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Filed Pursuant to Rule 424(B)(2)
Registration No. 333-59145
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 21, 1998)
$1,000,000,000
MCDONALD'S CORPORATION
MEDIUM-TERM NOTES, SERIES F
DUE FROM 1 YEAR TO 60 YEARS FROM DATE OF ISSUE
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McDonald's Corporation (the "Company") may use this prospectus supplement to
offer its Medium-Term Notes, Series F with a total initial public offering
price of up to $1,000,000,000 or the equivalent in one or more foreign
currencies, subject to reduction as a result of our sale of other debt
securities.
The following terms may apply to the notes. We will provide the final terms
for each note in a pricing supplement.
. Mature in 1 year to 60 years and may be subject to redemption or
repayment at the option of the Company or the holder.
. Denominated in U.S. dollars unless otherwise specified by the Company.
. Fixed or floating interest rate. The floating interest rate formula may
be based on:
- CD Rate - Treasury Rate
- Commercial Paper Rate - Prime Rate
- Federal Funds Rate - CMT Rate
- LIBOR - Another Base Rate specified in
the pricing supplement
. May be issued as indexed notes.
. Certificated or book-entry form.
. Interest paid on fixed rate notes on February 15 and August 15 of each
year.
. Interest paid on floating rate notes on dates determined at the time of
issuance.
. Minimum denominations of $1,000 increased in multiples of $1,000.
We will receive between $998,500,000 and $992,500,000 of the proceeds from
the sale of the notes after paying the Agent's commissions of between
$1,500,000 and $7,500,000. The exact proceeds to the Company will be set at
the time of issuance. We do not expect that any of the notes will be listed on
an exchange, and a market for any particular series of notes may not develop.
SEE "RISK FACTORS" BEGINNING ON PAGE S-2 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Agents
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
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The date of this prospectus supplement is July 29, 1998.
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RISK FACTORS
This prospectus supplement does not describe all of the risks of an
investment in the notes, whether arising because the notes are denominated in
a currency other than the U.S. dollar or because the return on the notes is
linked to one or more interest rate or currency indices or formulas. You
should consult your own financial and legal advisors about the risks entailed
by an investment in the notes and the suitability of your investment in the
notes in light of your particular circumstances. The notes are not an
appropriate investment for investors who are unsophisticated with respect to
foreign currency transactions or transactions involving the type of index or
formula used to determine amount payable. You should also consider carefully,
among other factors, the matters described below.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a note denominated in a currency other than U.S. dollars
entails significant risks. These risks include the possibility of significant
changes in rates of exchange between the U.S. dollar and such currency and the
possibility of the imposition or modification of foreign exchange controls by
either the United States or foreign governments. These risks generally depend
on factors over which we have no control, such as economic and political
events and the supply of and demand for the relevant currencies. In recent
years, rates of exchange between the U.S. dollar and certain currencies have
been highly volatile, and you should be aware that volatility may occur in the
future. Fluctuations in any particular exchange rate that have occurred in the
past, however, are not necessarily indicative of fluctuations in the rate that
may occur during the term of any note. Depreciation of the specified currency
for a note against the U.S. dollar would result in a decrease in the effective
yield of such note (on a U.S. dollar basis) below its coupon rate and, in
certain circumstances, could result in a loss to you on a U.S. dollar basis.
Except as set forth below, if payment in respect of a note is required to be
made in a currency other than U.S. dollars and such currency is unavailable to
us due to the imposition of exchange controls or other circumstances beyond
our control or is no longer used by the government of the relevant country or
for the settlement of transactions by public institutions of or within the
international banking community, then all payments in respect of such note
will be made in U.S. dollars until such currency is again available to us or
so used. The amounts payable on any date in such currency will be converted
into U.S. dollars on the basis of the most recently available market exchange
rate for such currency or as otherwise indicated in the applicable pricing
supplement. Any payment in respect of such note so made in U.S. dollars will
not constitute an event of default under the Indentures. Regardless, if a
specified currency is unavailable to us solely because the country of issue
has replaced its currency with the Euro or other currency of the European
Union pursuant to the Treaty establishing the European Community, the amounts
payable will, beginning with the date the replacement becomes effective, be
made in Euro or such other currency. The amounts payable on any date will be
converted into Euro or such other currency on the basis of the conversion rate
officially in effect in the European Union on the effective date of the
replacement.
