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Filed Pursuant to Rule 424(b)2
Registration No. 333-34663
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 19, 1997)
$250,000,000
Aeroquip-Vickers, Inc.
MEDIUM-TERM NOTES
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Due Nine Months or More From Date of Issue
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Aeroquip-Vickers, Inc. (the "Corporation") may offer from time to time its
Medium-Term Notes Due Nine Months or More From Date of Issue (the "Notes"),
which are issuable in one or more series and may be offered and sold in the
United States. The Notes offered by this Prospectus Supplement are offered in
the United States at an aggregate initial public offering price of up to U.S.
$250,000,000, or the equivalent thereof in other currencies, including composite
currencies such as the European Currency Unit (the "Specified Currency"). See
"Important Currency Exchange Information." Such aggregate offering price is
subject to reduction as a result of the sale by the Corporation of certain other
Securities. See "Plan of Distribution." The interest rate on each Note will be
either a fixed rate established by the Corporation at the date of issue of such
Note, which may be zero in the case of certain Original Issue Discount Notes, or
a floating rate as set forth therein and specified in the applicable Pricing
Supplement. A Fixed Rate Note may pay a level amount in respect of both interest
and principal amortized over the life of the Note (an "Amortizing Note").
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note is payable on such dates as set forth herein and at
maturity or upon earlier redemption or repayment. Interest on each Floating Rate
Note is payable on the date set forth herein and in the applicable Pricing
Supplement. Unless otherwise specified in the applicable Pricing Supplement,
Amortizing Notes will pay principal and interest semiannually each May 1 and
November 1, or quarterly each February 1, May 1, August 1 and November 1, and at
maturity or upon earlier redemption or repayment. Each Note will mature on any
day more than nine months from the date of issue, as set forth in the applicable
Pricing Supplement. See "Description of Notes." Unless otherwise specified in
the applicable Pricing Supplement, the Notes may not be redeemed by the
Corporation or the holder prior to maturity and will be issued in fully
registered form in denominations of $1,000 (or, in the case of Notes not
denominated in U.S. dollars, the equivalent thereof in the Specified Currency,
rounded to the nearest 1,000 units of the Specified Currency) or any amount in
excess thereof which is an integral multiple of $1,000 (or, in the case of Notes
not denominated in U.S. dollars, 1,000 units of the Specified Currency). Any
terms relating to Notes being denominated in foreign currencies or composite
currencies will be as set forth in the applicable Pricing Supplement. Each Note
will be represented either by a Global Security registered in the name of a
nominee of The Depository Trust Company, as Depositary (a "Global Note"), or by
a certificate issued in definitive form (a "Definitive Note"), as set forth in
the applicable Pricing Supplement. Interests in Global Securities representing
Global Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary (with respect to participants'
interests) and its participants. Global Notes will not be issuable as Definitive
Notes except under the circumstances described in the 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 SUPPLEMENT, ANY SUPPLEMENT HERETO OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) CORPORATION(2)(3)
---------------- ------------------------------ ---------------------------------
<S> <C> <C> <C>
Per Note........... 100% .125% - .750% 99.875% - 99.250%
Total(4)........... $250,000,000 $312,500 -$1,075,000 $249,687,500 - $248,125,000
</TABLE>
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(1) Unless otherwise specified in the applicable Pricing Supplement, Notes will
be sold at 100% of their principal amount. If the Corporation issues any
Note at a discount from or at a premium over its principal amount, the Price
to Public of any Note issued at a discount or premium will be set forth in
the applicable Pricing Supplement.
(2) The commission payable to an Agent for each Note sold through such Agent
shall range from .125% to .750% of the principal amount of such Note;
provided, however, that commissions with respect to Notes maturing in thirty
years or greater will be negotiated. The Corporation may also sell Notes to
an Agent, as principal, at negotiated discounts, for resale to investors and
other purchasers.
(3) Before deducting expenses payable by the Corporation estimated at $282,956.
(4) Or the equivalent thereof in other currencies including composite
currencies.
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Offers to purchase the Notes are being solicited from time to time by Morgan
Stanley & Co. Incorporated and J.P. Morgan Securities Inc. (each individually,
an "Agent" and collectively, the "Agents"), on behalf of the Corporation. The
Agents have agreed to use reasonable efforts to solicit purchases of the Notes.
The Corporation may also sell Notes to an Agent acting as principal for its own
account or otherwise, to be determined by such Agent. No termination date for
the offering of the Notes has been established. The Corporation or an Agent may
reject any order in whole or in part. The Notes will not be listed on any
securities exchange, and there can be no assurance that the Notes offered hereby
will be sold or that there will be a secondary market for the Notes. See "Plan
of Distribution."
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MORGAN STANLEY DEAN WITTER J.P. MORGAN & CO.
September 30, 1997
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SPECIFICALLY,
THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND
PURCHASE, THE NOTES IN THE OPEN MARKET. IN ADDITION, THE AGENTS MAY ENGAGE IN
PASSIVE MARKET MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
IMPORTANT CURRENCY EXCHANGE INFORMATION
Purchasers are required to pay for the Notes in U.S. dollars, and payments
of principal, premium, if any, and interest on the Notes will also be made in
U.S. dollars, unless the applicable Pricing Supplement, as defined below,
provides that purchasers are instead required to pay for the Notes in a
Specified Currency, or that payments of principal, premium, if any, and interest
on such Notes will be made in a Specified Currency, or both. Currently, there
are limited facilities in the United States for the conversion of U.S. dollars
into foreign currencies and vice versa. In addition, most banks do not currently
offer non-U.S. dollar denominated checking or savings account facilities in the
United States. Accordingly, unless otherwise specified in a Pricing Supplement
or unless alternative arrangements are made, payment of principal, premium, if
any, and interest on Notes in a Specified Currency other than U.S. dollars will
be made to an account at a bank outside the United States. See "Description of
Notes" and "Foreign Currency Risks."
If the applicable Pricing Supplement provides for payments of principal of
and interest on a non-U.S. dollar denominated Note to be made in U.S. dollars or
for payments of principal of and interest on a U.S. dollar denominated Note to
be made in a Specified Currency other than U.S. dollars, the conversion of the
Specified Currency into U.S. dollars or U.S. dollars into the Specified
Currency, as the case may be, will be handled by the Exchange Rate Agent
identified in the Pricing Supplement. Any Agent may act, from time to time, as
Exchange Rate Agent. The costs of conversion will be borne by the holder of a
Note through deductions from the payments.
References herein to "U.S. dollars" or "U.S. $" or "$" are to the currency
of the United States of America.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Securities set forth in
the Prospectus. The particular terms of the Notes sold pursuant to any pricing
supplement (a "Pricing Supplement") will be described therein. The terms and
conditions set forth in "Description of Notes" will apply to each Note unless
otherwise specified in the applicable Pricing Supplement and in such Note.
If any Note is not to be denominated in U.S. dollars, the applicable
Pricing Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit ("ECU"), in which the principal,
premium, if any, and interest, if any, with respect to such Note are to be paid,
along with any other terms relating to the non-U.S. dollar denomination,
including exchange rates for the Specified Currency as against the U.S. dollar
at selected times during the last five years, and any exchange controls
affecting the Specified Currency. See "Foreign Currency Risks."
GENERAL
The Notes will be issued under the Indenture dated as of May 1, 1996, as
supplemented as of April 17, 1997 (the "Indenture"), between the Corporation and
The First National Bank of Chicago, as trustee (as successor-in-interest to NBD
Bank) (the "Trustee"). The Notes issued under the Indenture will constitute one
or more series under such Indenture. The Notes will rank pari passu with all
other unsecured and unsubordinated indebtedness of the Corporation. The Notes
may be issued from time to time in an aggregate principal amount of up to
$250,000,000 or the equivalent thereof in one or more foreign or composite
currencies, subject to reduction as a result of the sale by the Corporation of
other Securities referred to in the accompanying Prospectus. For the purpose of
this Prospectus Supplement, (i) the principal amount of any Original Issue
Discount Note (as defined below) means the Issue Price (as defined below) of
such Note and
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(ii) the principal amount of any Note issued in a foreign currency or composite
currency means the U.S. dollar equivalent on the date of issue of the Issue
Price (as defined below) of such Note.
Fixed Rate Notes, Amortizing Notes and Original Issue Discount Notes will
mature on any day more than nine months from the date of issue, as set forth in
the applicable Pricing Supplement. Floating Rate Notes (including Renewable
Notes, as defined below) will mature on an Interest Payment Date (as defined
below) more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. Except as may be specified for Notes denominated
in foreign or composite currencies or as otherwise provided in the applicable
Pricing Supplement, the Notes will be issued only in fully registered form in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000.
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Global Note or a Definitive Note. Except as set
forth in the Prospectus under "Description of Securities -- Book-Entry System,"
Global Notes will not be issuable as Definitive Notes. The laws of some states
may require that certain purchasers of securities take physical delivery of the
securities in definitive form. Such limits and such laws may impair the ability
to own, transfer or pledge beneficial interests in Global Securities. See
"Book-Entry System" below.
The Notes may be presented for payment of principal and interest, transfer
of the Notes will be registrable and the Notes will be exchangeable at the
agency in The City of New York, maintained by the Corporation for such purpose;
provided that Global Notes will be exchangeable only in the manner and to the
extent set forth in the Prospectus under "Description of
Securities -- Book-Entry System." On the date hereof, the agent for the payment,
transfer and exchange of the Notes (the "Paying Agent") is The First National
Bank of Chicago, acting through its corporate trust office at c/o First Chicago
Trust Company of New York, 14 Wall Street, 8th Floor, Window 2, New York, New
York 10005.
The applicable Pricing Supplement will specify the price (the "Issue
Price") of each Note to be sold pursuant thereto (unless such Note is to be sold
at 100% of its principal amount), the interest rate or interest rate formula,
maturity, currency or composite currency and principal amount and any other
terms on which each Note will be issued.
As used herein, the following terms shall have the meanings set forth
below:
"Authorized Denominations" means, unless otherwise provided in the
applicable Pricing Supplement, (i) with respect to Notes denominated in
dollars, $1,000 or any amount in excess thereof which is an integral
multiple of $1,000 and (ii) with respect to Notes denominated in foreign or
composite currencies, the equivalent of $1,000 (rounded to an integral
multiple of 1,000 units of such Specified Currency), or any amount in
excess thereof which is an integral multiple of 1,000 units of the
Specified Currency, as determined by reference to the noon dollar buying
rate in New York City for cable transfers of the Specified Currency
published by the Federal Reserve Bank of New York (the "Market Exchange
Rate") on the Business Day (as defined below) immediately preceding the
date of issuance; provided, however, that in the case of ECUs, the Market
Exchange Rate shall be the rate of exchange determined by the Commission of
the European Communities (or any successor thereto) as published in the
Official Journal of the European Communities, or any successor publication,
on the Business Day immediately preceding the date of issuance.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close in The City of New
York and (i) with respect to LIBOR Notes (as defined below), is also a
London Banking Day, (ii) with respect to Notes denominated in a Specified
Currency other than U.S. dollars, Australian dollars or ECUs, in the
principal financial center of the country of the Specified Currency, (iii)
with respect to Notes denominated in Australian dollars, in Sydney and (iv)
with respect to Notes denominated in ECUs, that is not a non-ECU clearing
day, as determined by the ECU Banking Association in Paris.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
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"London Banking Day" means any day on which dealings in deposits in
the Specified Currency are transacted in the London interbank market.
"Original Issue Discount Note" means any Note that provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to the
Indenture.
The "Record Date" with respect to any Interest Payment Date shall be
the date 15 calendar days prior to the Interest Payment Date, whether or
not the date shall be a Business Day.
PAYMENT CURRENCY
If the applicable Pricing Supplement provides for payments of interest and
principal on a non-U.S. dollar denominated Note to be made, at the option of the
holder of the Note, in U.S. dollars, conversion of the Specified Currency into
U.S. dollars will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of which may be the Exchange Rate
Agent) for the purchase by the quoting dealer of the Specified Currency for U.S.
dollars for settlement on the payment date in the aggregate amount of the
Specified Currency payable to the holders of Notes and at which the applicable
dealer commits to execute a contract. If such bid quotations are not available,
payments will be made in the Specified Currency. All currency exchange costs
will be borne by the holders of Notes by deductions from such payments.
