is not issued at a significant premium.
Second, except as provided in the preceding paragraph, the Floating Rate
Note must not provide for any principal payments that are contingent.
Third, the Note must provide for stated interest (compounded or paid at
least annually) at (a) one or more qualified floating rates, (b) a single fixed
rate and one or more qualified floating rates, (c) a single objective rate or
(d) a single fixed rate and a single objective rate that is a "qualified inverse
floating rate" (as defined below).
Fourth, the Note must provide that a qualified floating rate or objective
rate in effect at any time during the term of the Note is set at the value of
the rate on any day that is no earlier than three months prior to the first day
on which that value is in effect and no later than one year following that first
day. For example, a Note could not provide for an interest rate based on the
LIBOR rate in effect two years prior to each Interest Payment Date.
Subject to certain exceptions, a variable rate of interest on a Note is a
"qualified floating rate" if variations in the value of the rate can reasonably
be expected to measure contemporaneous fluctuations in the cost of newly
borrowed funds in the currency in which the Note is denominated. This definition
includes a variable rate equal to (i) the product of an otherwise qualified
floating rate and a Spread Multiplier that is greater than .65 but not more than
1.35 or (ii) an otherwise qualified floating rate (or the product described in
clause (i)) plus or minus a Spread. If the variable rate equals the product of
an otherwise qualified floating rate and a single Spread Multiplier greater than
1.35 or less than or equal to .65, however, such rate will generally be an
objective rate. A variable rate will not be considered a qualified floating rate
if the variable rate is subject to a cap, floor, governor (i.e., a restriction
on the amount of increase or decrease in the stated interest rate) 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
more or less than the expected yield determined without the restriction.
Subject to certain exceptions, an "objective rate" is a rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information that is neither
within the control of HFC (or a related party) nor unique to the circumstances
of HFC (or a related party). A rate is not an objective rate if it is reasonably
expected that the average value of the rate during the first half of the Note's
term will be either significantly less than or significantly greater than the
average value of the rate during the final half of the term. The Internal
Revenue Service may designate rates other than those specified above that will
be treated as objective rates. As of the date hereof, no such other rates have
been designated. An objective rate is a "qualified inverse floating rate" if (a)
the rate is equal to a fixed rate minus a qualified floating rate and (b) the
variations in the rate can reasonably be expected to reflect inversely
contemporaneous variations in the cost of newly borrowed funds (disregarding any
caps, floors, governors or similar restrictions that would not, as described
above, cause a rate to fail to be a qualified floating rate).
If interest on a Note is stated at a fixed rate for an initial period of
less than one year, followed by a variable rate that is either a qualified
floating rate or an objective rate for a subsequent period, and the value of
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the variable rate on the issue date is intended to approximate the fixed rate,
the fixed rate and the variable rate together constitute a single qualified
floating rate or objective rate.
Original Issue Discount
Original issue discount is the excess, if any, of a Note's "stated
redemption price at maturity" over the Note's "issue price." A Note's "stated
redemption price at maturity" is the sum of all payments provided by the Note
(whether designated as interest or as principal) other than payments of
qualified stated interest. The "issue price" of a Note is the first price at
which a substantial amount of the Notes in the issuance that includes the Note
is sold for money (excluding sales to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). If a Note is issued as part of an investment unit (e.g., together
with a Note Warrant), the issue price of the investment unit is determined in
the same manner and allocated between the Note and right (or rights) that
comprise the unit based on their relative fair market value.
United States Holders of Notes with original issue discount (other than
Short-Term Notes) generally will be required to include such original issue
discount in income as it accrues in accordance with the constant yield method
described below, before the receipt of the related cash payments. A United
States Holder's tax basis in a Note is increased by each accrual of original
issue discount and decreased by each payment other than a payment of qualified
stated interest.
The amount of original issue discount with respect to a Note will be
treated as zero if the original issue discount is less than an amount equal to
.0025 multiplied by the product of the stated redemption price at maturity and
the number of complete years to maturity (or, in the case of an Amortizing Note
or other Note that provides for payment of any amount other than qualified
stated interest prior to maturity, the weighted average maturity of the Note).
If the amount of original issue discount is less than that amount, the original
issue discount that is not included in payments of stated interest is included
in income as capital gain as principal payments are made. The amount includible
with respect to a principal payment equals the product of the total amount of
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the stated principal
amount of the Note.
Fixed Rate Notes
In the case of a Fixed Rate Note issued with original issue discount the
amount of original issue discount includible in the income of a United States
Holder for any taxable year is determined under the constant yield method, as
follows. First, the "yield to maturity" of the Note is computed. The yield to
maturity is the discount rate that, when used in computing the present value of
all interest and principal payments to be made under the Note (including
payments of qualified stated interest) produces an amount equal to the issue
price of the Note. The yield to maturity is constant over the term of the Note
and, when expressed as a percentage, must be calculated to at least two decimal
places.
Second, the term of the Note is divided into "accrual periods." Accrual
periods may be of any length and may vary in length over the term of the Note,
provided that each accrual period is no longer than one year and that each
scheduled payment of principal or interest occurs either on the final day of an
accrual period or on the first day of an accrual period.
Third, the total amount of original issue discount on the Note is allocated
among accrual periods. In general, the original issue discount allocable to an
accrual period equals the product of the "adjusted issue price" of the Note at
the beginning of the accrual period and the yield to maturity of the Note, less
the amount of any qualified stated interest allocable to the accrual period. The
adjusted issue price of a Note at the beginning of the first accrual period is
its issue price. Thereafter, the adjusted issue price of the Note is its issue
price, increased by the amount of original issue discount previously includible
in the gross income of any holder and decreased by the amount of any payment
previously made on the Note other than a payment of qualified stated interest.
For purposes of computing the adjusted issue price of a Note, the amount of
original issue discount previously includible in the gross income of any holder
is determined without regard to
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"premium" and "acquisition premium", as those terms are defined below under
"Market Discount and Premium."
Fourth, the "daily portions" of original issue discount are determined by
allocating to each day in an accrual period its ratable portion of the original
issue discount allocable to the accrual period.
A United States Holder includes in income in any taxable year the daily
portions of original issue discount for each day during the taxable year that
such Holder held Notes. Under the constant yield method described above, United
States Holders generally will be required to include in income increasingly
greater amounts of original issue discount in successive accrual periods.
Floating Rate Notes that are VRDIs
The taxation of original issue discount (including interest that does not
constitute qualified stated interest) on a Floating Rate Note will depend on
whether the Note is a "VRDI," as defined above.
In the case of a VRDI that provides for qualified stated interest (as
defined above) the amount of qualified stated interest and original issue
discount, if any, includible in income during a taxable year is determined under
the rules applicable to fixed rate debt instruments (described above) by
assuming that the variable rate of interest is a fixed rate equal to (i) in the
case of a qualified floating rate or a qualified inverse floating rate, the
value, as of the issue date, of the qualified floating rate or qualified inverse
floating rate, and (ii) in the case of an objective rate (other than a qualified
inverse floating rate), the rate that reflects the yield that is reasonably
expected for the Note. Qualified stated interest allocable to an accrual period
is increased (or decreased) if the interest actually paid during an accrual
period exceeds (or is less than) the interest assumed to be paid during the
accrual period.