If payment is required to be made in Euro and Euro are unavailable to us due
to the imposition of exchange controls or other circumstances beyond our
control or are no longer used in the European Monetary System, then all
payments will be made in U.S. dollars until Euro are again available to us or
so used. The amount of each payment in U.S. dollars will be computed on the
basis of the equivalent of the Euro in U.S. dollars, determined as described
below, as of the second Business Day prior to the date on which such payment
is due.
If payments on any series of notes must be made in the European Currency
Unit ("ECU") and the Euro is substituted for the ECU as the unit of account of
the European Community or the European Central Bank, then we may redenominate
all of the notes of that series into Euros by giving holders notice of the
redenomination as described under "Description of Notes--Redenomination"
below.
The paying agent will make all determinations referred to above at its sole
discretion. All determinations will, in the absence of clear error, be binding
on holders of the notes.
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The information set forth in this prospectus supplement is directed to
prospective purchasers of notes who are U.S. residents. We disclaim any
responsibility to advise any other prospective purchasers with respect to any
matters that may affect the purchase, sale or holding of notes. These persons
should consult their own legal and financial advisors with regard to such
matters.
Any pricing supplement relating to notes having a specified currency other
than U.S. dollars will contain information concerning historical exchange
rates for that currency against the U.S. dollar and a brief description of any
relevant exchange controls.
FOREIGN CURRENCY JUDGMENTS
The notes will be governed by and construed in accordance with the internal
laws of the State of Illinois. Courts in the United States customarily have
not rendered judgments for money damages denominated in any currency other
than the U.S. dollar.
RISKS ASSOCIATED WITH INDEXED NOTES
An investment in indexed notes entails significant risks that are not
associated with an investment in a conventional fixed rate debt security.
Indexation of the interest rate of a note may result in an interest rate that
is less than that payable on a conventional fixed rate debt security issued at
the same time, including the possibility that no interest will be paid.
Indexation of the principal of and/or premium on a note may result in an
amount of principal and/or premium payable that is less than the original
purchase price of the note, including the possibility that no amount will be
paid. The secondary market for indexed notes will be affected by a number of
factors, independent of the creditworthiness of the Company. Such factors
include the volatility of the index selected, the time remaining to the
maturity of the notes, the amount outstanding of the notes and market interest
rates. The value of an index can depend on a number of interrelated factors,
including economic, financial and political events, over which we have no
control. Additionally, if the formula used to determine the amount of
principal, premium and/or interest payable with respect to indexed notes
contains a multiple or leverage factor, the effect of any change in the index
will be increased. The historical experience of an index should not be taken
as an indication of its future performance. The credit ratings assigned to our
medium-term note program are a reflection of our credit status and do not
reflect the impact of the factors discussed above on the market value of
indexed notes. Accordingly, you should consult your own financial and legal
advisors as to the risks entailed by an investment in indexed notes.
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
consolidated subsidiaries at March 31, 1998 and is adjusted to give effect to
the issuance on May 11, 1998 of securities totaling $250 million and the
issuance on June 23, 1998 of securities totaling $300 million, and the
application of the proceeds of these issuances.
<TABLE>
<CAPTION>
MARCH 31, 1998
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AS
OUTSTANDING ADJUSTED
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(IN MILLIONS OF U.S.
DOLLARS)
<S> <C> <C>
Short-term debt, including current portion of long-
term debt............................................ $ 612.2 $ 49.8(1)
Long-term debt, less current portion.................. 5,848.5 5,848.5
$250,000,000 securities, 5.9%, due 2011............... -- 249.6
$300,000,000 securities, 6%, due 2012................. -- 300.0
Shareholders' equity.................................. 9,122.1 9,122.1
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Total capitalization(2)............................... $15,582.8 $15,570.0
========= =========
</TABLE>
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(1) Reflects the application of the net proceeds of $562.4 million from the
issuance of $250 million securities and the issuance of $300 million
securities.
(2) March 31, 1998, the Company had 3.5 billion authorized shares of common
stock, with $.01 par value, of which 830.3 million were issued and 687.4
million were outstanding. There has been no material change in the
consolidated capitalization of the Company since March 31, 1998.