Except as set forth below, if the principal of, premium, if any, or
interest on, any Note is payable in a Specified Currency other than U.S. dollars
and such Specified Currency is not available to the Corporation for making
payments thereof due to the imposition of exchange controls or other
circumstances beyond the control of the Corporation or is no longer used by the
government of the country issuing the currency or for the settlement of
transactions by public institutions within the international banking community,
then the Corporation will be entitled to satisfy its obligations to holders of
the Notes by making the payments in U.S. dollars on the basis of the Market
Exchange Rate on the date of the payment or, if the Market Exchange Rate is not
available on such date, as of the most recent practicable date; provided,
however, that if such Specified Currency is replaced by the Euro (as described
under "Special Provisions Relating to Notes Denominated in ECU" below), the
payment of principal of, premium, if any, or interest on any Note denominated in
such currency shall be effected in Euro in conformity with legally applicable
measures taken in accordance with, or by virtue of, the treaty establishing the
European Community (the "EC"), as amended by the treaty on European Union (as so
amended, the "Treaty"). Any payment made under such circumstances in U.S.
dollars (or, if applicable, in Euro) where the required payment is in a
Specified Currency other than U.S. dollars will not constitute an Event of
Default.
SPECIAL PROVISIONS RELATING TO NOTES DENOMINATED IN ECU
Valuation of the ECU
Subject to the provisions under "Payment in a Component Currency" below,
the value of the ECU, in which the Notes may be denominated or may be payable,
is equal to the value of the ECU that is from time to time used as the unit of
account of the EC and which is at the date hereof valued on the basis of
specified amounts of the currencies of 12 of the 15 member states of the EC.
Under Article 109G of the Treaty, the currency composition of the ECU may not be
changed. Other changes to the ECU may be made by the EC in conformity with EC
law, in which event the ECU will change accordingly. From the start of the third
stage of European monetary union, the value of the ECU as against the currencies
of member states participating in the third stage will be irrevocably fixed and
the ECU will become a currency in its own right, replacing all or some of the
currencies of the 15 member states of the EC (as of the date of this Prospectus
Supplement, such currencies include the Austrian shilling, Belgian franc, Danish
krone, Dutch guilder, Finnish marka, French franc, German mark, Greek drachma,
Irish pound, Italian lira, Luxembourg franc, Portuguese escudo, Spanish peseta,
Swedish krona and pound sterling). In contemplation of the third stage, the
European Council meeting in Madrid on December 16, 1995 decided that the name of
the new currency will be the Euro and
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that, in accordance with the Treaty, substitution of the Euro for the ECU will
be at the rate of one Euro for one ECU. From the start of the third stage of
European monetary union, all payments in respect of the Notes denominated or
payable in ECU will be payable in Euro at the rate then established in
accordance with the Treaty.
Payment in a Component Currency
With respect to each due date for the payment of principal of, or interest
on, the Notes on or after the first business day in Brussels on which the ECU
ceases to be used as the unit of account of the EC and has not become a currency
in its own right replacing all or some of the currencies of the member states of
the EC, the Corporation shall choose a substitute currency (the "Chosen
Currency"), which may be any currency which was, on the last day on which the
ECU was used as the unit of account of the EC, a component currency of the ECU
or U.S. dollars, in which all payments due on or after the date with respect to
the Notes shall be made. Notice of the Chosen Currency so selected shall, where
practicable, be published in the manner described in "Notices" below. The amount
of each payment in such Chosen Currency shall be computed on the basis of the
equivalent of the ECU in that currency determined as described below, as of the
fourth business day in Brussels prior to the date on which such payment is due.
On the first business day in Brussels on which the ECU ceases to be used as
the unit of account of the EC and has not become a currency in its own right
replacing all or some of the currencies of the member states of the EC, the
Corporation shall select a Chosen Currency in which all payments with respect to
Notes having a due date prior thereto but not yet presented for payment are to
be made. Notice of the Chosen Currency so selected shall, where practicable, be
published in the manner described below. The amount of each payment in such
Chosen Currency shall be computed on the basis of the equivalent of the ECU in
that currency, determined as described below, as of such first business day.
The equivalent of the ECU in the relevant Chosen Currency as of any date
(the "Day of Valuation") shall be determined by, or on behalf of, the Exchange
Rate Agent on the following basis. The amounts and components composing the ECU
for this purpose (the "Components") shall be the amounts and components that
composed the ECU as of the last date on which the ECU was used as the unit of
account of the EC. The equivalent of the ECU in the Chosen Currency shall be
calculated by, first, aggregating the U.S. dollar equivalents of the Components;
and then, in the case of a Chosen Currency other than U.S. dollars, using the
rate used for determining the U.S. dollar equivalent of the Components in the
Chosen Currency as set forth below, calculating the equivalent in the Chosen
Currency of such aggregate amount in U.S. dollars.
The U.S. dollar equivalent of each of the Components shall be determined
by, or on behalf of, the Exchange Rate Agent on the basis of the middle spot
delivery quotations prevailing at 2:30 p.m., Brussels time, on the Day of
Valuation, as obtained by, or on behalf of, the Exchange Rate Agent from one or
more major banks, as selected by the Corporation, in the country of issue of the
component currency in question.
If for any reason no direct quotations are available for a Component as of
a Day of Valuation from any of the banks selected for this purpose, in computing
the U.S. dollar equivalent of such Component, the Exchange Rate Agent shall
(except as provided below) use the most recent direct quotations for such
Component obtained by it or on its behalf, provided that such quotations were
prevailing in the country of issue not more than two Business Days before such
Day of Valuation. If such most recent quotations were so prevailing in the
country of issue more than two Business Days before such Day of Valuation, the
Exchange Rate Agent shall determine the U.S. dollar equivalent of such Component
on the basis of cross rates derived from the middle spot delivery quotations for
such component currency and for the U.S. dollar prevailing at 2:30 P.M.,
Brussels time, on such Day of Valuation, as obtained by, or on behalf of, the
Exchange Rate Agent from one or more major banks, as selected by the
Corporation, in a country other than the country of issue of such component
currency. Notwithstanding the foregoing, the Exchange Rate Agent shall determine
the U.S. dollar equivalent of such Component on the basis of such cross rates if
the Corporation or such agent judges that the equivalent so calculated is more
representative than the U.S. dollar equivalent calculated as provided in the
first sentence of this paragraph. Unless otherwise specified by the Corporation,
if there is more than one market for dealing in any Component currency by reason
of foreign exchange regulations or for any other reason, the market to be
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referred to in respect of such currency shall be that upon which a nonresident
issuer of securities denominated in such currency would purchase such currency
in order to make payments in respect of such securities.
Payments in the Chosen Currency will be made at the specified office of a
Paying Agent in the country of the Chosen Currency, or, if none, or at the
option of the holder, at the specified office of any Paying Agent either by a
check drawn on, or by transfer to an account maintained by the holder with, a
bank in the principal financial center of the country of the Chosen Currency.
All determinations referred to above made by, or on behalf of, the
Corporation or by, or on behalf of, the Exchange Rate Agent shall be at such
entity's sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes and coupons.
Notes Denominated in the Currencies of EC Member States
If, pursuant to the Treaty, all or some of the currencies of the member
countries of the EC are replaced by the Euro, the payment of principal of,
premium, if any, or interest on, the Notes denominated in such currencies shall
be effected in Euro in conformity with legally applicable measures taken
pursuant to, or by virtue of, the Treaty.
INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable Record Date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the date
of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest payment
on a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the holder of record on the Record Date with
respect to the succeeding Interest Payment Date, unless otherwise specified in
the applicable Pricing Supplement. See "United States Taxation -- Tax
Consequences to Holders -- Original Issue Discount Notes" below.
U.S. dollar payments of interest, other than interest payable at maturity
(or on the date of redemption or repayment, if a Note is redeemed or repaid by
the Corporation prior to maturity), will be made by check mailed to the address
of the person entitled thereto as shown on the Note register. U.S. dollar
payments of principal, premium, if any, and interest upon maturity, redemption
or repayment will be made in immediately available funds against presentation
and surrender of the Note. Notwithstanding the foregoing, (a) the Depositary (as
defined below), as holder of Global Notes, shall be entitled to receive payments
of interest by wire transfer of immediately available funds and (b) a holder of
U.S. $10,000,000 (or the equivalent) or more in aggregate principal amount of
Definitive Notes having the same Interest Payment Date shall be entitled to
receive payments of interest by wire transfer of immediately available funds
upon written request to the Paying Agent, provided the request is received not
later than 15 calendar days prior to the applicable Interest Payment Date.
Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of Global Notes denominated in a Specified Currency electing to
receive payments of principal or any premium or interest in a currency other
than U.S. dollars must notify the participant through which its interest is held
on or prior to the applicable Record Date, in the case of a payment of interest,
and on or prior to the sixteenth day prior to maturity, in the case of principal
or premium, of the beneficial owner's election to receive all or a portion of
the payment in a Specified Currency. The participant must notify the Depositary
of the election on or prior to the third Business Day after the Record Date. The
Depositary will notify the Paying Agent of the election on or prior to the fifth
Business Day after the Record Date. If complete instructions are received by the
participant and forwarded by the participant to the Depositary, and by the
Depositary to the Paying Agent, on or prior to such dates, the beneficial owner
will receive payments in the Specified Currency by wire transfer of immediately
available funds to an account maintained by the payee with a bank located
outside the United States; otherwise the beneficial owner will receive payments
in U.S. dollars.
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Certain Notes, including Original Issue Discount Notes, may be considered
to be issued with original issue discount, which must be included in income for
United States federal income tax purposes at a constant rate. See "United States
Taxation -- Tax Consequences to Holders -- Original Issue Discount Notes" below.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described under "Description of Securities -- Events of Default"
in the Prospectus, the amount of principal due and payable with respect to such
Note shall be limited to the aggregate principal amount of such Note multiplied
by the sum of its Issue Price (expressed as a percentage of the aggregate
principal amount) plus the original issue discount amortized from the date of
issue to the date of declaration, which amortization shall be calculated using
the "interest method" (computed in accordance with generally accepted accounting
principles in effect on the date of declaration). Special considerations
applicable to such Notes will be set forth in the applicable Pricing Supplement.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the date of issuance at the
annual rate stated on the face thereof, except as described below under
"Extension of Maturity," until the principal thereof is paid or made available
for payment. Unless otherwise specified in the applicable Pricing Supplement,
the interest will be computed on the basis of a 360-day year of twelve 30-day
months. Unless otherwise specified in the applicable Pricing Supplement,
payments of interest on Fixed Rate Notes other than Amortizing Notes will be
made semiannually or quarterly on the dates as set forth in the applicable
Pricing Supplement and at maturity or upon any earlier redemption or repayment.
Unless otherwise specified in the applicable Pricing Supplement, payments of
principal and interest on Amortizing Notes, which are securities on which
payments of principal and interest are made in equal installments over the life
of the security, will be made either quarterly on each February 1, May 1, August
1 and November 1 or semiannually on each May 1 and November 1, as set forth in
the applicable Pricing Supplement, and at maturity or upon any earlier
redemption or repayment. Payments with respect to Amortizing Notes will be
applied first to interest due and payable thereon and then to the reduction of
the unpaid principal amount thereof. A table setting forth repayment information
in respect of each Amortizing Note will be provided to the original purchaser
and will be available, upon request, to subsequent holders.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is a
Business Day, and no interest on such payment shall accrue for the period from
and after the Interest Payment Date. If the maturity (or date of redemption or
repayment) of any Fixed Rate Note falls on a day that is not a Business Day, the
payment of interest and principal (and premium, if any) will be made on the next
succeeding Business Day, and no interest on such payment shall accrue for the
period from and after the maturity date (or date of redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest from
and including the date of issue or from and including the last date in respect
of which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Corporation will agree to
pay on newly issued Fixed Rate Notes are subject to change without notice by the
Corporation from time to time, but no such change will affect any Fixed Rate
Notes theretofore issued or that the Corporation has agreed to issue.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate determined
by reference to an interest rate basis or formula (the "Base Rate"), which may
be adjusted by a Spread, and/or Spread Multiplier (each as defined below). The
applicable Pricing Supplement will designate one or more of the following Base
Rates as applicable to each Floating Rate Note: (a) the CD Rate (a "CD Rate
Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate Note"), (c) the
Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"),
(e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury
Rate Note"), (g) the CMT Rate (a "CMT Rate Note") or (h) such other Base Rate or
interest rate formula as is set forth in the Pricing Supplement and in such
Floating Rate Note. The "Index Maturity" for any Floating
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Rate Note is the period of maturity of the instrument or obligation from which
the Base Rate is calculated and will be specified in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (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
(one one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate 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 ("Maximum
Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
In addition to any Maximum Interest Rate that may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on a Floating Rate
Note will in no event be higher than the maximum rate permitted by Ohio law, as
the same may be modified by United States law of general application.
Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually (such period being the "Interest Reset
Period" for such Note, and the first day of each Interest Reset Period being an
"Interest Reset Date"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week, except as provided below; in the
case of Floating Rate Notes which reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semiannually, the third Wednesday of two months of each year,
as specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of one month of each year,
as specified in the applicable Pricing Supplement; provided, however, that (a)
the interest rate in effect from the date of issue to the first Interest Reset
Date with respect to a Floating Rate Note will be the initial interest rate set
forth in the applicable Pricing Supplement (the "Initial Interest Rate") and (b)
unless otherwise specified in the applicable Pricing Supplement, the interest
rate in effect for the ten calendar days immediately prior to maturity,
redemption or repayment will be that in effect on the tenth calendar day
preceding such maturity, redemption or repayment date. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Business
Day, the Interest Reset Date shall be postponed to the next succeeding Business
Day, except that in the case of a LIBOR Note, if such Business Day is in the
next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of March, June,
September and December, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly Interest Reset Date, on the
third Wednesday of March, June, September and December; (iii) in the case of
Floating Rate Notes with a semiannual Interest Reset Date, on the third
Wednesday of the two months specified in the applicable Pricing Supplement; and
(iv) in the case of Floating Rate Notes with an annual Interest Reset Date, on
the third Wednesday of the month specified in the applicable Pricing Supplement.
If any Interest Payment Date for any Floating Rate Note would fall on a day that
is not a Business Day with respect to such Floating Rate Note, such Interest
Payment Date will be postponed to the following day that is a Business Day with
respect to such Floating Rate Note, except that, in the case of a LIBOR Note, if
the Business Day is in the next succeeding calendar month, the Interest Payment
Date shall be the immediately preceding day that is a Business Day with respect
to such LIBOR Note. If the maturity date or any earlier redemption or repayment
date of a Floating Rate Note would fall on a day that is not a Business Day, the
payment of principal, premium, if any, and interest will be made on the
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next succeeding Business Day, and no interest on the payment shall accrue for
the period from and after the maturity, redemption or repayment date, as the
case may be.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes 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 or maturity
date or date of redemption or repayment.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of the Floating Rate Note by an accrued
interest factor. The accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upward, and all dollar amounts used in or
resulting from the calculation on Floating Rate Notes will be rounded to the
nearest cent, with one-half cent rounded upward. The interest rate in effect on
any Interest Reset Date will be the applicable rate as reset on such date. The
interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
Unless otherwise stated in the applicable Pricing Supplement, the
calculation agent (the "Calculation Agent") with respect to any issue of
Floating Rate Notes shall be The First National Bank of Chicago. 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
that will become effective on the next Interest Reset Date with respect to such
Floating Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date for
CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, CMT Rate
Notes and Prime Rate Notes will be the second Business Day next preceding the
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a LIBOR Note will be the second London Banking Day preceding the
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note will be the day of the week in which the
Interest Reset Date falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, but the auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
the Friday will be the Interest Determination Date pertaining to the Interest
Reset Date occurring in the next succeeding week. If an auction falls on a day
that is an Interest Reset Date, such Interest Reset Date will be the next
following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after the Interest
Determination Date, or, if the day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD RATE NOTES
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on the date for
negotiable certificates of deposit having the Index Maturity designated in the
applicable Pricing Supplement as published by the Board of Governors of the
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Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to the Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If the rate is not yet
published in either H.15(519) or the Composite Quotations by 3:00 P.M., New York
City time, on the Calculation Date pertaining to such Interest Determination
Date, the CD Rate on the Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such Interest
Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major United States money center banks; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the CD Rate in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the CD
Rate Notes for which such CD Rate is being determined shall be the Initial
Interest Rate).
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on the date for commercial
paper having the Index Maturity specified in the applicable Pricing Supplement,
as the rate shall be published in H.15(519), under the heading "Commercial
Paper -- Nonfinancial." In the event that such rate is not published by 9:00
A.M., New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on such Interest Determination Date for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper -- Nonfinancial." If by 3:00 P.M., New York City time,
on such Calculation Date such rate is not yet available in either H.15(519) or
Composite Quotations, then the Commercial Paper Rate 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 the Interest Determination Date of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent 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 statistical rating agency; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting offered rates as
mentioned in this sentence, the Commercial Paper Rate in effect for the
applicable period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period (or, if there was no Interest Reset
Period, the rate of interest payable on the Commercial Paper Rate Notes for
which such Commercial Paper Rate is being determined shall be the Initial
Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C> <C>
D x 360
Money Market Yield = ------------------------ x 100
360 -(D x M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days for which interest is being calculated.
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FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, as of 9:00 A.M., New York City time, on such Interest Determination Date,
arranged by three leading brokers of Federal funds transactions in The City of
New York selected by the Calculation Agent; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the Federal Funds Rate in effect for the applicable period will be
the same as the Federal Funds Rate for the immediately preceding Interest Reset
Period (or, if there was no Interest Reset Period, the rate of interest payable
on the Federal Funds Rate Notes for which the Federal Funds Rate is being
determined shall be the Initial Interest Rate).
LIBOR NOTES
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any or both, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
for each Interest Determination Date will be determined by the Calculation Agent
as follows:
(i) As of the Interest Determination Date, LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the specified Designated LIBOR
Page (as defined below) by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following the Interest Determination Date, that appear on the Designated
LIBOR Page as of 11:00 A.M., London time, on that Interest Determination
Date, if at least two offered rates appear (unless, as aforesaid, only a
single rate is required) on the Designated LIBOR Page, or (b) if "LIBOR
Telerate" is specified in the applicable Pricing Supplement, the rate for
deposits in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
Determination Date. If fewer than two offered rates appear (if "LIBOR
Reuters" is specified in the applicable Pricing Supplement) or no rate
appears (if "LIBOR Telerate" is specified in the applicable Pricing
Supplement), LIBOR in respect of the related Interest Determination Date
will be determined as if the parties had specified the rate described in
clause (ii) below.
(ii) With respect to an Interest Determination Date on which fewer
than two offered rates appear (if "LIBOR Reuters" is specified in the
applicable Pricing Supplement) or no rate appears (if "LIBOR Telerate" is
specified in the applicable Pricing Supplement), the Calculation Agent will
request the principal London offices of each of four major reference banks
in the London interbank market, as selected by the Calculation Agent, to
provide the Calculation Agent with its offered quotation for deposits in
the Index Currency for the period of the Index Maturity designated in the
applicable Pricing
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Supplement, commencing on the second London Banking Day immediately
following the Interest Determination Date, to prime banks in the London
interbank market at approximately 11:00 A.M., London time, on the Interest
Determination Date and in a principal amount of not less than $1,000,000
(or the equivalent in the Index Currency, if the Index Currency is not the
U.S. dollar) that is representative of a single transaction in the Index
Currency in the market at the time. If at least two quotations are
provided, LIBOR determined on the Interest Determination Date will be the
arithmetic mean of the quotations. If fewer than two quotations are
provided, LIBOR determined on the Interest Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00 A.M. (or such
other time specified in the applicable Pricing Supplement), in the
applicable principal financial center for the country of the Index Currency
on the Interest Determination Date, by three major banks in the principal
financial center selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity designated in
the applicable Pricing Supplement and in a principal amount of not less
than $1,000,000 commencing on the second London Banking Day immediately
following the Interest Determination Date (or the equivalent in the Index
Currency, if the Index Currency is not the U.S. dollar) that is
representative for a single transaction in the Index Currency in the market
at that time; provided, however, that if the banks so selected by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR in
effect for the applicable period will be the same as LIBOR for the
immediately preceding Interest Reset Period (or, if there was no Interest
Reset Period, the rate of interest payable on the LIBOR Notes for which the
LIBOR is being determined shall be the Initial Interest Rate).
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated
in the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency. If neither LIBOR Reuters nor
LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for the
applicable Index Currency will be determined as if LIBOR Telerate (and, if the
U.S. dollar is the Index Currency, Page 3750) had been specified.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for the date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to the Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 (as defined below)
as such bank's prime rate or base lending rate as in effect for such Interest
Determination Date as quoted on the Reuters Screen USPRIME1 on such Interest
Determination Date, or, if fewer than four such rates appear on the Reuters
Screen USPRIME1 for such Interest Determination Date, the rate shall be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 360 as of the close of business on such Interest
Determination Date by at least two of the three major money center banks in The
City of New York selected by the Calculation Agent from which quotations are
requested. If fewer than two quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the arithmetic
mean on the basis of the prime rates in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business under
the laws of the United States, or any State thereof, in each case having total
equity capital of at least U.S.
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$500 million and being subject to supervision or examination by federal or state
authority, selected by the Calculation Agent to quote such rate or rates;
provided, however, that if the banks or trust companies selected as aforesaid by
the Calculation Agent are not quoting as set forth above, the "Prime Rate" in
effect for the applicable period will be the same as the Prime Rate for the
immediately preceding Interest Reset Period (or, if there was no such Interest
Reset Period, the rate of interest payable on the Prime Rate Notes for which
such Prime Rate is being determined shall be the Initial Interest Rate).
"Reuters Screen USPRIME1" means the display designated as Page "USPRIME1" on the
Reuters Monitor Money Rates Services (or such other page as may replace the
USPRIME1 on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on the date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing Supplement, as published in H.15(519) under the heading "Treasury
Bills -- auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date or if no auction is held on the
Interest Determination Date, 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) calculated using the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 P.M., New York City time, on the
Interest Determination Date, of three leading primary United States government
securities dealers selected by the Calculation Agent for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in the
applicable Pricing Supplement; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, the Treasury Rate for such Interest Reset Date will be the same
as the Treasury Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the
Treasury Rate Notes for which the Treasury Rate is being determined shall be the
Initial Interest Rate).
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date, the rate displayed on
the Designated CMT Telerate Page (as defined below) under the caption
"...Treasury Constant Maturities...Federal Reserve Board Release H.15...Mondays
Approximately 3:45 P.M.," under the column for the Designated CMT Maturity Index
(as defined below) for (i) if the Designated CMT Telerate Page is 7055, the rate
on the Interest Determination Date and (ii) if the Designated CMT Telerate Page
is 7052, the week or the month, as applicable, ended immediately preceding the
week in which the related Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page, or if not displayed by 3:00 P.M., New
York City time, on the related Calculation Date, then the CMT Rate for such
Interest Determination Date will be the 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,
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<PAGE> 14
or, if not published by 3:00 p.m., New York City time, on the related
Calculation Date, then the CMT Rate for such Interest Determination Date will be
the Treasury Constant Maturity rate for the Designated CMT Maturity Index (or
other United States Treasury rate for the Designated CMT Maturity Index) for the
Interest Determination Date with respect to such 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 the information is not
provided by 3:00 P.M., New York City time, on the related Calculation Date, then
the CMT Rate for the Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30 P.M.,
New York City time, on the 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 Agents or their affiliates) selected by the Calculation Agent
(from five such Reference Dealers selected by the Calculation Agent, after
consultation with the Corporation, 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
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three Treasury notes
quotations, the CMT Rate for such Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 P.M.,
New York City time, on the Interest Determination Date of three Reference
Dealers in The City of New York (from five 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 $100,000,000. If three or four (and not five)
of the 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 the quotes will be eliminated; provided, however, that
if fewer than three Reference Dealers selected by the Calculation Agent are
quoting as described herein, the CMT Rate for the Interest Reset Date will be
the same as the CMT Rate for the immediately preceding Interest Reset Period
(or, if there was no Interest Reset Period, the rate of interest payable on the
CMT Rate Notes for which the CMT Rate is being determined shall be the Initial
Interest Rate). 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 quotes for the Treasury note with the
shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in an applicable Pricing Supplement (or any other
page as may replace the 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 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" shall be the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in an applicable Pricing Supplement with respect to which the CMT Rate
will be calculated. If no maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be two years.
RENEWABLE NOTES
The Corporation may also issue from time to time variable rate renewable
notes (the "Renewable Notes") that will bear interest at the interest rate
(calculated with reference to a Base Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Renewable Notes and in the applicable
Pricing Supplement.
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The Renewable Notes will mature on an Interest Payment Date as specified in
the applicable Pricing Supplement (the "Initial Maturity Date"), unless the
maturity of all or any portion of the principal amount thereof is extended in
accordance with the procedures described below. On the Interest Payment Dates in
May and November in each year (unless different Interest Payment Dates are
specified in the applicable Pricing Supplement) (each such Interest Payment
Date, an "Election Date"), the maturity of the Renewable Notes will be extended
to the Interest Payment Date occurring twelve months after such Election Date,
unless the holder thereof elects to terminate the automatic extension of the
maturity of the Renewable Notes or of any portion thereof having a principal
amount of $1,000 or any multiple of $1,000 in excess thereof by delivering a
notice of such effect to the Paying Agent not less than nor more than a number
of days to be specified in the applicable Pricing Supplement prior to such
Election Date. Such option may be exercised with respect to less than the entire
principal amount of the Renewable Notes; provided that the principal amount for
which such option is not exercised is at least $1,000 or any larger amount that
is an integral multiple of $1,000. Notwithstanding the foregoing, the maturity
of the Renewable Notes may not be extended beyond the Final Maturity Date, as
specified in the applicable Pricing Supplement (the "Final Maturity Date"). If
the holder elects to terminate the automatic extension of the maturity of any
portion of the principal amount of the Renewable Notes and such election is not
revoked as described below, such portion will become due and payable on the
Interest Payment Date falling six months (unless another period is specified in
the applicable Pricing Supplement) after the Election Date prior to which the
holder made such election.