If a Note that is a VRDI does not provide for qualified stated interest,
the amount of interest and original issue discount accruals are determined by
constructing an equivalent fixed rate debt instrument, as follows:
First, in the case of an instrument that provides for interest at a fixed
rate, the fixed rate is replaced by a qualified floating rate (or qualified
inverse floating rate, if applicable) such that the fair market value of the
instrument as of the issue date would be approximately the same as the fair
market value of an otherwise identical debt instrument that provides for the
qualified floating rate (or qualified inverse floating rate) rather than the
fixed rate.
Second, determine the fixed rate substitute for each variable rate provided
by the Note. The fixed rate substitute for each qualified floating rate provided
by the Note is the value of that qualified floating rate on the issue date. If
the Note provides for two or more qualified floating rates with different
intervals between interest adjustment dates (for example, the 30-day Commercial
Paper Rate and quarterly LIBOR), the fixed rate substitutes are based on
intervals that are equal in length (for example, the 90-day Commercial Paper
Rate and quarterly LIBOR, or the 30-day Commercial Paper Rate and monthly
LIBOR). The fixed rate substitute for an objective rate that is a qualified
inverse floating rate is the value of the qualified inverse floating rate on the
issue date. The fixed rate substitute for an objective rate (other than a
qualified inverse floating rate) is a fixed rate that reflects the yield that is
reasonably expected for the Note.
Third, construct an equivalent fixed rate debt instrument that has terms
that are identical to those provided under the Note, except that the equivalent
fixed rate debt instrument provides for the fixed rate substitutes determined in
the first step, in lieu of the qualified floating rates or objective rate
provided by the Note.
Fourth, determine the amount of qualified stated interest and original
issue discount for the equivalent fixed rate debt instrument under the rules
described above for Fixed Rate Notes. These amounts are taken into account as if
the United States Holder held the equivalent fixed rate debt instrument. See
"Taxation of Interest" and "Original Issue Discount--Fixed Rate Notes," above.
Fifth, make appropriate adjustments for the actual values of the variable
rates. In this step, qualified stated interest or original issue discount
allocable to an accrual period is increased (or decreased) if the interest
actually accrued or paid during the accrual period exceeds (or is less than) the
interest assumed to be
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accrued or paid during the accrual period under the equivalent fixed rate debt
instrument. In general, this increase or decrease is an adjustment to qualified
stated interest for the accrual period if the equivalent fixed rate debt
instrument constructed under the third step provides for qualified stated
interest and the increase or decrease is reflected in the amount actually paid
during the accrual period, and otherwise the increase or decrease is an
adjustment to original issue discount, if any, for the accrual period.
Floating Rate Notes that are not VRDIs
A Floating Rate Note that is not a VRDI (a "Contingent Note"), will be
taxable under the rules applicable to contingent payment debt instruments (the
"Contingent Debt Regulations"), as follows.
First, the Company is required to determine, as of the issue date, the
comparable yield for the Contingent Note. The comparable yield is generally the
yield at which the Company would issue a fixed rate debt instrument with terms
and conditions similar to those of the Contingent Note (including the level of
subordination, term, timing of payments and general market conditions) but not
taking into consideration the risk of the contingencies or the liquidity of the
Contingent Note. Further, the comparable yield may not be less than the
applicable Federal Rate announced monthly by the Internal Revenue Service (the
"AFR"). In certain cases where Contingent Notes are marketed or sold in
substantial part to tax-exempt investors or other investors for whom the
prescribed inclusion of interest is not expected to have a substantial effect on
their United States tax liability, the comparable yield for the Contingent Note
is, without proper evidence to the contrary, presumed to be the AFR.
Second, solely for tax purposes, the Company constructs a projected
schedule of payments determined under the Contingent Debt Regulations for the
Contingent Note (the "Schedule"). The Schedule is determined as of the issue
date and generally remains in place throughout the term of the Contingent Note.
If a right to a contingent payment is based on market information, the amount of
the projected payment is the forward price of the contingent payment. If a
contingent payment is not based on market information, the amount of the
projected payment is the expected value of the contingent payment as of the
issue date. The Schedule must produce the comparable yield determined as set
forth above. Otherwise, the Schedule must be adjusted under the rules set forth
in the Contingent Debt Regulations.
Third, under the usual rules applicable to Notes issued with original issue
discount and based on the Schedule, the interest income on the Contingent Note
for each accrual period is determined by multiplying the comparable yield of the
Contingent Note (adjusted for the length of the accrual period) by the
Contingent Note's adjusted issue price at the beginning of the accrual period
(determined under rules set forth in the Contingent Debt Regulations). The
amount so determined is then allocated on a ratable basis to each day in the
accrual period that the United States Holder held the Contingent Note.
Fourth, appropriate adjustments are made to the interest income determined
under the foregoing rules to account for any differences between the Schedule
and actual contingent payments. Under the rules set forth in the Contingent Debt
Regulations, interest income is generally increased (or decreased) if the actual
contingent payment is more (or less) than the projected payment. Differences
between the actual amounts of any contingent payments made in a calendar year
and the projected amounts of such payments are generally aggregated and taken
into account, in the case of a positive difference, as additional interest
income, or, in the case of a negative difference, first as a reduction in
interest income for such year and thereafter, subject to certain limitations, as
ordinary loss.
The Contingent Debt Regulations require the Company to provide each holder
of a Contingent Note with the Schedule. If the Company does not create the
Schedule or the Schedule is unreasonable, a United States Holder must set its
own projected payment schedule and explicitly disclose the fact that the United
States Holder's schedule is being used and the reason therefor. Unless otherwise
prescribed by the Internal Revenue Service, the United States Holder must make
such disclosure on a statement attached to the United States Holder's timely
filed federal income tax return for the taxable year in which the Contingent
Note was acquired.
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In general, any gain realized by a United States Holder on the sale,
exchange or retirement of a Contingent Note is interest income. Any loss on a
Contingent Note accounted for under the method described above is ordinary loss
to the extent it does not exceed such Holder's prior interest inclusions on the
Contingent Note (net of negative adjustments). Special rules also apply with
respect to market discount and premium on Contingent Notes that may differ from
the rules described below under "--Market Discount and Premium."
Other Rules
Certain Notes having original issue discount may be redeemed prior to
maturity. Such Notes may be subject to rules that differ from the general rules
discussed above relating to the tax treatment of original issue discount.
Purchasers of such Notes with a redemption feature should carefully examine the
applicable Pricing Supplement and should consult their tax advisors with respect
to such feature since the tax consequences with respect to interest and original
issue discount will depend, in part, on the particular terms and the particular
features of the purchased Note.
Short-Term Notes
In the case of a Note that matures one year or less from its date of
issuance, a cash method United States Holder of such a Note generally is not
required to accrue original issue discount for United States federal income tax
purposes unless such Holder elects to do so. United States Holders who make such
an election, United States Holders who report income for federal income tax
purposes on the accrual method and certain other United States Holders,
including banks and dealers in securities, are required to include original
issue discount in income on such Short-Term 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 United States Holder who is not required, and does not elect, to
include the original issue discount in income currently, stated interest will
generally be taxable at the time it is received and any gain realized on the
sale, exchange or retirement of the Short-Term 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 (generally reduced by prior
payments of interest, if any). In addition, such Holders will be required to
defer deductions for all or a portion of any interest paid on indebtedness
incurred to purchase or carry Short-Term Notes in an amount not exceeding the
accrued original issue discount not previously included in income.