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IMPORTANT CURRENCY INFORMATION
You are required to pay for each note in the currency specified by the
Company. You may ask an Agent to use its reasonable best efforts to arrange
for the exchange of U.S. dollars into the specified currency to enable you to
pay for such note. You must make this request on or before the third Business
Day preceding the delivery date for such note or by a later date if allowed by
the Agent. Each exchange will be made on the terms and conditions established
by the Agent and all costs will be paid by you.
DESCRIPTION OF NOTES
The following description of terms of the notes supplements the general
description of the debt securities provided in the prospectus. However, the
pricing supplement for each offering of notes will contain the specific
information and terms for that offering. The pricing supplement may also add,
update or change information contained in this prospectus supplement. It is
important for you to consider the information contained in the prospectus, the
prospectus supplement and the pricing supplement in making your investment
decision.
We have provided a glossary at the end of this prospectus supplement to
define any capitalized words we use but do not define in this prospectus
supplement.
GENERAL
We will issue the notes as a series of debt securities under the Senior
Indenture between us and the Trustee. We are limited to issuing notes with a
total initial public offering price or purchase price of up to $1,000,000,000
or the equivalent amount in one or more foreign currencies, including the
Euro. The U.S. dollar equivalent will be determined by a paying agent chosen
by us, which will initially be The First National Bank of Chicago. In order to
determine the equivalent amount in connection with offerings in a foreign or
composite currency, the paying agent will use the noon buying rate in The City
of New York for cable transfers in foreign currencies as certified for customs
purposes by The Federal Reserve Bank of New York. The total price of the notes
we are authorized to offer may be reduced due to our sale of other debt
securities. If payments on any series of notes must be made in the currency of
a country that adopts the Euro, then we may redenominate all of the notes of
that series into Euros by giving holders notice of the redenomination as
described under "Description of Notes--Redenomination" below.
The notes will be offered on a continuous basis and will be issued in fully
registered form only, without coupons.
Each note will be issued either as a "book-entry" note, represented by a
permanent global note registered in the name of The Depository Trust Company
("DTC"), or its nominee, or as a certificate issued in temporary or definitive
form. Except as described below under "Book-Entry System," book-entry notes
will not be issuable in certificated form.
The authorized denominations for notes denominated in U.S. dollars will be
$1,000 and any larger amount that is a multiple of $1,000. The authorized
denominations of notes denominated in some other specified currency will be
described in the pricing supplement.
Each note will mature on any day from 1 year to 60 years from its date of
issue. However, each note may also be subject to redemption at our option and
repayment at the option of the holder.
The pricing supplement relating to a note will describe the following terms:
(a) the specified currency;
(b) whether the note is a fixed rate note, a floating rate note or an
indexed note;
(c) the issue price;
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(d) the original issue date;
(e) the stated maturity date;
(f) for a fixed rate note, the rate per annum at which it will bear
interest, if any, and the dates on which interest will be payable if
other than February 15 and August 15;
(g) for a floating rate note, the base rate, the initial interest rate, the
interest reset period, the interest payment dates, the Index Maturity,
the maximum interest rate, if any, the minimum interest rate, if any,
the Spread and/or Spread Multiplier, if any, and any other terms
relating to the particular method of calculating the interest rate for
the note;
(h) whether the note is an Original Issue Discount Note;
(i) for an indexed note, the manner in which the principal amount payable
at the stated maturity date will be determined;
(j) whether the note may be redeemed at our option, or repaid at the
holder's option prior to the stated maturity date as described further
under "Optional Redemption, Repayment and Repurchase" below, and if so,
the terms of the redemption or repayment; and
(k) any other terms that do not conflict with the provisions of the Senior
Indenture.
Interest rates that we offer with respect to the notes may differ depending
on, among other things, the aggregate principal amount of the notes purchased
in any single transaction.
Except as described in this prospectus supplement, there are no covenants
specifically designed to protect you against a reduction in our
creditworthiness in the event of a highly leveraged transaction or to prohibit
other transactions that may adversely affect you.