An election to terminate the automatic extension of maturity may be revoked
as to any portion of the Renewable Notes having a principal amount of $1,000 or
any multiple of $1,000 in excess thereof by delivering a notice to such effect
to the Paying Agent on any day following the effective date of the election to
terminate the automatic extension of maturity and prior to the date 15 days
before the date on which such portion would otherwise mature. Such a revocation
may be made for less than the entire principal amount of the Renewable Notes for
which the automatic extension of maturity has been terminated; provided that the
principal amount of the Renewable Notes for which the automatic extension of
maturity has been terminated and for which such a revocation has not been made
is at least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, a revocation may not be made during the period
from and including a Record Date to but excluding the immediately succeeding
Interest Payment Date.
An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon the subsequent holder.
The Renewable Notes may be redeemed in whole or in part at the option of
the Corporation on the Interest Payment Dates in each year specified in the
applicable Pricing Supplement, commencing with the Interest Payment Date
specified in the applicable Pricing Supplement, at a redemption price as stated
in the applicable Pricing Supplement, together with accrued and unpaid interest
to the date of redemption. Notwithstanding anything to the contrary in this
Prospectus Supplement, notice of redemption will be provided by mailing a notice
of redemption to each holder by first class mail, postage prepaid, at least 180
days prior to the date fixed for redemption.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes of which the principal
amount payable on a date more than nine months from the date of original issue
(the "Stated Maturity") and/or on which the amount of interest payable on an
Interest Payment Date will be determined by reference to currencies, currency
units, commodity prices, financial or non-financial indices or other factors
(the "Indexed Notes"), as indicated in the applicable Pricing Supplement.
Holders of Indexed Notes may receive a principal amount at maturity that is
greater than or less than the face amount of the 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 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 tax considerations will be described in
the applicable Pricing Supplement.
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EXTENSION OF MATURITY
The Pricing Supplement relating to each Note (other than an Amortizing
Note) will indicate whether the Corporation has the option to extend the
maturity of the Note for one or more periods of one or more whole years (each an
"Extension Period") up to but not beyond the Final Maturity Date set forth in
the Pricing Supplement. If the Corporation has the option with respect to any
such Note (an "Extendible Note"), the following procedures will apply, unless
modified as set forth in the applicable Pricing Supplement.
The Corporation may exercise the option with respect to an Extendible Note
by notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has already
been extended, prior to the maturity date then in effect (an "Extended Maturity
Date"). No later than 38 days prior to the Original Maturity Date or an Extended
Maturity Date, as the case may be (each, a "Maturity Date"), the Paying Agent
will mail to the holder of such Note a notice (the "Extension Notice") relating
to the Extension Period, by first class mail, postage prepaid, setting forth (a)
the election of the Corporation to extend the maturity of such Note; (b) the new
Extended Maturity Date; (c) the interest rate applicable to the Extension Period
(which, in the case of a Floating Rate Note, will be calculated with reference
to a Base Rate and the Spread and/or Spread Multiplier, if any); and (d) the
provisions, if any, for redemption during the Extension Period, including the
date or dates on which, the period or periods during which and the price or
prices at which redemption may occur during the Extension Period. Upon the
mailing by the Paying Agent of an Extension Notice to the holder of an
Extendible Note, the maturity of the Note shall be extended automatically, and,
except as modified by the Extension Notice and as described in the next
paragraph, the Note will have the same terms it had prior to the mailing of such
Extension Notice.
Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note (or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day), the
Corporation may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread or Spread Multiplier, if any) for the
Extension Period by causing the Paying Agent to send notice of the higher
interest rate (or, in the case of a Floating Rate Note, a higher Spread and/or
Spread Multiplier, if any) both to the holder of the Note by first class mail,
postage prepaid, or by such other means as shall be agreed between the
Corporation and the Paying Agent. The notice shall be irrevocable. All
Extendible Notes with respect to which the Maturity Date is extended in
accordance with an Extension Notice will bear such higher interest rate (or, in
the case of a Floating Rate Note, a higher Spread and/or Spread Multiplier, if
any) both for the Extension Period, whether or not tendered for repayment.
If the Corporation elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Corporation to repay
such Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be repaid on the Maturity Date, the holder thereof must
follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not a
Business Day, until 3:00 P.M., New York City time, on the immediately succeeding
Business Day).
DEFEASANCE
The provisions of Article Twelve of the Indenture relating to defeasance
described in the Prospectus under "Description of Securities -- Defeasance" are
applicable to the Notes.
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BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Global Notes having the same Issue Date,
interest rate, if any, amortization schedule, if any, maturity date and other
terms, if any, will be represented by one or more Global Securities, and all
Floating Rate Global Notes having the same Issue Date, Initial Interest Rate,
Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity, Spread
and/or Spread Multiplier, if any, Minimum Interest Rate, if any, Maximum
Interest Rate, if any, maturity date and other terms, if any, will be
represented by one or more Global Securities. Each Global Security representing
Global Notes will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depositary"), and registered in the name of a
nominee of the Depositary. Global Notes will not be exchangeable for Definitive
Notes, except under the circumstances described in the Prospectus under
"Description of Securities -- Book-Entry System." Definitive Notes will not be
exchangeable for Global Notes and will not otherwise be issuable as Global
Notes.
A further description of the Depositary's procedures with respect to Global
Securities representing Global Notes is set forth in the Prospectus under
"Description of Securities -- Book-Entry System." The Depositary has confirmed
to the Corporation, each Agent and the Trustee that it intends to follow such
procedures.
OPTIONAL REDEMPTION
The Pricing Supplement will indicate that the Notes cannot be redeemed
prior to maturity or will indicate the terms on which the Notes will be
redeemable at the option of the Corporation. Notice of redemption will be
provided by mailing a notice of redemption to each holder by first class mail,
postage prepaid, at least 30 days and not more than 60 days prior to the date
fixed for redemption to the respective address of each holder as that address
appears upon the books maintained by the Paying Agent. Unless otherwise provided
in the applicable Pricing Supplement, the Notes, except for Amortizing Notes,
will not be subject to any sinking fund.
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its Maturity Date and, unless otherwise specified in the
Pricing Supplement, at a price equal to 100% of the principal amount thereof,
together with accrued interest to the date of repayment, unless the Note was
issued with original issue discount, in which case the Pricing Supplement will
specify the amount payable upon repayment.
In order for a Note to be repaid, the Paying Agent must receive at least 30
days but not more than 60 days prior to the repayment date (i) the Note with the
form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed or (ii) a telegram, telex, facsimile transmission or a letter from a
member of a national securities exchange, or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid, together with the duly completed form
entitled "Option to Elect Repayment" on the reverse of the Note, will be
received by the Paying Agent not later than the fifth Business Day after the
date of the telegram, telex, facsimile transmission or letter, provided,
however, that such telegram, telex, facsimile transmission or letter shall only
be effective if the Note and form duly completed are received by the Paying
Agent by such fifth Business Day. Except in the case of Renewable Notes or
Extendible Notes, and unless otherwise specified in the applicable Pricing
Supplement, exercise of the repayment option by the holder of a Note will be
irrevocable. The repayment option may be exercised by the holder of a Note for
less than the entire principal amount of the Note but, in that event, the
principal amount of the Note remaining outstanding after repayment must be an
Authorized Denomination.
If a Note is represented by a Global Security, the Depositary's nominee
will be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial
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owner of such Note must instruct the broker or other direct or indirect
participant through which it holds an interest in such Note to notify the
Depositary of its desire to exercise a right to repayment. Different firms have
different deadlines for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other direct or
indirect participant through which it holds an interest in a Note in order to
ascertain the deadline by which an instruction must be given in order for timely
notice to be delivered to the Depositary.
The Corporation may purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Corporation may, at the discretion of the
Corporation, be held or resold or surrendered to the Trustee for cancellation.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
Any investment in Notes that are denominated in, or the payment of which is
related to the value of, a Specified Currency other than U.S. dollars entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. The risks include, without limitation, the
possibility of significant changes in rates of exchange between the U.S. dollar
and the various foreign currencies (or composite currencies) and the possibility
of the imposition or modification of exchange controls by either the U.S. or a
foreign government. The risks generally depend on economic and political events
over which the Corporation has no control. In recent years, rates of exchange
between U.S. dollars and certain foreign currencies have been highly volatile
and such volatility may be expected to continue in the future. Fluctuations in
any particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations in the rate that may occur during the term
of any Note. Depreciation against the U.S. dollar of the currency in which a
Note is payable would result in a decrease in the effective yield of the Note
below its coupon rate and, in certain circumstances, could result in a loss to
the investor on a U.S. dollar basis. In addition, depending on the specific
terms of a currency linked Note, changes in exchange rates relating to any of
the currencies involved may result in a decrease in its effective yield and, in
certain circumstances, could result in a loss of all or a substantial portion of
the principal of a Note to the investor.
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT DESCRIBE ALL OF THE RISKS OF AN INVESTMENT IN NOTES
DENOMINATED IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, A FOREIGN
CURRENCY OR A COMPOSITE CURRENCY AND THE CORPORATION DISCLAIMS ANY
RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS OF THE RISKS AS THEY EXIST AT
THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO
TIME. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN, OR
THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, SPECIFIED CURRENCIES OTHER THAN
U.S. DOLLARS. THE NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Corporation
disclaims any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, premium, if
any, and interest on the Notes. Such persons should consult their own counsel
with regard to such matters.
Governments have imposed from time to time, and may in the future impose,
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at the time of payment of principal of, premium,
if any, or interest on a Note. Even if there are no actual exchange controls, it
is possible that the Specified Currency for any particular Note not denominated
in U.S. dollars would not be available when payments on the Note are due. In
that event, the Corporation would make required payments in U.S.
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dollars on the basis of the Market Exchange Rate on the date of the payment, or
if the rate of exchange is not then available, on the basis of the Market
Exchange Rate as of the most recent practicable date. See "Description of
Notes -- Payment Currency."
With respect to any Note denominated in, or the payment of which is related
to the value of, a foreign currency or currency unit, the applicable Pricing
Supplement will include information with respect to applicable current exchange
controls, if any, and historic exchange rate information on the currency or
currency unit. The information contained therein shall constitute a part of this
Prospectus Supplement and 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.
GOVERNING LAW AND JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of Ohio. In the event an action based on Notes denominated in a
Specified Currency other than U.S. dollars were commenced in a court in the
United States, it is likely that the court would grant judgment relating to the
Notes only in U.S. dollars.
UNITED STATES TAXATION
The following is a summary of the principal United States federal income
tax consequences of ownership and disposition of the Notes to initial holders
purchasing Notes at the "issue price" (as defined below). This summary is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), administrative pronouncements, judicial decisions and existing and
proposed Treasury Regulations, including regulations concerning the treatment of
debt instruments issued with original issue discount (the "OID Regulations"),
changes to any of which subsequent to the date of this Prospectus Supplement may
affect the tax consequences described herein. This summary discusses only Notes
held as capital assets within the meaning of Section 1221 of the Code. It does
not discuss all of the tax consequences that may be relevant to a holder in
light of his particular circumstances or to holders subject to special rules,
such as certain financial institutions, insurance companies, dealers in
securities or foreign currencies, persons holding Notes as a hedge against, or
which are hedged against, currency risks that are part of a straddle or
conversion transaction, Holders whose functional currency (as defined in Code
Section 985) is not the U.S. dollar or Holders who have a tax home (as defined
by Code Section 911) or a qualified business unit (as defined by Code Section
989) outside the United States. Finally, this summary does not discuss Original
Issue Discount Notes (as defined below) which qualify as "applicable high-yield
discount obligations" under Section 163(i) of the Code. Holders of Original
Issue Discount Notes which are "applicable high-yield discount obligations" may
be subject to special rules. Persons considering the purchase of Notes should
consult their tax advisors with regard to the application of the United States
federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "Holder" means a beneficial owner of a Note that
is (i) for United States federal income tax purposes a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or of any political
subdivision thereof, or (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust.
TAX CONSEQUENCES TO HOLDERS
Payments of Interest. Interest paid on a Note will generally be taxable to
a Holder as ordinary interest income at the time it accrues or is received in
accordance with the Holder's method of accounting for federal income tax
purposes. Under the OID Regulations, all payments of interest on a Note that
matures one year or less from its date of issuance will be included in the
stated redemption price at maturity of the Note and will be taxed in the manner
described below under "Original Issue Discount Notes." Special rules governing
the
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treatment of interest paid with respect to Original Issue Discount Notes,
including certain Floating Rate Notes and Foreign Currency Notes, are discussed
below.