Extendible Notes
If so indicated in the Pricing Supplement relating to a Note, the Company
will have the option to extend the Stated Maturity of such Note. See
"Description of Medium Term Notes -- Extendible Notes" above. The treatment of a
United States Holder of Notes with respect to which such an option has been
exercised who does not elect to have the Company repay such Notes on the
applicable original Stated Maturity is unclear and will depend, in part, on the
terms established for such Notes by the Company pursuant to the exercise of such
option (the "Revised Terms"). Such Holder may be treated for United States
federal income tax purposes as having exchanged such Notes (the "Old Notes") for
new Notes with Revised Terms (the "New Notes"). If the United States Holder is
treated as having exchanged Old Notes for New Notes, such exchange may be
treated as either a taxable exchange or a tax-free recapitalization.
If the exercise of the option by the Company is not treated as an exchange
of Old Notes for New Notes, no gain or loss will be recognized by a United
States Holder as a result thereof. If the exercise of the option is treated as a
taxable exchange of Old Notes for New Notes, a United States Holder would
recognize gain or loss equal to the difference between the fair market value of
the Old Notes and such Holder's tax basis in the Old Notes. If the exercise of
the option is treated as a tax-free recapitalization, no loss would be
recognized by a United States Holder as a result thereof and gain, if any, would
be recognized to the extent of the fair market value of the excess, if any, of
the principal amount of securities received over the principal amount of
securities surrendered. In this regard, the meaning of the term "principal
amount" is not clear. Such term could be interpreted to mean "issue price" with
respect to securities that are received and "adjusted issue price" with respect
to securities that are surrendered. Legislation to that effect has been
introduced in the past. It is not
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possible to determine whether such legislation will be reintroduced, and if so,
enacted and, if enacted, whether it would apply to recapitalizations occurring
prior to the date of enactment.
The presence of such an option may also affect the calculation of original
issue discount among other things. For purposes of determining the yield and
maturity of a Note, an issuer of a debt instrument having an unconditional
option to require payments to be made on the debt instrument under an
alternative payment schedule or schedules will be deemed to exercise or not
exercise an option in a manner that minimizes the yield on the debt instrument.
If the exercise of such option actually occurs or does not occur, contrary to
what is deemed to occur pursuant to the foregoing rules, then, solely for
purposes of the accrual of original issue discount the yield and maturity of the
debt instrument are redetermined by treating the debt instrument as reissued on
the date of the occurrence or non-occurrence of the exercise for an amount equal
to its adjusted issue price on that date.
The foregoing discussion of Extendible Notes is provided for general
information only. Additional tax considerations may arise from the ownership of
such Notes in light of the particular features or combination of features of
such Notes and, accordingly, persons considering the purchase of such Notes are
advised and expected to consult with their own legal and tax advisers regarding
the tax consequences of the ownership of such Notes.
Indexed Notes
The United States federal income tax treatment of Indexed Notes will depend
on whether or not the Note qualifies as a VRDI (as defined above under "Taxation
of Interest--Definition of Variable Rate Debt Instrument (VRDI), Qualified
Floating Rate and Objective Rate"). The treatment of an Indexed Note that
qualifies as a VRDI is described above under "Taxation of Interest" and
"Original Issue Discount." An Indexed Note that does not qualify as a VRDI will
be treated as a Contingent Note (as defined above), taxable in the manner
described above under "Original Issue Discount--Floating Rate Notes that are not
VRDIs."
Amortizing Notes
Payments received pursuant to an Amortizing Note may consist of both a
principal and an interest component. The interest component will generally be
taxed as described in "Taxation of Interest" above. The principal component will
generally constitute a tax-free return of capital that will reduce a United
States Holder's adjusted tax basis in the Note.
Market Discount and Premium
If a United States Holder that acquires a Note having a maturity date of
more than one year from the date of its issuance has a tax basis in the Note
that is less than its "stated redemption price at maturity" (or, in the case of
a Note with original issue discount, less than its "adjusted issue price"), the
amount of the difference will be treated as "market discount" for federal income
tax purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a United States Holder will be
required to treat any principal payment (or, in the case of a Note having
original issue discount, any payment that does not constitute a payment of
qualified stated interest) on, or any gain on the sale, exchange, retirement or
other disposition of, a Note as ordinary income to the extent of the accrued
market discount that has not previously been included in income. If such Note is
disposed of in certain nontaxable transactions, accrued market discount will be
includible as ordinary income to the United States Holder as if such Holder had
sold the Note at its then fair market value. Market discount generally accrues
on a straight-line basis over the remaining term of a Note except that, at the
election of the United States Holder, market discount may accrue on a constant
yield basis. A United States Holder may not be allowed to deduct immediately all
or a portion of the interest expense on any indebtedness incurred or continued
to purchase or to carry such Note. A United States Holder may elect to include
market discount in income currently, as it accrues (either on a straight-line
basis or, if the United States Holder so elects, on a constant yield basis), in
which case the interest deferral rule set forth in the preceding sentence will
not apply. An election to include market discount in income currently will apply
to all debt instruments acquired by the United States Holder on or after the
first
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day of the first taxable year to which such election applies and may be revoked
only with the consent of the Internal Revenue Service.
A United States Holder that purchases a Note having original issue discount
for an amount that is greater than its adjusted issue price but less than or
equal to the sum of all remaining amounts payable on the Note other than
payments of qualified stated interest will be considered to have purchased such
Note at an "acquisition premium." In such a case, the amount of original issue
discount otherwise includible in the United States Holder's income during an
accrual period is reduced by a fraction. The numerator of this fraction is the
excess of the adjusted basis of the Note immediately after its acquisition by
the purchaser over the adjusted issue price of the Note. The denominator of this
fraction 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. As an alternative to reducing the amount of original issue
discount otherwise includible in income by this fraction, the United States
Holder may elect to compute original issue discount accruals by treating the
purchase as a purchase at original issuance and applying the constant yield
method described above.
If a United States Holder purchases a Note for an amount in excess of the
sum of all amounts payable on the Note after the date of acquisition (other than
payments of qualified stated interest), such Holder will be considered to have
purchased such Note with "amortizable bond premium" equal in amount to such
excess, and generally will not be required to include any original issue
discount in income. Generally, a United States Holder may elect to amortize such
premium as an offset to qualified stated interest income, using a constant yield
method similar to that described above (see "--Original Issue Discount Notes"),
over the remaining term of the Note (where such Note is not redeemable prior to
its maturity date). In the case of Notes that may be redeemed prior to maturity,
the premium is calculated assuming that the issuer or holder will exercise or
not exercise its redemption rights in a manner that maximizes the United States
Holder's yield. A United States Holder who elects to amortize bond premium must
reduce such Holder's tax basis in the Note by the amount of the premium used to
offset qualified stated interest income as set forth above. An election to
amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by such Holder and may be revoked only with the consent of
the IRS.
A United States Holder may elect to include in gross income its entire
return on a Note (i.e., in general, the excess of all payments to be received on
the Note over the amount paid for the Note by such Holder) in accordance with a
constant yield method based on the compounding of interest. Such an election for
a Note with amortizable bond premium will result in a deemed election to
amortize bond premium for all of the United States 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. Similarly, such an election for a Note with market discount will
result in a deemed election to accrue market discount in income currently for
such Note and for all other debt instruments acquired by the United States
Holder with market discount on or after the first day of the taxable year to
which such election first applies, and may be revoked only with the permission
of the Internal Revenue Service.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of a Note, a United States Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid qualified stated interest) and such Holder's
adjusted tax basis in the Note. To the extent attributable to accrued but unpaid
qualified stated interest, the amount realized by the United States Holder will
be treated as a payment of interest. See "Taxation of Interest" above. A United
States Holder's adjusted tax basis in a Note will equal the cost of the Note to
such Holder, increased by the amount of any market discount, any discount with
respect to a Short-Term Note or original issue discount in each case to the
extent previously included in income by such Holder with respect to such Note
and reduced by any amortized bond premium and any principal payments received by
such Holder and, in the case of a Note having original issue discount, by the
amounts of any other payments included in the stated redemption price at
maturity, as described above.