Original Issue Discount Notes. A Note which is issued for an amount less
than its stated redemption price at maturity will generally be considered to
have been issued at an original issue discount for federal income tax purposes
(an "Original Issue Discount Note"). The "issue price" of a Note will equal the
first price to the public (not including bond houses, brokers or similar persons
or organizations acting in the capacity of underwriters, placement agents or
wholesalers) at which a substantial amount of the Notes is sold. The stated
redemption price at maturity of a Note will equal the sum of all payments
required to be made under the Note other than payments of "qualified stated
interest." "Qualified stated interest" is stated interest unconditionally
payable as a series of payments in cash or property (other than debt instruments
of the issuer) at least annually during the entire term of the Note and equal to
the outstanding principal balance of the Note multiplied by a single fixed rate
or certain variable rates of interest, or certain combinations thereof.
Special tax considerations (including possible original issue discount) may
arise with respect to Floating Rate Notes providing for (i) one Base Rate
followed by one or more Base Rates, (ii) a single fixed rate followed by a
floating rate or (iii) a Spread Multiplier. Special rules may also apply if a
Floating Rate Note is subject to a cap, floor, governor or similar restriction
that is not fixed throughout the term of the Note and is reasonably expected as
of the issue date to cause the yield on the Note to be significantly less or
more than the expected yield determined without the restriction. Purchasers of
Floating Rate Notes with any of such features or of Indexed Notes should
carefully examine the applicable Pricing Supplement and should consult their tax
advisors with respect to such a feature since the tax consequences will depend,
in part, on the particular terms of the purchased Note.
If the difference between a Note's stated redemption price at maturity and
its issue price is less than a de minimis amount, i.e., 1/4 of 1 percent of the
stated redemption price at maturity multiplied by the number of complete years
to maturity, then the Note will not be considered to have original issue
discount. Holders of Notes with a de minimis amount of original issue discount
will generally include such original issue discount in income, as capital gain,
on a pro rata basis as principal payments are made on the Note.
A Holder of Original Issue Discount Notes will be required to include any
qualified stated interest payments in income in accordance with the Holder's
method of accounting for federal income tax purposes. Holders of Original Issue
Discount Notes that mature more than one year from their date of issuance will
be required to include original issue discount in income for federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, before the receipt of cash payments attributable to
such income. Under this method, Holders of Original Issue Discount Notes
generally will be required to include in income increasingly greater amounts of
original issue discount in successive accrual periods. OID generally increases
in successive accrual periods because OID is the product of the debt
instrument's yield to maturity, which remains constant, and its adjusted issue
price, which generally increases in successive periods absent principal
payments.
The amount of original issue discount includible in income by a Holder of
an Original Issue Discount Note is the sum of the daily portions of original
issue discount with respect to the Original Issue Discount Note for each day
during the taxable year or portion of the taxable year on which the Holder holds
such Original Issue Discount Note ("accrued original issue discount"). The daily
portion is determined by allocating to each day in any "accrual period" a pro
rata portion of the original issue discount allocable to that accrual period.
Accrual periods with respect to a Note may be of any length selected by the
Holder and may vary in length over the term of the Note as long as (i) no
accrual period is longer than one year and (ii) each scheduled payment of
interest or principal on the Note occurs on either the final or first day of an
accrual period. The amount of original issue discount allocable to an accrual
period equals the excess of (a) the product of the Original Issue Discount
Note's adjusted issue price at the beginning of the accrual period and such
Note's yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period)
over (b) the sum of the payments of qualified stated interest on the Note
allocable to the accrual period.
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The "adjusted issue price" of an Original Issue Discount Note at the
beginning of any accrual period is the issue price of the Note increased by (x)
the amount of accrued original issue discount for each prior accrual period and
decreased by (y) the amount of any payments previously made on the Note that
were not qualified stated interest payments.
For purposes of determining the amount of original issue discount allocable
to an accrual period, if an interval between payments of qualified stated
interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of original issue discount allocable to an initial short
accrual period may be computed using any reasonable method if all other accrual
periods other than a final short accrual period are of equal length. The amount
of original issue discount allocable to the final accrual period is the
difference between (A) the amount payable at the maturity of the Note (other
than any payment of qualified stated interest) and (B) the Note's adjusted issue
price as of the beginning of the final accrual period.
Under the OID Regulations, a Note bearing original issue discount that
matures one year or less from its date of issuance will be treated as a
"short-term Original Issue Discount Note". In general, a cash method Holder of a
short-term Original Issue Discount Note is not required to accrue original issue
discount for United States federal income tax purposes unless it elects to do
so. Holders who make such an election, Holders who report income for federal
income tax purposes on the accrual method and certain other Holders, including
banks and dealers in securities, are required to include original issue discount
in income on such short-term Original Issue Discount Notes as it accrues on a
straight-line basis, unless an election is made to accrue the original issue
discount according to a constant yield method based on daily compounding. In the
case of a Holder who is not required and who does not elect to include original
issue discount in income currently, any gain realized on the sale, exchange or
retirement of the short-term Original Issue Discount Note will be ordinary
income to the extent of the original issue discount accrued on a straight-line
basis (or, if elected, according to a constant yield method based on daily
compounding) through the date of sale, exchange or retirement. In addition, such
Holders will be required to defer deductions for any interest paid on
indebtedness incurred to purchase or carry short-term Original Issue Discount
Notes in an amount not exceeding the deferred interest income, until such
deferred interest income is recognized. For purposes of determining the amount
of original issue discount subject to these rules, all interest payments on a
short-term Original Issue Discount Note, including stated interest, are included
in the short-term Original Issue Discount Note's stated redemption price at
maturity.
Under the OID Regulations, a Holder may make an election (the "Constant
Yield Election") to include in gross income all interest that accrues on a Note
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest, as adjusted by any amortizable bond premium or acquisition
premium) in accordance with a constant yield method based on the compounding of
interest. In applying the constant yield method to a Note with respect to which
the Constant Yield Election has been made, the issue price of the Note will
equal the electing Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing Holder, and no payments on the Note will be treated as payments of
qualified stated interest. This election will generally apply only to the Note
with respect to which it is made and may not be revoked without the consent of
the Internal Revenue Service. If this election is made with respect to a Note
with amortizable bond premium, then the electing Holder will be deemed to have
elected to apply amortizable bond premium against interest with respect to all
debt instruments with amortizable bond premium (other than debt instruments the
interest on which is excludible from gross income) held by the electing Holder
as of the beginning of the taxable year in which the Note with respect to which
the election is made is acquired or thereafter acquired. The deemed election
with respect to amortizable bond premium may not be revoked without the consent
of the Internal Revenue Service. If the Constant Yield Election is made with
respect to a Market Discount Note (as defined below), the electing Holder will
be treated as having
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made the election to include market discount in income currently over the life
of all debt instruments held or thereafter acquired by such Holder.
Certain Original Issue Discount Notes may be redeemed prior to maturity.
Original Issue Discount Notes containing such a feature may be subject to rules
that differ from the general rules discussed above. Purchasers of Original Issue
Discount Notes with such a feature should carefully examine the applicable
Pricing Supplement and should consult their tax advisors with respect to such a
feature since the tax consequences with respect to original issue discount will
depend, in part, on the particular terms and the particular features of the
purchased Note.
The OID Regulations contain aggregation rules stating that in certain
circumstances if more than one type of Note is issued as part of the same
issuance of securities to a single holder, some or all of such Notes may be
treated together as a single debt instrument with a single issue price, maturity
date, yield to maturity and stated redemption price at maturity for purposes of
calculating and accruing any original issue discount. Unless otherwise provided
in the related Pricing Supplement, the Corporation does not expect to treat any
of the Notes as being subject to the aggregation rules for purposes of computing
original issue discount.
A Holder that purchases a Note for an amount less than or equal to the sum
of all amounts payable on the Note after the purchase date other than payments
of qualified stated interest but in excess of its adjusted issue price (any such
excess being "acquisition premium") and that does not make the Constant Yield
Election described above is permitted to reduce the daily portions of original
issue discount by a fraction, the numerator of which is the excess of the
Holder's adjusted basis in the Note immediately after its purchase over the
adjusted issue price of the Note, and the denominator of which is the excess of
the sum of all amounts payable on the Note after the purchase date, other than
payments of qualified stated interest, over the Note's adjusted issue price.
A Note, other than a Note that matures one year or less from its date of
issuance, will be treated as purchased at a market discount (a "Market Discount
Note") if (i) the amount for which a Holder purchased the Note is less than the
Note's issue price and (ii) the Note's stated redemption price at maturity or,
in the case of an Original Issue Discount Note, the Note's "revised issue
price," exceeds the amount for which the Holder purchased the Note by at least
1/4 of 1 percent of such Note's stated redemption price at maturity or revised
issue price, respectively, multiplied by the number of complete years to the
Note's maturity. If such excess is not sufficient to cause the Note to be a
Market Discount Note, then such excess constitutes "de minimis market discount."
The Code provides that, for these purposes, the "revised issue price" of a Note
generally equals its issue price, increased by the amount of any original issue
discount that has accrued on the Note. Any gain recognized on the maturity or
disposition of a Market Discount Note will be treated as ordinary income to the
extent that such gain does not exceed the accrued market discount on such Note.
Alternatively, a Holder of a Market Discount Note may elect to include market
discount in income currently over the life of the Note. Such an election shall
apply to all debt instruments with market discount acquired by the electing
Holder on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Internal
Revenue Service. Market discount on a Market Discount Note will accrue on a
straight-line basis unless the Holder elects to accrue such market discount on a
constant yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A Holder of a Market
Discount Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
Sale, Exchange or Retirement of the Notes. Absent the application of
certain special rules (such as those applicable to Market Discount Notes,
discussed above, upon the sale, exchange or retirement of a Note, a Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such Holder's adjusted tax
basis in the Note. For these purposes, the amount realized does not include any
amount attributable to accrued interest on the Note. Amounts attributable to
accrued interest are treated as interest as described under "Payments of
Interest" above, in accordance with the Holder's method of accounting for
federal income tax purposes as described therein. A Holder's adjusted
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tax basis in a Note will equal the cost of the Note to such Holder, increased by
the amount of any original issue discount previously included in income by the
Holder with respect to such Note and reduced by any amortized premium and any
principal payments received by the Holder and, in the case of an Original Issue
Discount Note, by the amounts of any other payments that do not constitute
qualified stated interest (as defined above).
Subject to the discussion under "Foreign Currency Notes" below, gain or
loss realized on the sale, exchange or retirement of a Note will be capital gain
or loss (except in the case of a short-term Original Issue Discount Note, to the
extent of any original issue discount not previously included in the Holder's
taxable income) and will be long-term capital gain or loss if at the time of
sale, exchange or retirement the Note has been held for more than one year; gain
on long-term capital gains may be subject to preferential tax rates if the Note
disposed of has been held for more than eighteen months. See "Original Issue
Discount Notes" above. The excess of net long-term capital gains over net
short-term capital losses is taxed at a lower rate than ordinary income for
certain non-corporate taxpayers. The distinction between capital gain or loss
and ordinary income or loss is also relevant for purposes of, among other
things, limitations on the deductibility of capital losses.
If a Holder purchases a Note for an amount that is greater than the amount
payable at maturity, such Holder will be considered to have purchased such Note
with "amortizable bond premium" equal in amount to such excess, and may elect
(in accordance with applicable Code provisions) to amortize such premium, using
a constant yield method, over the remaining term of the Note (where such Note is
not optionally redeemable prior to its maturity date). If such Note may be
optionally redeemed prior to maturity after the Holder has acquired it, the
amount of amortizable bond premium is determined with reference to the amount
payable on maturity or, if it results in a smaller premium attributable to the
period of earlier redemption date, with reference to the amount payable on the
earlier redemption date. A Holder who elects to amortize bond premium must
reduce his tax basis in the Note by the amount of the premium amortized in any
year. An election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the taxpayer and may be
revoked only with the consent of the Internal Revenue Service. Proposed
Regulations governing the tax treatment of amortizable bond premium have been
promulgated and as of the date hereof have not been issued in final form. These
Regulations are scheduled to be generally effective for bonds acquired on or
after 60 days after the date final regulations are published in the Federal
Register. However, if a holder makes an election to amortize bond premium for
the taxable year containing the effective date of the Proposed Regulations,
these Regulations, when finalized, will apply to bonds of the holder held on or
after the first day of that taxable year. Holders should consult their tax
advisors with regard to the current status of the Proposed Regulations.
Foreign Currency Notes. The following summary relates to Notes that are
denominated in a currency or currency unit other than the U.S. dollar ("Foreign
Currency Notes").
A Holder who uses the cash method of accounting and who receives a payment
of qualified stated interest in a foreign currency with respect to a Foreign
Currency Note will be required to include in income the U.S. dollar value of the
foreign currency payment (determined on the date such payment is received)
regardless of whether the payment is in fact converted to U.S. dollars at that
time, and such U.S. dollar value will be the Holder's tax basis in the foreign
currency. A cash method Holder who receives such a payment in U.S. dollars
pursuant to an option available under such Note will be required to include the
amount of such payment in income upon receipt.
In the case of accrual method taxpayers and Holders of Original Issue
Discount Notes, a Holder will be required to include in income the U.S. dollar
value of the amount of interest income (including original issue discount, but
reduced by amortizable bond premium to the extent applicable) that has accrued
and is otherwise required to be taken into account with respect to a Foreign
Currency Note during an accrual period. The U.S. dollar value of such accrued
income will be determined by translating such income at the average rate of
exchange for the accrual period or, with respect to an accrual period that spans
two taxable years, at the average rate for the partial period within the taxable
year. Such Holder will recognize ordinary income or loss with respect to accrued
interest income on the date such income is actually received. The amount of
ordinary
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<PAGE> 24
income or loss recognized will equal the difference between the U.S. dollar
value of the foreign currency payment received (determined on the date such
payment is received) in respect of such accrual period (or, where a Holder
receives U.S. dollars, the amount of such payment in respect of such accrual
period) and the U.S. dollar value of interest income that has accrued during
such accrual period (as determined above). A Holder may elect to translate
interest income (including original issue discount) into U.S. dollars at the
spot rate on the last day of the interest accrual period (or, in the case of a
partial accrual period, the spot rate on the last date of the taxable year) or,
if the date of receipt is within five business days of the last day of the
interest accrual period, the spot rate on the date of receipt. A Holder that
makes such an election must apply it consistently to all debt instruments from
year to year and cannot change the election without the consent of the Internal
Revenue Service. Original issue discount and amortizable bond premium on a
Foreign Currency Note are to be determined in the relevant foreign currency.
Any loss realized on the sale, exchange or retirement of a Foreign Currency
Note with amortizable bond premium by a Holder who has not elected to amortize
such premium under Section 171 of the Code will be a capital loss to the extent
of such bond premium. If such an election is made, amortizable bond premium
taken into account on a current basis shall reduce interest income in units of
the relevant foreign currency. Exchange gain or loss is realized on such
amortized bond premium with respect to any period by treating the bond premium
amortized in such period as a return of principal.
A Holder's tax basis in a Foreign Currency Note, and the amount of any
subsequent adjustment to such Holder's tax basis, will be the U.S. dollar value
of the foreign currency amount paid for such Foreign Currency Note, or of the
foreign currency amount of the adjustment, determined on the date of such
purchase or adjustment. A Holder who purchases a Foreign Currency Note with
previously owned foreign currency will recognize ordinary income or loss in an
amount equal to the difference, if any, between such Holder's tax basis in the
foreign currency and the U.S. dollar fair market value of the Foreign Currency
Note on date of purchase.
Gain or loss realized upon the sale, exchange or retirement of a Foreign
Currency Note that is attributable to fluctuations in currency exchange rates
will be ordinary income or loss which will not be treated as interest income or
expense. Gain or loss attributable to fluctuations in currency exchange rates
will equal the difference between (i) the U.S. dollar value of the foreign
currency principal amount of such Note, and any payment with respect to accrued
interest, determined on the date such payment is received or such Note is
disposed of, and (ii) the U.S. dollar value of the foreign currency principal
amount of such Note, determined on the date such Holder acquired such Note, and
the U.S. dollar value of the accrued interest received, determined by
translating such interest at the average exchange rate for the accrual period.
Such foreign currency gain or loss will be recognized only to the extent of the
total gain or loss realized by a Holder on the sale, exchange or retirement of
the Foreign Currency Note. The source of such foreign currency gain or loss will
be determined by reference to the residence of the Holder or the "qualified
business unit" of the Holder on whose books the Note is properly reflected. Any
gain or loss realized by such a Holder in excess of such foreign currency gain
or loss will be capital gain or loss except in the case of a short-term Original
Issue Discount Note, to the extent of any original issue discount not previously
included in the Holder's income, or in the case of a Market Discount Note, to
the extent of accrued market discount.
A Holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Foreign Currency Note equal to the U.S. dollar
value of such foreign currency, determined at the time of such sale, exchange or
retirement. Regulations issued under Section 988 of the Code provide a special
rule for purchases and sales of publicly traded Foreign Currency Notes by a cash
method taxpayer under which units of foreign currency paid or received are
translated into U.S. dollars at the spot rate on the settlement date of the
purchase or sale. Accordingly, no exchange gain or loss will result from
currency fluctuations between the trade date and the settlement of such a
purchase or sale. An accrual method taxpayer may elect the same treatment
required of cash-method taxpayers with respect to the purchase and sale of
publicly traded Foreign Currency Notes provided the election is applied
consistently. Such election cannot be changed without the consent of the
Internal Revenue Service. Any gain or loss realized by a Holder on a sale or
other disposition of foreign currency (including its exchange for U.S. dollars
or its use to purchase Foreign Currency Notes) will be ordinary income or loss.
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Extension of Maturity. Under regulations, the extension of the maturity of
a Note will likely be viewed as an exchange of the Note if the extension results
in a material deferral of a scheduled payment or payments. Whether any deferral
is material depends on all the facts and circumstances. However, a deferral will
not be material if the deferred payments are unconditionally due no later than
the earlier of the expiration of five years or 50 percent of the original term
from the date of the first scheduled payment that is deferred. Also, if the
terms of a debt instrument are modified to defer one or more payments, then for
purposes of the original issue discount provisions the debt instrument will be
treated as retired and reissued for an amount equal to its adjusted issue price,
even if the modification is not otherwise treated as causing an exchange.
Backup Withholding and Information Reporting. Certain noncorporate Holders
may be subject to backup withholding at a rate of 31% on payments of principal,
premium and interest (including the accrual of original issue discount, if any)
on, and the proceeds of disposition of, a Note. Backup withholding will apply
only if the Holder (i) fails to furnish its Taxpayer Identification Number
("TIN") which, for an individual, would be his or her Social Security number,
(ii) furnishes an incorrect TIN, (iii) is notified by the Internal Revenue
Service that it has failed to properly report payments of interest and dividends
or (iv) under certain circumstances, fails to certify, under penalty of perjury,
that it has furnished a correct TIN and has not been notified by the Internal
Revenue Service that it is subject to backup withholding for failure to report
interest and dividend payments. Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Corporation
through the Agents, who have agreed to use reasonable efforts to solicit offers
to purchase Notes. The Corporation will have the sole right to accept offers to
purchase Notes and may reject any offer to purchase Notes in whole or in part.
An Agent will have the right to reject any offer to purchase Notes solicited by
it in whole or in part. Payment of the purchase price of the Notes will be
required to be made in immediately available funds. The Corporation will pay an
Agent, in connection with sales of Notes resulting from a solicitation made or
an offer to purchase received by such Agent, a commission ranging from .125% to
.750% of the principal amount of Notes to be sold; provided, however, that
commissions with respect to Notes maturing in thirty years or greater will be
negotiated.
The Corporation may also sell Notes to an Agent as principal for its own
account at discounts to be agreed upon at the time of sale. The Notes may be
resold to investors and other purchasers at prevailing market prices, or prices
related thereto at the time of such resale, as determined by the Agent or, if so
agreed, at a fixed public offering price. In addition, the Agents may offer the
Notes 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, the discount allowed to any dealer will not be in
excess of the discount to be received by the Agent from the Corporation. 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), concession and discount may be changed.
In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, the Notes, in the open market. Finally, the Agents may
reclaim selling concessions allowed to any agent or a dealer for distributing
the Notes in the offering, if the Agents repurchase previously distributed Notes
in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Notes above independent market levels. The Agents are not
required to engage in these activities and may end any of these activities at
any time.
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<PAGE> 26
The Corporation has reserved the right to sell the Notes directly to
investors, and may solicit and accept offers to purchase Notes directly from
investors from time to time on its own behalf. The Corporation may accept (but
not solicit) offers to purchase Notes through additional agents and may appoint
additional agents for the purpose of soliciting offers to purchase Notes, in
either case on terms substantially identical to the terms contained in the
Distribution Agreement. The other agents, if any, will be named in the
applicable Pricing Supplement.
An Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Corporation and
the Agents have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
made in respect thereof. The Corporation has also agreed to reimburse the Agents
for certain expenses.
The Corporation does not intend to apply for the listing of the Notes on a
national securities exchange. The Corporation has been advised by the Agents
that the Agents intend to make a market in the Notes, as permitted by applicable
laws and regulations. The Agents are not obligated to do so, however, and the
Agents may discontinue making a market at any time without notice. No assurance
can be given as to the liquidity of any trading market for the Notes.
Concurrently with the offering of Notes through the Agents as described
herein, the Corporation may issue other Securities under the Indenture referred
to herein.
The Agents, certain of their affiliates, or both, may engage in
transactions with and perform services for the Corporation and certain of its
affiliates in the ordinary course of business.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Corporation by Jones,
Day, Reavis & Pogue and for the Agents by Brown & Wood LLP.
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PROSPECTUS
$250,000,000
AEROQUIP-VICKERS, INC.
DEBT SECURITIES
------------------------
Aeroquip-Vickers, Inc. ("Aeroquip-Vickers" or the "Corporation") may offer
from time to time debt securities consisting of debentures, notes or other
unsecured evidences of indebtedness (the "Securities") with an aggregate initial
public offering price of up to $250,000,000 or the equivalent in foreign
currency or currency units. The Securities may be offered as separate series, in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in supplements to this Prospectus. Aeroquip-Vickers may sell the
Securities to or through underwriters, and also may sell the Securities directly
to dealers or other purchasers or through agents. See "Plan of Distribution."
The terms of the Securities, including, where applicable, the specific
designation, aggregate principal amount, denominations, maturity, rate (which
may be fixed or variable) and time of payment of interest, if any, the currency
or currency units in which payments in respect of the Securities may be made,
purchase price, terms for redemption, the public offering price, the names of
any underwriters or agents, the principal amounts, if any, to be purchased by
underwriters and any compensation of such underwriters or agents and the other
terms in connection with the offering and sale of the Securities in respect of
which this Prospectus is being delivered, are to be set forth in a Prospectus
Supplement (a "Prospectus Supplement").
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 19, 1997.
<PAGE> 28
AVAILABLE INFORMATION
Aeroquip-Vickers 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"). Reports, proxy statements and other
information filed by Aeroquip-Vickers with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the Commission's
Regional Offices at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material may also be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers, such as Aeroquip-Vickers, that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
Reports, proxy statements and other information concerning Aeroquip-Vickers
may also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005; the Chicago Stock Exchange, One Financial
Place, 440 S. LaSalle Street, Chicago, Illinois 60605; the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104; The Stock Exchange,
P.O. Box 119, London EC2P 2BT England; and the Frankfurt Stock Exchange, c/o
Dresdner Bank AG, Jurgen-Ponto-Platz 1, D-6000 Frankfurt am Main 11, Germany.
Aeroquip-Vickers has filed with the Commission a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Securities. This Prospectus
does not contain all of the information set forth in such Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement and the exhibits
thereto may be inspected without charge at the office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained
from the Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission in accordance
with Section 13 of the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1996.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997.
3. Current Report on Form 8-K filed on April 24, 1997.
All documents filed by Aeroquip-Vickers 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 Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents.
Aeroquip-Vickers will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents which are not specifically incorporated by
reference in such documents). Requests should be directed to the Secretary of
Aeroquip-Vickers at the address or telephone number set forth immediately below.
THE CORPORATION
Aeroquip-Vickers is a world leader in the manufacture and distribution of
engineered components and systems for industry, sold through its operating
companies, Aeroquip Corporation and Vickers, Incorporated,
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<PAGE> 29
to the industrial, automotive and aerospace markets. Aeroquip-Vicker's executive
offices are located at 3000 Strayer, Maumee, Ohio 43537-0050, and its telephone
number at that address is (419) 867-2200.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement,
Aeroquip-Vickers intends to use the net proceeds from the sale of the Securities
for general corporate purposes, which may include the reduction of short-term
borrowings and the repayment of certain indebtedness.
DESCRIPTION OF SECURITIES
The Securities are to be issued under that certain Indenture, dated as of
May 1, 1996 (such indenture, supplemented by that certain First Supplemental
Indenture, dated as of April 17, 1997, and as it may be further supplemented
from time to time, and including the provisions deemed to be included therein by
the Trust Indenture Act of 1939, the "Indenture"), between the Corporation and
The First National Bank of Chicago (as successor-in-interest to NBD Bank), as
Trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement. The following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all provisions of the Indenture, including the
definitions therein of certain terms.
The Indenture provides that, in addition to the Securities, additional
indebtedness may be issued thereunder without limitation as to aggregate
principal amount.