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Generally, gain or loss realized on the sale, exchange or retirement of a
Note will be capital gain or loss (except as provided under "Original Issue
Discount--Floating Rate Notes that are not VRDIs", "Short-Term Notes" and
"Market Discount and Premium" above and "Foreign Currency Notes" below), 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. 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, or provide
for payments determined by reference to, a currency or currency unit other than
the United States dollar ("Foreign Currency Notes").
A United States Holder of a Foreign Currency Note who receives a payment of
interest in a foreign currency that is not required to be included in income by
such Holder prior to its receipt (e.g., stated interest, or in the case of a
Note having original issue discount qualified stated interest, received by a
United States Holder using the cash method of accounting) will be required to
include in income the United States dollar value of such foreign currency
payment determined on the date such payment is received, regardless of whether
the payment is in fact converted to United States dollars at that time, and such
United States dollar value will be the United States Holder's tax basis in the
foreign currency.
In the case of interest income on a Foreign Currency Note that is required
to be included in income by a United States Holder prior to the receipt of
payment (e.g., stated interest on a Foreign Currency Note held by a United
States Holder using the accrual method of accounting, accrued original issue
discount, or accrued market discount includible in income as it accrues), a
United States Holder will be required to include in income the United States
dollar value of the interest income (including original issue discount or market
discount but reduced by acquisition premium and amortizable bond premium, to the
extent applicable) that accrued during the relevant accrual period. Original
issue discount, market discount, acquisition premium, and amortizable bond
premium of a Foreign Currency Note are to be determined in the relevant foreign
currency. Unless the United States Holder makes the election discussed below,
the United States dollar value of such accrued income will be determined by
translating such income at the average rate of exchange for each business day
during the accrual period or, with respect to an accrual period that spans two
taxable years, at the average rate for each business day during the partial
period within the taxable year. Such United States Holder will recognize
ordinary income or loss with respect to accrued interest income on the date such
income is actually received, reflecting fluctuations in currency exchange rates
between the time the income accrued and the date of payment. The amount of
ordinary income or loss recognized will equal the difference between the United
States dollar value of the foreign currency payment received (determined on the
date such payment is received) and the United States dollar value of interest
income that has accrued during such accrual period (as determined above). A
United States Holder may elect to translate interest income (including original
issue discount and market discount) into United States 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. Such United States Holder
will recognize ordinary income or loss with respect to accrued interest income
on the date such income is actually received, equal to the difference (if any)
between the United States dollar value of the foreign currency payment received
(determined on the date such payment is received) and the United States dollar
value of interest income translated at the relevant spot rate described in the
preceding sentence. Any such election will apply to all debt instruments held by
the United States Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the United States Holder, and will be
irrevocable without the consent of the Internal Revenue Service.
Where the taxpayer elects to include market discount in income currently,
the amount of market discount will be determined for any accrual period in the
relevant foreign currency and then translated into United States dollars on the
basis of the average rate in effect during such accrual period. Exchange gain or
loss
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realized with respect to such accrued market discount is determined in
accordance with the rules relating to accrued interest described above. The
amount of accrued market discount (other than market discount currently
includible in income) taken into account upon receipt of any partial principal
payment or upon the sale, exchange, retirement or other disposition of a Foreign
Currency Note will be the United States dollar value of such accrued market
discount determined on the date of receipt of such partial principal payment or
on the date of such sale, exchange, retirement or other disposition.
Any gain or loss realized on the sale, exchange or retirement of a Foreign
Currency Note with amortizable bond premium by a United States Holder who has
not elected to amortize such premium (under the rules described above) will be
ordinary income or loss to the extent attributable to fluctuations in currency
exchange rates determined as described in the second succeeding paragraph. If
such an election is made, amortizable bond premium taken into account on a
current basis will reduce interest income in units of the relevant foreign
currency. Exchange gain or loss will be 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 as described in the second succeeding paragraph.
Similar rules apply in the case of acquisition premium.
A United States Holder's tax basis in a Foreign Currency Note, and the
amount of any subsequent adjustment to such Holder's tax basis, will be the
United States dollar value of the foreign currency amount paid for such Foreign
Currency Note, or the United States dollar value of the foreign currency amount
of the adjustment, determined on the date of such purchase or adjustment. In the
case of an adjustment resulting from an accrual of original issue discount or
market discount, such adjustment will be made at the rate at which such original
issue discount or market discount is translated into United States dollars under
the rules described above. A United States Holder that converts United States
dollars to a foreign currency and immediately uses that currency to purchase a
Foreign Currency Note denominated in the same currency normally will not
recognize gain or loss in connection with such conversion and purchase. A United
States Holder who purchases a Foreign Currency Note with previously owned
foreign currency will recognize ordinary income or loss in an amount equal to
the difference, if any, between such United States Holder's tax basis in the
foreign currency and the United States dollar value of the Foreign Currency Note
on the date of purchase.
Gain or loss realized upon the sale, exchange or retirement of, or the
receipt of principal on, a Foreign Currency Note, to the extent attributable to
fluctuations in currency exchange rates, will be ordinary income or loss. Gain
or loss attributable to fluctuations in exchange rates will equal the difference
between (i) the United States dollar value of the foreign currency purchase
price for such Note, determined on the date such Note is disposed of, and (ii)
the United States dollar value of the foreign currency purchase price for such
Note, determined on the date such United States Holder acquired such Note. Any
portion of the proceeds of such sale, exchange or retirement attributable to
accrued interest income may result in exchange gain or loss under the rules set
forth above. Such foreign currency gain or loss will be recognized only to the
extent of the overall gain or loss realized by a United States Holder on the
sale, exchange or retirement of the Foreign Currency Note. In general, the
source of such foreign currency gain or loss will be determined by reference to
the residence of the United States Holder or the "qualified business unit" of
such Holder on whose books the Note is properly reflected. Any gain or loss
realized by a United States Holder in excess of such foreign currency gain or
loss will be capital gain or loss (except to the extent of any accrued market
discount not previously included in such Holder's income or, in the case of a
Short-Term Note, to the extent of any original issue discount not previously
included in such Holder's income).
A United States Holder will have a tax basis in any foreign currency
received on the sale, exchange or retirement of a Foreign Currency Note equal to
the United States dollar value of such foreign currency, determined at the time
of such sale, exchange or retirement. Regulations provide a special rule for
purchases and sales of publicly traded debt instruments by a cash method
taxpayer under which units of foreign currency paid or received are translated
into United States 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 purchases and sale of
publicly traded debt instruments provided the election is applied consistently.
Such election cannot be changed without the consent
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of the Internal Revenue Service. United States Holders should consult their tax
advisors concerning the applicability of the special rules summarized in this
paragraph to Foreign Currency Notes.
The tax consequences of an issuance of a Foreign Currency Note that is
denominated either in a so-called hyperinflationary currency or in more than one
currency (e.g., a Foreign Currency Note providing for payments determined by
reference to the exchange rate of one or more specified currencies (or a
composite currency such as the ECU) relative to an indexed currency), or that is
treated as a Contingent Note under the rules described above are unclear.