GENERAL
Reference is made to the Prospectus Supplement relating to the particular
series of Securities offered thereby for the following terms of the Securities:
(1) the title of such Securities; (2) any limit upon the aggregate principal
amount of such Securities; (3) the principal payment date or dates of such
Securities; (4) if interest bearing, the interest rate or rates of the
Securities, whether the interest rate is variable and if so, the manner of
calculation of the interest rate, the date or dates from which interest will
accrue, the interest payment dates and the record dates; (5) the place or places
where principal of and interest on the Securities are payable; (6) any
redemption provisions applicable to the Securities; (7) any sinking fund or
analogous provisions applicable to the Securities; (8) if other than U.S.
dollars, the currencies in which the principal of and premium, if any, and
interest on the Securities are payable; (9) if other than $1,000 and integral
multiples thereof, the denominations of the Securities; (10) if other than the
principal amount thereof, the portion of the principal amount of the Securities
payable upon acceleration; (11) whether the Securities are issuable as
registered Securities or unregistered Securities and if issued as unregistered
Securities provisions with respect to the offer, sale, delivery or exchange of
the Securities; (12) whether and under what circumstances the Corporation will
pay additional amounts (the "Additional Amounts") in respect of specified taxes,
assessments or other governmental charges and whether the Corporation has the
option to redeem the affected Securities rather than pay the Additional Amounts;
(13) any defeasance provisions applicable to the Securities; (14) any book-entry
provisions with respect to the Securities and any depository for the Securities;
and (15) any other terms of such Securities (which terms shall not be
inconsistent with the provisions of the Indenture). (Section 2.01 of the
Indenture)
The Securities will be unsecured and will rank pari passu with all other
unsecured and unsubordinated indebtedness of the Corporation. The Indenture does
not limit the incurrence of additional indebtedness, whether secured or
unsecured.
If the Securities are in registered form, principal and premium, interest
and Additional Amounts, if any, will be payable, and such Securities will be
transferable, at the offices of the Trustee at c/o First Chicago Trust Company
of New York, 14 Wall Street, 8th Floor, Window 2, New York, New York, 10005,
provided that payment of interest may be made at the option of the Corporation
by check mailed to the address of the person entitled thereto, or in the case of
Global Securities (as described below), by wire transfer of immediately
available funds. (Sections 4.01 and 4.02 of the Indenture) Principal of, and
premium, interest
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<PAGE> 30
and Additional Amounts, if any, on Securities in bearer form and coupons
appertaining thereto, if any, will be payable against surrender of such
Securities or coupons, as the case may be, subject to any applicable laws and
regulations, at such paying agencies outside of the United States as the
Corporation may appoint from time to time at the places and subject to the
restrictions set forth in each of the Indenture, the Securities and the related
Prospectus Supplement. (Sections 4.01, 4.02 and 4.03 of the Indenture)
Securities in bearer form and the coupons, if any, appertaining thereto will be
transferable by delivery. No service charge will be made for any transfer or
exchange of such Securities, but the Corporation may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 2.05 of the Indenture)
If any Prospectus Supplement specifies that Securities are denominated in a
currency or currency unit other than U.S. dollars, such Prospectus Supplement
will also specify the denominations in which such Securities will be issued and
the currency in which the principal and premium, interest and Additional
Amounts, if any, on such Securities will be payable.
The Securities may be issued as discounted Securities (bearing no interest
or interest at a rate which at the time of issuance is below market rates) to be
sold at a substantial discount below their stated principal amount.
Special considerations applicable to Securities of any series, including
any special Federal income tax consequences, will be described in the Prospectus
Supplement relating thereto.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Corporation will not merge or consolidate with any other corporation or
sell or convey all or substantially all of its assets to any person, firm or
corporation, unless (i) either the Corporation is the continuing corporation, or
the successor corporation is a corporation organized and existing under the laws
of the United States of America or a state thereof and such corporation
expressly assumes the due and punctual payment of the Securities and Additional
Amounts and the due and punctual performance and observance of each covenant and
condition of the Indenture and (ii) the Corporation or such successor
corporation is not, immediately after such merger, consolidation, sale or
conveyance, in default in the performance of any such covenant or condition.
(Section 6.01 of the Indenture)
CERTAIN COVENANTS
Definitions Applicable to Covenants. The following definitions are
applicable to the covenants specified below (Section 1.01 of the Indenture):
"Attributable Debt" means, at the time of determination as to any
lease, the lesser of (A) the fair value of the property subject to such
lease (as determined in good faith by the Board of Directors of the
Corporation) or (B) the present value (discounted at the actual rate, if
stated, or, if no rate is stated, the implicit rate of interest of such
lease transaction as determined, in good faith, by the chairman of the
Board of Directors, the president, any vice president, the treasurer or any
assistant treasurer of the Corporation), calculated using the interval of
scheduled rental payments under such lease, of the obligation of the lessee
for net rental payments during the remaining term of such lease (excluding
any subsequent renewal or other extension options held by the lessee). The
term "net rental payments" means, with respect to any lease for any period,
the sum of the rental and other payments required to be paid in such period
by the lessee thereunder, but not including, however, any amounts required
to be paid by such lessee (whether or not designated as rental or
additional rental) on account of maintenance and repairs, insurance, taxes,
assessments, water rates, indemnities or similar charges required to be
paid by such lessee thereunder or any amounts required to be paid by such
lessee thereunder contingent upon the amount of sales, earnings or profits
of the lessee with respect to such leased property or of maintenance and
repairs, insurance, taxes, assessments, water rates, indemnities or similar
charges; provided, however, that, in the case of any lease which is
terminable by the lessee upon the payment of a penalty in an amount which
is less than the total discounted net rental payments required to be paid
from the later of the first date upon which such lease may be so terminated
and the date of the determination of net rental payments, "net rental
payments" includes the then current amount of such penalty from the later
of such
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two dates, and excludes the rental payments relating to the remaining
period of the lease commencing with the later of such two dates.
"Consolidated Net Tangible Assets" means the total assets on a
consolidated balance sheet of the Corporation and the Restricted
Subsidiaries (less applicable reserves and other properly deductible items)
less: (A) current liabilities, including the current portion of long-term
debt; (B) all other liabilities except deferred income taxes and Funded
Debt; (C) goodwill, trade names, trademarks, patents, organization
expenses, unamortized debt discount and expense less unamortized debt
premium and other like intangibles (other than deferred charges and prepaid
expenses); (D) adjustments for minority interests; and (E) equity in and
net advances to Subsidiaries which are not Restricted Subsidiaries and
entities accounted for on the equity method of accounting. The calculation
of Consolidated Net Tangible Assets is made using the Corporation's latest
available consolidated statement of financial position.
"Debt" includes notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed and guarantees thereof.
"Funded Debt" means indebtedness for borrowed money owed or guaranteed
by a Person and any other indebtedness which under generally accepted
accounting principles would appear as debt on a balance sheet of such
Person, which matures by its terms more than twelve months from the date as
of which Funded Debt is to be determined or is extendible or renewable at
the option of the obligor to a date more than twelve months from the date
as of which Funded Debt is to be determined.
"Mortgage" means any mortgage, pledge, lien, security interest,
conditional sale or other title retention agreement or other similar
encumbrance which has been granted or otherwise consented to by the
Corporation. Notwithstanding the foregoing, the following liens are, for
purposes of the Indenture, not deemed to be Mortgages: (A) liens for taxes
if the same are not at the time delinquent or thereafter can be paid
without penalty, or are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on
the books of the Corporation or the appropriate Restricted Subsidiary, as
the case may be; (B) liens arising from any attachment being contested in
good faith by appropriate proceedings and any lien arising from a judgment
or award so long as a subsisting stay of execution or enforcement thereof
has been obtained; (C) other liens incidental to the conduct of the
Corporation's or any Restricted Subsidiary's business or the ownership of
any of their respective property and assets (including, without limitation,
carriers', warehousemen's, mechanics', materialmen's and vendors' liens)
which do not, in the opinion of the Corporation or any Restricted
Subsidiary, in the aggregate materially detract from the value of the
property or assets of the Corporation and its Restricted Subsidiaries,
taken as a whole, or materially impair their use in the operation of the
business of the Corporation or such Restricted Subsidiary, as the case may
be; (D) liens arising from pledges or deposits in connection with workers'
compensation, unemployment insurance and other legislation; (E) liens
arising from deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business; (F) liens arising from minor survey exceptions, minor
encumbrances, easements or reservations of, or rights of others for,
rights-of-way, sewers, electric lines, telegraph and telephone lines and
other similar purposes, or zoning or other restrictions as to the use of
any Principal Property of the Corporation or a Restricted Subsidiary, which
encumbrances, easements, reservations, rights and restrictions do not, in
the opinion of the Corporation, in the aggregate materially detract from
the value of the property or assets of the Corporation and its Restricted
Subsidiaries, taken as a whole, or materially impair their use in the
operation of the business of the Corporation or such Restricted Subsidiary,
as the case may be; and (G) liens created, incurred or assumed in
connection with any tax-free financing.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Principal Property" means any manufacturing or processing plant or
warehouse owned at the date of the Indenture by the Corporation or any of
its Subsidiaries or thereafter acquired by the Corporation or
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any of its Subsidiaries which is located within the United States of
America or Canada and the gross book value (including related land and
improvements thereon and all machinery and equipment included therein
without deduction of any depreciation reserves) of which on the date as of
which the determination is being made exceeds 1% of Consolidated Net
Tangible Assets, other than (A) any property which the Board of Directors
determines, in good faith, is not of material importance to the total
business conducted by the Corporation and its Subsidiaries as an entirety
or (B) any portion of a property which is similarly found not to be of
material importance to the use or operation of such property.
"Restricted Subsidiary" means any Subsidiary (A) which owns an
interest in a Principal Property or (B) substantially all of the business
of which is carried on within the United States of America or Canada.
"Secured Debt" means any Debt (whether now existing or created after
the date of the Indenture) of the Corporation or any Restricted Subsidiary,
secured by a Mortgage on any Principal Property (or portion thereof) or on
any shares of stock or indebtedness of a Restricted Subsidiary held by the
Corporation or any Restricted Subsidiary (including any such stock or
indebtedness acquired after the date of the Indenture).
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by the
Corporation, or by one or more Subsidiaries, or by the Corporation and one
or more Subsidiaries.
Limitation on Liens. So long as any Securities are outstanding, the
Corporation will not, nor will it permit any Restricted Subsidiary to, issue or
assume or guarantee any Secured Debt without in any such case effectively
providing concurrently with the issuance or assumption or guarantee of any such
Secured Debt that the Securities offered hereby (together with, if the
Corporation so determines, any other indebtedness of the Corporation or such
Restricted Subsidiary ranking equally with the Securities offered hereby and
then existing or thereafter created) be secured equally and ratably with (or, at
the option of the Corporation, prior to) such Secured Debt, unless the aggregate
amount of such Secured Debt issued or assumed or guaranteed, together with all
such Secured Debt of the Corporation and its Restricted Subsidiaries which (if
originally issued or assumed or guaranteed at such time) would otherwise be
subject to the foregoing restrictions and all Attributable Debt deemed to be
Secured Debt pursuant to the sale and lease-back covenant below, but not
including Secured Debt permitted to be secured under clauses (i) through (vi) of
the immediately following paragraph, does not at the time exceed 10% of
Consolidated Net Tangible Assets.