Foreign Currency Notes containing such features may be subject to rules that
differ from the general rules discussed above. United States Holders intending
to purchase Foreign Currency Notes with such features should carefully examine
the applicable Pricing Supplement and should consult with their own tax advisors
with respect to the purchase, ownership and disposition of such Foreign Currency
Notes.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal, interest (including original issue
discount, if any) and premium on the Notes by the Company or any paying
agent to a beneficial owner of a Note that is not a United States Holder,
as defined above (hereinafter, a "United States Alien Holder"), will not be
subject to withholding of United States federal income tax, provided that,
in the case of interest, (i) such Holder does not own, actually or
constructively, 10 percent or more of the total combined voting power of
all classes of stock of the Company entitled to vote, (ii) such Holder is
not, for United States federal income tax purposes, a controlled foreign
corporation related, directly or indirectly, to the Company through stock
ownership, (iii) such Holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code, (iv) the certification requirements under
Section 871(h) or Section 881(c) of the Code and Treasury Regulations
thereunder (summarized below) are met, and (v) such interest is not
interest described in Section 871(h)(4) of the Code (which in general is
limited to certain types of contingent interest, as summarized below);
(b) a United States Alien Holder of a Note will not be subject to
United States federal income tax on gain realized on the sale, exchange or
other disposition of such Note, unless (i) such Holder is an individual who
is present in the United States for 183 days or more in the taxable year of
sale, exchange or other disposition, and certain conditions are met or (ii)
such gain is effectively connected with the conduct by such Holder of a
trade or business in the United States; and
(c) a Note held by an individual who is not a citizen or resident of
the United States at the time of his death will not be subject to United
States federal estate tax as a result of such individual's death, provided
that (i) the individual does not own, actually or constructively, 10
percent or more of the total combined voting power of all classes of stock
of the Company entitled to vote (ii) the Note does not provide for interest
described in Section 871(h)(4) of the Code (as summarized below), and,
(iii) at the time of such individual's death, payments with respect to such
Note would not have been effectively connected to the conduct by such
individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and Treasury Regulations thereunder
require that, in order to obtain the exemption from withholding tax described in
paragraph (a) above, either (i) the beneficial owner of a Note must certify,
under penalties of perjury, to the Company or paying agent, as the case may be,
that such owner is a United States Alien Holder and must provide such owner's
name and address, and United States taxpayer identification number, if any, or
(ii) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
(a "Financial Institution") and holds the Note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to the Company or paying
agent, as the case may be, that such certificate has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and must furnish the payor with a copy thereof. A certificate
described in this paragraph (a "Certificate of Foreign Status") is effective
only with respect to payments of interest (including original issue discount)
made to the certifying
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United States Alien Holder after issuance of the certificate in the calendar
year of its issuance and the two immediately succeeding calendar years. Under
temporary United States Treasury Regulations, such requirement will be fulfilled
if the beneficial owner of a Note certifies on Internal Revenue Service Form
W-8, under penalties of perjury, that it is not a United States Holder and
provides its name and address, and any Financial Institution holding the Note on
behalf of the beneficial owner, files a statement with the withholding agent to
the effect that it has received such a statement from the beneficial owner (and
furnishes the withholding agent with a copy thereof).
Interest described in Section 871(h)(4) of the Code will be subject to
United States withholding tax at a 30% rate (or such lower rate provided by an
applicable treaty). In general, interest described in Section 871(h)(4) of the
Code includes (subject to certain exceptions) any interest the amount of which
is determined by reference to receipts, sales or other cash flow of the Company
or a related person, any income or profits of the Company or a related person,
any change in the value of any property of the Company or a related person or
any dividend, partnership distributions or similar payments made by the Company
or a related person. Interest described in Section 871(h)(4) of the Code may
include other types of contingent interest identified by the Internal Revenue
Service in future Treasury Regulations.
If a United States Alien Holder is engaged in a trade or business in the
United States, and if interest (including original issue discount or market
discount) on the Note, or gain realized on the sale, exchange or other
disposition of a Note, is effectively connected with the conduct of such trade
or business, the United States Alien Holder, although exempt from United States
withholding tax, will generally be subject to regular United States income tax
on such interest (including any original issue discount or market discount) or
gain in the same manner as if it were a United States Holder. See "Tax
Consequences to United States Holders" above. In lieu of the Certificate of
Foreign Status, such a holder will be required to provide to the Company a
properly executed Internal Revenue Service Form 4224 in order to claim an
exemption from withholding tax. In addition, if such United States Alien Holder
is a foreign corporation, it may be subject to a branch profits tax equal to 30%
(or such lower rate provided by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments. For purposes of the branch profits tax, interest (including
original issue discount or market discount) on, and any gain recognized on the
sale, exchange or other disposition of, a Note will be included in the earnings
and profits of such United States Alien Holder if such interest is effectively
connected with the conduct by the United States Alien Holder of a trade or
business in the United States.
On October 14, 1997, the Internal Revenue Service published in the Federal
Register final regulations (the "1997 Final Regulations") which affect the
United States taxation of United States Alien Holders. As promulgated, the 1997
Final Regulations are effective for payments after December 31, 1998, regardless
of the issue date of the instrument with respect to which such payments are
made, subject to certain transition rules (see below). The Internal Revenue
Service recently announced its intention to amend the 1997 Final Regulations to
extend this date to December 31, 1999. The discussion under this heading and
under "Backup Withholding and Information Reporting," below, is not intended to
be a complete discussion of the provisions of the 1997 Final Regulations, and
prospective purchasers of the Notes are urged to consult their tax advisors
concerning the tax consequences of their acquiring, holding and disposing of the
Notes in light of the 1997 Final Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations generally
do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more beneficial
owners (or other intermediaries) without having to obtain the beneficial owner
certificate described above. "Qualified intermediaries" include: (i) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization) or
(ii) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (i) and (ii), have entered into withholding agreements with the Internal
Revenue Service. In addition to certain other requirements, qualified
intermediaries must obtain withholding certificates, such as revised Internal
Revenue Service Form W-8 (see
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below), from each beneficial owner. Under another option, an authorized foreign
agent of a United States withholding agent will be permitted to act on behalf of
the United States withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat, as the beneficial owners of payments on a Note, those persons
that, under United States tax principles, are the taxpayers with respect to such
payments, rather than persons such as nominees or agents legally entitled to
such payments. In the case of payments to an entity classified as a foreign
partnership under United States tax principles, the partners, rather than the
partnership, generally will be required to provide the required certifications
to qualify for the withholding exemption described above. A payment to a United
States partnership, however, is treated for these purposes as payment to a
United States payee, even if the partnership has one or more foreign partners.
The 1997 Final Regulations provide certain presumptions with respect to
withholding for holders not furnishing the required certifications to qualify
for the withholding exemption described above. In addition, the 1997 Final
Regulations will replace a number of current tax certification forms (including
IRS Form W-8 and IRS Form 4224, discussed above) with a single, revised Internal
Revenue Service Form W-8 (which, in certain circumstances, requires information
in addition to that previously required). Under the 1997 Final Regulations, this
Form W-8 will remain valid until the last day of the third calendar year
following the year in which the certificate is signed. The 1997 Final
Regulations contain detailed rules governing tax certifications during the
transition period prior to and immediately following the effectiveness of the
1997 Final Regulations.
Under the 1997 Final Regulations, withholding of United States federal
income tax with respect to accrued original issue discount may apply to payments
on a taxable sale or other disposition of a Note by a United States Alien Holder
who does not provide appropriate certification to the withholding agent with
respect to such transaction.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, a 31% backup
withholding tax and information reporting requirements apply to certain payments
of principal, premium and interest (including original issue discount) made to,
and to the proceeds of sale before maturity by, certain holders of the Notes.