This covenant does not apply to, and there is excluded from Secured Debt:
(i) any Debt secured by a Mortgage on property, shares of stock or indebtedness
of any corporation existing at the time such corporation becomes a Restricted
Subsidiary; (ii) any Debt secured by a Mortgage existing on property, shares of
stock or indebtedness at the time of acquisition of such property, shares of
stock or indebtedness by the Corporation or a Restricted Subsidiary, or a
Mortgage to secure the payment of all or any part of the purchase price of such
property, shares of stock or indebtedness upon the acquisition of such property,
shares of stock or indebtedness by the Corporation or a Restricted Subsidiary or
to secure any Debt incurred prior to, at the time of, or within 180 days after
(A) in the case of shares of stock or indebtedness, the date of acquisition of
such shares of stock or indebtedness, and (B) in the case of property, the later
of the date of acquisition of such property and the date such property is placed
in service, for the purpose of financing all or any part of the purchase price
thereof, or a Mortgage to secure any Debt incurred for the purpose of financing
the cost to the Corporation or a Restricted Subsidiary of improvements to such
acquired property; (iii) any Debt secured by a Mortgage of (A) a Restricted
Subsidiary owing to the Corporation or to another Restricted Subsidiary or (B)
the Corporation owing to any Restricted Subsidiary; (iv) any Debt secured by a
Mortgage on property of a Corporation existing at the time such corporation is
merged or consolidated with the Corporation or a Restricted Subsidiary or at the
time of a sale, lease or other disposition of the properties of a corporation as
an entirety or substantially as an entirety to the Corporation or a Restricted
Subsidiary; (v) any Debt secured by a Mortgage on property of the Corporation or
a Restricted Subsidiary in favor of the United States of America
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or any State thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any State thereof, or in favor of
any other country, or any political subdivision thereof, 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 Mortgage; or (vi) any extension, renewal or replacement (or
successive extensions, renewals or replacements) in whole or in part of any Debt
secured by a Mortgage referred to in the foregoing clauses (i) to (v),
inclusive; provided, however, that the principal amount of such Debt does not
exceed the principal amount of Debt so secured at the time of such extension,
renewal or replacement and that such extension, renewal or replacement is
limited to all or a part of the property which secured the Debt so extended,
renewed or replaced (plus improvements on such property). (Section 4.05 of the
Indenture)
Limitation on Sale and Lease-Back. So long as any Securities are
outstanding, the Corporation will not, nor will it permit any Restricted
Subsidiary to, enter into any arrangement with any Person providing for the
leasing by the Corporation or any Restricted Subsidiary of any Principal
Property, which property has been or is to be sold or transferred by the
Corporation or such Restricted Subsidiary to such Person, unless either (i) the
Corporation or such Restricted Subsidiary would be entitled, pursuant to the
provisions of the covenant on limitation on liens described above, to issue,
assume, extend, renew or replace Debt secured by a Mortgage upon such property
equal in amount to the Attributable Debt in respect of such arrangement without
equally and ratably securing the Securities offered hereby; provided, however,
that from and after the date on which such arrangement becomes effective the
Attributable Debt in respect of such arrangement shall be deemed for all
purposes under the covenant on limitation on liens described above and this
covenant on limitation on sale and lease-back to be Debt subject to the
provisions of the covenant on limitation on liens described above (which
provisions include the exceptions set forth in clauses (i) through (vi) of such
covenant), or (ii) the Corporation shall apply an amount in cash equal to the
greater of (A) the net proceeds of the sale of the Principal Property so sold
and leased back or (B) the fair market value (as determined in good faith by the
Corporation's Board of Directors) of the Principal Property so sold and leased
back, to the retirement (other than any mandatory retirement or by way of
payment at maturity), within 180 days of the effective date of any such lease
arrangement, of Funded Debt of the Corporation or any Restricted Subsidiary
(other than Debt owned by the Corporation or any Restricted Subsidiary) or the
purchase of other property which will constitute a Principal Property having a
fair market value (as determined in good faith by the Corporation's Board of
Directors) at least equal to the fair market value of the Principal Property
leased in such sale and lease-back transaction or (iii) such sale and lease-back
transaction is between the Corporation and a Restricted Subsidiary or between
Restricted Subsidiaries. This covenant does not apply to any lease arrangements
having a maximum term (including renewal and other extension options) of three
years or less. (Section 4.06 of the Indenture)
DEFEASANCE
The Indenture provides that, if the provisions of Article XII relating to
defeasance are made applicable to Securities of any series, at the Corporation's
option either (a) the Corporation will be deemed to have paid and discharged all
outstanding Securities of such series or (b) the Corporation's obligations to
comply with any term, provision, condition or covenant specified at the time of
issuance of such Securities will be terminated, in either case upon the deposit
with the Trustee, in trust, of money sufficient to pay and discharge such
Securities or the deposit of direct noncallable obligations of, or noncallable
obligations the payment of principal of and interest on which is fully
guaranteed by, the United States of America, maturing as to principal and
interest in such amounts and at such times as will, together with the income to
accrue thereon (but without reinvesting any proceeds), be sufficient to pay and
discharge the Securities of such series. (Section 12.02 of the Indenture)
MODIFICATION OF THE INDENTURE
The Corporation and the Trustee are permitted, without the consent of the
holders of the Securities, to enter into supplemental indentures to, among other
purposes: (i) cure any ambiguity or correct or supplement
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any provisions or make provisions as will not adversely affect the interests of
the holders of any Securities; (ii) establish the form or terms of Securities;
or (iii) add to the covenants of the Corporation further covenants or provisions
as the Board of Directors of the Corporation and the Trustee consider to be for
the protection of the holders of the Securities and add further events of
default to the Indenture. (Section 10.01 of the Indenture)
The Indenture also contains provisions permitting the Corporation and the
Trustee to modify or amend the Indenture or any supplemental indenture or the
rights of the holders of the Securities issued thereunder, with the consent of
the holders of not less than 66 2/3% in principal amount of the Securities of
all series at the time outstanding under such Indenture which are affected by
such modification or amendment (voting as one class), provided that no such
modification will (i) extend the fixed maturity of any Securities, or reduce the
principal amount thereof, or premium, if any, or reduce the rate or extend the
time of payment of interest or Additional Amounts thereon, or reduce the amount
due and payable upon acceleration of the maturity thereof or the amount provable
in bankruptcy, or make the principal of, or premium, interest or Additional
Amounts on, any Security payable in any coin or currency other than that
provided in such Security, (ii) impair the right to initiate suit for the
enforcement of any such payment on or after the stated maturity thereof or
redemption date, if any, or (iii) reduce the aforesaid percentage of Securities,
the consent of the holders of which is required for any such modification, or
the percentage required for the consent of the holders to waive defaults without
the consent of the holder of each Security so affected. (Section 10.02 of the
Indenture)
EVENTS OF DEFAULT
An Event of Default with respect to any series of Securities is defined in
the Indenture as being: (i) default in payment of any principal or premium, if
any, on Securities of such series; (ii) default for 30 days in payment of any
interest or Additional Amounts on Securities of such series; (iii) default for
90 days after notice in performance of any other covenant applicable to the
Securities of such series; (iv) certain events of bankruptcy, insolvency or
reorganization; or (v) the occurrence of any default under an instrument
evidencing or securing other indebtedness of the Corporation or any Subsidiary
for borrowed money in excess of the greater of 1% of the Corporation's
shareholders' equity (as represented on the Corporation's latest available
consolidated statement of financial position) or $10 million, resulting in the
acceleration of such indebtedness, which acceleration is not being contested in
good faith by the Corporation or any such Subsidiary and is not rescinded or
annulled pursuant to the instrument evidencing or securing such indebtedness.
(Section 6.01 of the Indenture) In case an Event of Default under clause (i),
(ii) or (iii) shall occur and be continuing with respect to any series, the
Trustee or the holders of not less than 25% in aggregate principal amount of
Securities of all series affected thereby may declare the principal (or, in the
case of discounted Securities, the amount specified in the terms thereof) of
such series to be due and payable. In case an Event of Default under clause (iv)
or (v) shall occur and be continuing, the Trustee or the holders of not less
than 25% in aggregate principal amount of all of the Securities then outstanding
(voting as one class) may declare the principal (or, in the case of discounted
Securities, the amount specified in the terms thereof) of all outstanding
Securities to be due and payable. Any Event of Default with respect to a
particular series of Securities may be waived by the holders of a majority in
aggregate principal amount of the outstanding Securities of such series (or of
all of the outstanding Securities, as the case may be), except in a case of
failure to pay principal or premium, if any, or interest or Additional Amounts,
if any, in respect of such Security for which payment had not been subsequently
made. (Section 6.01 of the Indenture) The Indenture provides that the Trustee
may withhold notice to the securityholders of any default (except in payment of
principal or premium, interest or Additional Amounts, if any) if it considers it
in the interest of the securityholders to do so. (Section 6.07 of the Indenture)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
shall be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the securityholders,
unless such securityholders shall have offered to the Trustee reasonable
indemnity. (Sections 7.01 and 7.02 of the Indenture) Subject to such provisions
for the indemnification of the Trustee and to certain other limitations, the
holders of a majority in aggregate principal amount of the Securities of all
series affected (voting as one class) at the time
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outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee. (Section 6.06 of the Indenture)
The Corporation will be required to file with the Trustee annually an
officers' certificate as to the absence of certain defaults under the terms of
the Indenture. (Section 4.07 of the Indenture)
BOOK-ENTRY SYSTEM
The Securities of a series may be issued in whole or in part in the form of
one or more global securities (the "Global Securities") that will be deposited
with or on behalf of a depositary (a "Depositary") identified in the Prospectus
Supplement relating to such series.
The specific terms of the depositary arrangement with respect to any
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Corporation anticipates that the following provisions will
apply to all depositary arrangements.
Unless otherwise specified in an applicable Prospectus Supplement,
Securities that are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of a Global
Security in registered form, the Depositary for such Global Security will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Securities represented by such Global Security to the
accounts of institutions that have accounts with such Depositary or its nominee
("Participants"). The accounts to be credited shall be designated by the
underwriters or agents of such Securities or by the Corporation, if such
Securities are offered and sold directly by the Corporation. Ownership of
beneficial interests in such Global Securities will be limited to Participants
or persons that may hold interests through Participants. Ownership of beneficial
interests by Participants in such Global Securities will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such Global Security. Ownership
of beneficial interests in Global Securities by persons that hold through
Participants will be shown on, and the transfer of that ownership interest
within such Participant will be effected only through, records maintained by
such Participant. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Securities
represented by such Global Security for all purposes under the Indenture. Except
as set forth below, owners of beneficial interests in such Global Securities
will not be entitled to have Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Securities of such series in definitive form and will not
be considered the owners or holders thereof under the Indenture.
Payment of principal of, premium, if any, and any interest on Securities
registered in the name of or held by a Depositary or its nominee will be made to
the Depositary or its nominee, as the case may be, as the registered owner or
the holder of the Global Security representing such Securities. None of the
Corporation, the Trustee, or any agent of the Corporation or Trustee will have
any responsibility or liability for any aspect of the Depositary's records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Corporation expects that the Depositary for Securities of a series,
upon receipt of any payment of principal, premium or interest in respect of a
permanent Global Security, will immediately credit, on its book-entry
registration and transfer system, the accounts of Participants with payments in
amounts proportionate to their respective beneficial interests in the principal
or face amount of such Global Security as shown on the records of such
Depositary. The Corporation also expects that payments by Participants to owners
of beneficial interests in such Global Security held through such Participants
will be governed by standing instructions and
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customary practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of such
Participants.
A Global Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary. A Global Security representing the
Securities is exchangeable for Securities in definitive registered form only if
(x) the Depositary notifies the Corporation that it is unwilling or unable to
continue as Depositary for such Global Security or if at any time the Depositary
ceases to be a clearing agency registered under the Exchange Act and in either
case the Corporation fails within 90 days thereafter to appoint a successor or
(y) the Corporation in its sole discretion determines that such Global Security
shall be so exchangeable. In such event, the Corporation will issue Securities
in definitive registered form in exchange for the Global Security representing
such Securities. Subject to the foregoing, a Global Security is not
exchangeable, except for a Global Security of like denomination to be registered
in the name of the Depositary or its nominee. (Section 2.05 of the Indenture)
CONCERNING THE TRUSTEE
The Trustee (or certain of its affiliates) also acts as depository for
funds of, makes loans to, acts as trustee for and performs certain other
services for the Corporation and certain of its subsidiaries and affiliates in
the normal course of its business.
PLAN OF DISTRIBUTION
The Corporation may sell Securities to or through underwriters, directly to
other purchasers or through dealers or agents.
The distribution of Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
In connection with the sale of Securities, underwriters, dealers or agents
may receive compensation from the Corporation or from purchasers of Securities
for whom they may act as agents, in the form of discounts, concessions or
commissions. Underwriters, dealers and agents that participate in the
distribution of Securities may be deemed to be underwriters and any discounts or
commissions received by them from the Corporation and any profit on the resale
of Securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act. Any such underwriter, dealer or agent will be
identified, and any such compensation received from the Corporation will be
described, in the related Prospectus Supplement.
If so indicated in the related Prospectus Supplement, the Corporation will
authorize agents and underwriters to solicit offers by certain institutions to
purchase Securities from the Corporation at the public offering price set forth
in the Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date stated in the
Prospectus Supplement. Each Contract will be for an amount not less than, and
unless the Corporation otherwise agrees the aggregate principal amount of
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the related Prospectus Supplement. Institutions
with which Contracts, when authorized, may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions, and other institutions, but shall in
all cases be subject to the approval of the Corporation. Contracts will not be
subject to any conditions except that the purchase by an institution of the
Securities covered by its Contract will not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject. A commission indicated in the related Prospectus
Supplement will be paid to underwriters and agents soliciting purchases of
Securities pursuant to Contracts accepted by the Corporation.
Underwriters, dealers and agents who participate in the distribution of
Securities may be entitled to indemnification by the Corporation against certain
liabilities, including liabilities under the Securities Act, or contribution
from the Corporation for payments which such underwriters, dealers or agents may
be required to make in respect of such liabilities, under agreements which may
be entered into by the Corporation.
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EXPERTS
The consolidated financial statements and schedule of the Corporation
incorporated by reference in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1996, has been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included or
incorporated by reference therein and incorporated herein by reference. Such
financial statements and schedule are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Corporation by Jones, Day, Reavis & Pogue, and for any underwriters, agents or
dealers by Brown & Wood LLP. James E. Kline, Vice President and General Counsel
of the Corporation, will also pass upon certain matters in connection with the
issuance, sale and delivery of the Securities. Mr. Kline owns and has options to
purchase common shares of the Corporation.
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Aeroquip-Vickers, Inc.