In the case of a non-corporate United States Holder, backup withholding
will apply only if (i) such Holder fails to furnish its Taxpayer Identification
Number ("TIN") which, for an individual, would be his Social Security number,
(ii) such Holder furnishes an incorrect TIN, (iii) the payor is notified by the
Internal Revenue Service that such Holder has failed to properly report payments
of interest dividends or (iv) under certain circumstances, such Holder fails to
certify, under penalties of perjury, that it has furnished a correct TIN and has
not been notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest or dividend payments. Backup
withholding will not apply with respect to payments made to certain exempt
recipients, such as tax-exempt organizations. United States Holders should
consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption if
applicable.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding will not apply to payments of principal, premium
or interest made by the Company or any paying agent thereof on a Note if such
Holder has provided the required certification under penalties of perjury that
it is not a United States Holder (as defined above) or has otherwise established
an exemption, provided in each case that the Company or such paying agent, as
the case may be, does not have actual knowledge that the payee is a United
States Holder. The Company will, when required, report to United States Alien
Holders of the Notes and the Internal Revenue Service the amount of any interest
paid or original issue discount accruing on the Notes in each calendar year and
the amounts of tax withheld, if any, with respect to such payments.
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Under current Treasury Regulations, if payments of principal, premium or
interest (including original issue discount) are made to or through the foreign
office of a custodian, nominee or other agent acting on behalf of a beneficial
owner of a Note, such custodian, nominee or other agent will not be required to
apply backup withholding to such payments made to such beneficial owner and
generally will not be subject to information reporting requirements. However, if
such custodian, nominee or other agent is a United States person for United
States tax purposes, a controlled foreign corporation for United States tax
purposes, or a foreign person 50 percent or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, such custodian, nominee or other agent may be subject to
certain information reporting requirements with respect to such payments unless
it has in its records documentary evidence that the beneficial owner is not a
United States Holder and certain conditions are met or the beneficial owner
otherwise establishes an exemption.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, if such broker is a United
States person for United States tax purposes, a controlled foreign corporation
for United States tax purposes or a foreign person 50 percent or more of whose
gross income is effectively connected with a United States trade or business for
a specified three-year period, information reporting will be required unless the
broker has in its records documentary evidence that the beneficial owner is not
a United States Holder and certain other conditions are met or the beneficial
owner otherwise establishes an exemption.
In general, the 1997 Final Regulations do not significantly alter the
substantive backup withholding and information reporting requirements described
above. As under current law, backup withholding and information reporting will
not apply to (i) payments to a United States Alien Holder of principal, premium
and interest (including original issue discount, if any) and (ii) payments to a
United States Alien Holder on the sale, exchange or other disposition of a Note,
in each case if such United States Alien Holder provides the required
certification to establish an exemption from the withholding of United States
federal income tax or otherwise establishes an exemption. Similarly, unless the
payor has actual knowledge that the payee is a United States Holder backup
withholding will not apply to (i) payments of principal, premium and interest
(including original issue discount, if any) made outside the United States to
certain offshore accounts and (ii) payments on the sale, exchange, redemption,
retirement or other disposition of a Note effected outside the United States.
However, information reporting (but not backup withholding) may apply with
respect to such payments by a payor that is, for United States federal income
tax purposes, (i) a United States person, (ii) a controlled foreign corporation,
(iii) a United States branch of a foreign bank or foreign insurance company,
(iv) a foreign partnership controlled by United States persons or engaged in a
United States trade or business or (v) a foreign person 50% or more of whose
gross income is effectively connected with the conduct of a United States trade
or business for a specified three-year period, unless the payor has in its
records documentary evidence that the beneficial owner is not a United States
Holder and certain other conditions are met or the beneficial owner otherwise
establishes an exemption. As noted above, the Internal Revenue Service has
announced that the 1997 Final Regulations will be amended to be effective for
payments after December 31, 1999, subject to certain transition rules.
United States Alien Holders of Notes should consult their tax advisors
regarding the application of information reporting and backup withholding in
their particular situations, the availability of an exemption therefrom, and the
procedure for obtaining such an exemption, if available. Any amounts withheld
from a payment to a United States Alien Holder under the backup withholding
rules will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the United States Internal Revenue Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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OFFERING OF MEDIUM TERM NOTES AND WARRANTS
The Notes and Note Warrants, if any, are being offered on a continuing
basis by the Company through the Agents, which have agreed to use their
reasonable efforts to solicit purchases of the Notes and Note Warrants, and may
also be sold to an Agent as principal for resale to investors and other
purchasers at varying prices related to prevailing market prices at the time of
resale to be determined by such Agent or, if so agreed, at a fixed public
offering price. The Notes and Note Warrants, if any, are also being offered on a
continuing basis by the Company directly on its own behalf or through an
affiliated entity. HFC may designate additional parties to be "Agents" for
purposes of offering or soliciting sales of the Notes and Note Warrants on the
same terms and conditions as the Agents have agreed to. The names of any other
agents so appointed will be set forth in the applicable Pricing Supplement. The
Company reserves the right to withdraw, cancel or modify the offer made hereby
without notice and will have the sole right to accept offers to purchase Notes
and Note Warrants. The Company or the Agents may reject any proposed purchase of
Notes and Note Warrants in whole or in part. The Company will pay each Agent a
commission, in the form of a discount not to exceed .750%, depending upon
maturity, of the principal amount of Notes sold through such Agent, and may also
sell Notes to an Agent, as principal, at a discount to be agreed upon at the
time of sale. The commission with respect to a Note with a stated maturity in
excess of 30 years from the date of issue will be agreed to by the Company and
the Agent through which such Note is sold at the time of such sale.
The Agents may offer the Notes and Note Warrants, if any, they have
purchased as principal to other dealers. The Agents may sell Notes to any dealer
at a discount and, unless otherwise specified in the applicable Pricing
Supplement, such discount allowed to any dealer will not be in excess of the
discount to be received by such Agent from the Company. Unless otherwise
indicated in the applicable Pricing Supplement, any Note sold to an Agent as
principal will be purchased by such Agent at a price equal to 100% of the
principal amount thereof less a percentage equal to the commission applicable to
any agency sale of a Note of identical maturity, and may be resold by the Agent
to investors and other purchasers from time to time as described above. After
the initial public offering of Notes to be resold to investors and other
purchasers, the public offering price (in the case of Notes to be resold at a
fixed public offering price) and any dealer discount may be changed.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds on the date of settlement.
Offers to purchase Notes directly from the Company may be made by
contacting the Money and Capital Markets Group of HFC at 2700 Sanders Road,
Prospect Heights, Illinois 60070 (Phone: 847-564-6330).
The Company has agreed to indemnify the Agents against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the Agents may be required to make in respect thereof.
The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange. No assurance can be given as
to the existence or liquidity of a secondary market for the Notes.
The Agents and certain affiliates thereof engage in transactions with and
perform services for HFC in the ordinary course of business.
36
<PAGE> 38
ERISA MATTERS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") that are
subject to ERISA and on persons who are fiduciaries with respect to such Plans.
In accordance with the ERISA's general fiduciary requirements, a fiduciary with
respect to any such Plan who is considering the purchase of Notes on behalf of
such Plan should determine whether such purchase is permitted under the
governing Plan documents and is prudent and appropriate for the Plan in view of
its overall investment policy and the composition and diversification of its
portfolio. Other provisions of ERISA and Section 4975 of the Code prohibit
certain transactions between a Plan and persons who have certain specified
relationships to the Plan ("parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of Section 4975 of the Code). Thus, a
Plan fiduciary considering the purchase of Notes should consider whether such a
purchase might constitute or result in a prohibited transaction under ERISA or
Section 4975 of the Code.
The Company may be considered a "party in interest" or a "disqualified
person" with respect to many Plans that are subject to ERISA. The purchase of
Notes by a Plan that is subject to the fiduciary responsibility provisions of
ERISA or the prohibited transaction provisions of Section 4975 of the Code
(including individual retirement accounts and other plans described in Section
4975(e)(1) of the Code) and with respect to which the Company is a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Notes are
"marketable obligations" (as defined in Section 407(e) of ERISA) or are acquired
pursuant to and in accordance with an applicable exemption, such as Prohibited
Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts) or PTCE 95-60 (an exemption for
certain transactions involving insurance company general accounts). ANY PENSION
OR OTHER EMPLOYEE BENEFIT PLAN PROPOSING TO ACQUIRE ANY NOTES SHOULD CONSULT
WITH ITS COUNSEL.
LEGAL OPINIONS
The legality of the Notes and Note Warrants will be passed upon for HFC by
John W. Blenke, Vice President -- Corporate Law for Household International,
Inc., the parent of HFC. Sidley & Austin, Chicago, Illinois has acted as special
tax counsel to HFC in connection with tax matters related to the issuance of the
Notes. Certain legal matters will be passed upon for the Agents by McDermott,
Will & Emery, Chicago, Illinois. Mr. Blenke is a full-time employee and an
officer of Household International, Inc. and owns, and holds options to
purchase, shares of Common Stock of Household International, Inc.
EXPERTS
The financial statements and schedules of HFC and its subsidiaries
incorporated by reference in this Prospectus, to the extent and for the periods
indicated in its reports, have been audited by Arthur Andersen LLP, independent
public accountants, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said reports.
37
<PAGE> 39
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER OR AGENT. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES.
---------------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Household Finance Corporation......... 3
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 3
Important Currency Information........ 4
Description of Medium Term Notes...... 4
Foreign Currency Notes................ 19
Description of Note Warrants.......... 20
Certain United States Federal Income
Tax Consequences.................... 22
Offering of Medium Term Notes and
Warrants............................ 36
ERISA Matters......................... 37
Legal Opinions........................ 37
Experts............................... 37
</TABLE>
======================================================
======================================================
$3,000,000,000
HOUSEHOLD
FINANCE
CORPORATION
MEDIUM TERM NOTES
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
UBS SECURITIES
APRIL , 1998
======================================================
<PAGE> 40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Estimated Expenses:
Printing & Engraving Fees.............................. $ 35,000
Fees of Trustees....................................... 35,000
Accountants' Fees and Expenses......................... 20,000
Blue Sky Qualification Fees and Expenses............... 5,000
SEC Filing Fee......................................... 885,000
Rating Agency Fees..................................... 1,000,000
Legal Fees and Expenses................................ 10,000
Miscellaneous.......................................... 10,000
-----------
Total............................................. $ 2,000,000
===========
</TABLE>
- ---------------
* Actual
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes Household Finance Corporation ("HFC")
to buy directors' and officers' liability insurance. Such indemnification is not
exclusive of any other right to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or otherwise.
A bylaw of HFC states and makes mandatory the indemnification expressly
authorized under the General Corporation Law of Delaware, in the absence of
other indemnification by contract, vote of stockholders or otherwise, with these
exceptions: the bylaw makes no distinction between litigation brought by third
parties and litigation brought by or in the right of HFC as regards the required
standard of conduct imposed upon the individual in order to be entitled to
indemnification. The bylaw standard applicable in all cases (excepting
indemnification under the General Corporation Law of Delaware and the bylaw
without reference to any such standard) is that the individual shall have acted
in good faith and in a manner he/she reasonably believed to be in or not opposed
to the best interests of HFC, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his/her conduct was unlawful.
Further, the bylaw would protect directors, officers, employees and agents
against any and all expenses and liability with respect to actions brought
against them by or in the right of HFC if the required standard of conduct is
met. The bylaw is qualified in its entirety in that no indemnification will be
made if prohibited by applicable law. The bylaw is applicable only to claims,
actions, suits or proceedings made or commenced after its adoption, whether
arising from prior or subsequent acts or omissions to act. The bylaw is
applicable to directors, officers, employees or agents of HFC and also to
persons who are serving at the request of HFC as directors, officers, employees
or agents of other corporations.
Article VII of the Restated Certificate of Incorporation of Household
International, Inc. ("Household International") provides for indemnification to
the fullest extent permitted by Section 145 of the General Corporation Law of
Delaware for directors, officers and employees of Household International and
also to persons who are serving at the request of Household International as
directors, officers or employees of other corporations. Household International
has purchased liability policies which indemnify HFC's officers and directors
against loss arising from claims by reason of their legal liability for acts as
officers and directors, subject to limitations and conditions as set forth in
the policies.
II-1
<PAGE> 41
Pursuant to agreements which HFC may enter into with underwriters or agents
(the form of which is included as an exhibit to this Registration Statement),
officers and directors of HFC may be entitled to indemnification by such
underwriters or agents against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, arising from information appearing in
the Registration Statement or any Prospectus which has been furnished to HFC by
such underwriters or agents.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1* Form of Distribution Agreement.
4(a) Standard Multiple-Series Indenture Provisions for Senior Debt Securities dated as of
June 1, 1992. (Incorporated by reference to Exhibit 4(b) of HFC's Registration
Statement on Form S-3 (No. 33-48854)).
4(b) Indenture dated as of December 1, 1993 for Senior Debt Securities between HFC and The
Chase Manhattan Bank (National Association), as Trustee. (Incorporated by reference to
Exhibit 4(b) of HFC's Registration Statement on Form S-3 (No. 33-55561)).
4(c)* Forms of Warrant Agreement.
5* Opinion and Consent of Mr. J. W. Blenke, Vice President -- Corporate Law of Household
International, Inc.
8 Opinion and Consent of Sidley & Austin, re: tax matters.
12 Statement on the Computation of Ratio Earnings to Fixed Charges. (Incorporated herein
by reference from Exhibit 12 to HFC's Annual Report on Form 10-K (File No. I-75) for
the fiscal year ended December 31, 1997).
23(a) Consent of Arthur Andersen LLP, Certified Public Accountants.
23(b)* Consent of Mr. J. W. Blenke, Vice President -- Corporate Law of Household
International, Inc., is contained in his opinion (Exhibit 5).
23(c) Consent of Sidley & Austin is contained in their opinion (Exhibit 8).
24* Power of Attorney.
25 Statement of eligibility of The Chase Manhattan Bank (National Association).
</TABLE>
- ---------------
* Filed previously.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
II-2
<PAGE> 42
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to section 12(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(5) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(6) That for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions set forth or described in Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person, in connection with the securities registered hereby, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 43
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT ON FORM S-3 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PROSPECT HEIGHTS, AND
STATE OF ILLINOIS, ON THE 1ST DAY OF APRIL, 1998.
HOUSEHOLD FINANCE CORPORATION
By /s/ JOHN W. BLENKE
----------------------------------
John W. Blenke
Vice President and Assistant
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-3 HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 1ST DAY OF APRIL, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President and Chief Executive Officer,
- ----------------------------------------------------- Director
(G. D. Gilmer)
* Vice President--Chief Financial Officer and
- ----------------------------------------------------- Chief Accounting Officer, Director
(D. A. Schoenholz)
* Director
- -----------------------------------------------------
(W. F. Aldinger)
* Director
- -----------------------------------------------------
(G. O. Fick)
</TABLE>
*By /s/ PATRICK D. SCHWARTZ
-------------------------------
(Patrick D. Schwartz)
Attorney-in-Fact
The Registrant reasonably believes that the security rating to be assigned
to the Securities registered hereunder will make the Securities "investment
grade securities" pursuant to Transaction Requirement B-2 of Form S-3.
II-4
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
1* Form of Distribution Agreement.
4(a) Standard Multiple-Series Indenture Provisions for Senior
Debt Securities dated as of June 1, 1992. (Incorporated by
reference to Exhibit 4(b) of HFC's Registration Statement on
Form S-3 (No. 33-48854)).
4(b) Indenture dated as of December 1, 1993 for Senior Debt
Securities between HFC and The Chase Manhattan Bank
(National Association), as Trustee. (Incorporated by
reference to Exhibit 4(b) of HFC's Registration Statement on
Form S-3 (No. 33-55561)).
4(c)* Forms of Warrant Agreement.
5* Opinion and Consent of Mr. J. W. Blenke, Vice President --
Corporate Law of Household International, Inc.
8 Opinion and Consent of Sidley & Austin, re: tax matters.
12 Statement on the Computation of Ratio Earnings to Fixed
Charges. (Incorporated herein by reference from Exhibit 12
to HFC's Annual Report on Form 10-K (File No. I-75) for the
fiscal year ended December 31, 1997).
23(a) Consent of Arthur Andersen LLP, Certified Public
Accountants.
23(b)* Consent of Mr. J. W. Blenke, Vice President -- Corporate Law
of Household International, Inc., is contained in his
opinion (Exhibit 5).
23(c) Consent of Sidley & Austin is contained in their opinion
(Exhibit 8).
24* Power of Attorney.
25 Statement of eligibility of The Chase Manhattan Bank
(National Association).
</TABLE>
- ---------------
* Filed previously.
<PAGE> 1
EXHIBIT 8
[SIDLEY & AUSTIN LETTERHEAD]
April 1, 1998
Household Finance Corporation
2700 Sanders Road
Prospect Heights, IL 60070
Dear Sirs:
Reference is made to the Registration Statement on Form S-3 filed with the
Securities and Exchange Commission by Household Finance Corporation (the
"Company") on March 13, 1998, as amended by Amendment No. 1 thereto (as
amended, the "Registration Statement") and to the prospectus (the "Prospectus")
included in such Registration Statement relating to the issuance of up to
$3,000,000,000 of Medium Term Notes (the "Notes") and Warrants to purchase the
Notes (the "Warrants").
We are special tax counsel to the Company in connection with the
Prospectus. The statements in the Prospectus under the heading "Certain United
States Federal Income Tax Consequences," to the extent they constitute matters
of Federal tax law or legal conclusions with respect thereto, have been
prepared or reviewed by us and, in our opinion, are correct in all material
respects. In rendering this opinion, we have relied without independent
investigation on the description of the Notes and Warrants set forth in the
Prospectus. We hereby consent to the reference to this Firm in the Prospectus
under the headings "Certain United States Federal Income Tax Consequences" and
"Legal Opinions" and to the filing of this opinion as an exhibit to the
Registration Statement.
We assume no obligation to update or supplement this letter to reflect any
facts or circumstances which may hereafter come to our attention with respect
to the opinion expressed above, including any changes in applicable law which
may hereafter occur.
Very truly yours,
/s/ Sidley & Austin
-------------------------
Sidley & Austin
<PAGE> 1
[ARTHUR ANDERSEN LLP LETTERHEAD]
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Household Finance Corporation:
As independent public accountants, we hereby consent to the incorporation
by reference in this Amendment No. 1 to the registration statement on Form
S-3 relating to the offering of up to $3,000,000,000 of Medium Term Notes and
Warrants to Purchase Medium Term Notes, to be filed with the Securities
and Exchange Commission on or about April 1, 1998, of our report dated
January 21, 1998, included in Household Finance Corporation's Form 10-K for
the year ended December 31, 1997, and to all references to our Firm included
in this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 1, 1998
<PAGE> 1
EXHIBIT 25
___________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
________________________________________
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
____________________________________________
HOUSEHOLD FINANCE CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 36-1239445
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
2700 SANDERS ROAD
PROSPECT HEIGHTS, ILLINOIS 60070
(Address of principal executive offices) (Zip Code)
____________________________________________
MEDIUM TERM NOTES
(Title of the indenture securities)
___________________________________________________________________
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE> 3
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
333-06249, which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 12th day
of March, 1998.
THE CHASE MANHATTAN BANK
By /s/ Gregory P. Shea
-----------------------------
Gregory P. Shea
Senior Trust Officer
- 3 -
<PAGE> 4
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business December 31, 1997, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ........................................ $ 12,428
Interest-bearing balances ................................ 3,428
Securities: ...................................................
Held to maturity securities..................................... 2,561
Available for sale securities................................... 43,058
Federal funds sold and securities purchased under
agreements to resell ..................................... 29,633
Loans and lease financing receivables:
Loans and leases, net of unearned income $129,260
Less: Allowance for loan and lease losses 2,783
Less: Allocated transfer risk reserve ........ 0
--------
Loans and leases, net of unearned income,
allowance, and reserve ................................... 126,477
Trading Assets ................................................. 62,575
Premises and fixed assets (including capitalized
leases)................................................... 2,943
Other real estate owned ........................................ 295
Investments in unconsolidated subsidiaries and
associated companies...................................... 231
Customers' liability to this bank on acceptances
outstanding .............................................. 1,698
Intangible assets .............................................. 1,466
Other assets ................................................... 10,268
---------
TOTAL ASSETS ................................................... $ 297,061
=========
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
LIABILITIES
<S> <C>
Deposits
In domestic offices ...................................... $ 94,524
Noninterest-bearing ........................ $ 39,487
Interest-bearing ........................... 55,037
--------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's.................................... 71,162
Noninterest-bearing ........................ $ 3,205
Interest-bearing ........................... 67,957
Federal funds purchased and securities sold under agree-
ments to repurchase ............................................ 43,181
Demand notes issued to the U.S. Treasury ....................... 1,000
Trading liabilities ............................................ 48,903
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases):
With a remaining maturity of one year or less ............ 3,599
With a remaining maturity of more than one year
through three years................................... 253
With a remaining maturity of more than three years.......... 132
Bank's liability on acceptances executed and outstanding........ 1,698
Subordinated notes and debentures .............................. 5,715
Other liabilities .............................................. 9,896
TOTAL LIABILITIES .............................................. 280,063
---------
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock ................................................... 1,211
Surplus (exclude all surplus related to preferred stock)....... 10,291
Undivided profits and capital reserves ......................... 5,502
Net unrealized holding gains (losses)
on available-for-sale securities ............................... (22)
Cumulative foreign currency translation adjustments ............ 16
TOTAL EQUITY CAPITAL ........................................... 16,998
---------
TOTAL LIABILITIES AND EQUITY CAPITAL ........................... $ 297,061
=========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named
bank, do hereby declare that this Report of Condition has
been prepared in conformance with the instructions issued
by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness
of this Report of Condition and declare that it has been
examined by us, and to the best of our knowledge and
belief has been prepared in conformance with the in-
structions issued by the appropriate Federal regulatory
authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR.)
-5-