PAYMENT OF PRINCIPAL AND INTEREST
We will make payments on each note in a currency that we specify. If the
specified currency is other than U.S. dollars, either we or the paying agent
will arrange to convert all payments in respect of the note into U.S. dollars
as described in the following paragraph. If you hold a note denominated in a
currency other than U.S. dollars and the pricing supplement and note so allow,
you may elect to receive all payments in the foreign currency by sending a
written notice to the paying agent not later than 15 days before the
applicable payment date, except under the circumstances described in "Risk
Factors--Exchange Rates and Exchange Controls." Your election will remain in
effect until you revoke it by written notice to the paying agent received not
later than 15 days before the applicable payment date.
The paying agent will determine the amount of any U.S. dollar payment on a
note denominated in a currency other than U.S. dollars based on the highest
firm bid quotation, expressed in U.S. dollars, that it receives at
approximately 11:00 a.m., New York City time two Business Days before the
applicable payment date (if no rate is quoted on that date, the paying agent
will use the last date on which the rate was quoted). To determine the highest
quote, the paying agent will request quotes from three (or, if three are not
available, then two) recognized foreign exchange dealers in The City of New
York (which may include the agents, their affiliates or the paying agent) for
the purchase, and settlement on the applicable payment date, of the total
amount of the specified currency then payable. You will be responsible for all
currency exchange costs, such amount to be deducted from your U.S. dollar
payments. If no bid quotations are available, we will make payments in the
foreign currency, unless the currency is unavailable due to the imposition of
exchange controls or other circumstances beyond our control. In that case, we
will make payments as described under "Risk Factors--Exchange Rates and
Exchange Controls."
U.S. dollar payments of interest on notes are generally payable to the
person in whose name the note is registered at the close of business on the
record date before each interest payment date. However, interest will be
payable at Maturity to the person to whom principal is payable. The first
interest payment on any note originally issued between a record date and an
interest payment date or on an interest payment date will be made
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on the interest payment date after the next record date. If you hold at least
$10,000,000 (or the equivalent thereof in a specified currency other than U.S.
dollars) in aggregate principal amount of notes, you will be entitled to
receive your U.S. dollar interest payments by wire transfer, but only if the
paying agent has received your wire transfer instructions not later than 15
days before the applicable interest payment date. Simultaneously with your
election to receive payments in a currency other than U.S. dollars, as
discussed earlier, you must provide wire transfer payment instructions to the
paying agent, and all payments made in that currency will be made by wire
transfer to an account maintained by you with a bank located outside the
United States. Any payment due at Maturity will be paid in immediately
available funds upon surrender of your note at the corporate trust office or
an agency of the paying agent located in the City of Chicago. The corporate
trust office for the First National Bank of Chicago is located at One First
National Plaza, Chicago, Illinois.
Unless otherwise specified in the applicable pricing supplement, if the
principal of any Original Issue Discount Note is declared to be due and
payable immediately as described under "Description of Debt Securities--Events
of Default" in the prospectus, the amount of principal due and payable will be
limited to the principal amount of the note multiplied by the sum of its issue
price (expressed as a percentage of the principal amount) plus the original
issue discount amortized from the date the note was issued 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).
Unless otherwise specified in the applicable pricing supplement, the record
date for any interest payment date for a floating rate note will be the date
(whether or not a Business Day) 15 calendar days immediately before the
interest payment date, and for a fixed rate note will be the February 1 or
August 1 (whether or not a Business Day) immediately before the interest
payment date or Maturity, as the case may be.
Interest payments on the notes will equal the amount of interest accrued
from and including the immediately preceding interest payment date on which
interest was paid or made available for payment (or from and including the
date of issue, if no interest has been paid) to but excluding the related
interest payment date or Maturity, as the case may be.
FIXED RATE NOTES
Each fixed rate note will bear interest from the date it is originally
issued at the rate per annum stated on its face until the principal amount is
paid or made available for payment. Unless otherwise set forth in the
applicable pricing supplement, we will pay interest on each fixed rate note
semiannually in arrears on each February 15 and August 15 and at Maturity.
Each payment of interest on an interest payment date will include interest
accrued to but excluding such interest payment date. Interest on fixed rate
notes will be computed using a 360-day year of twelve 30-day months.
If any payment date for a fixed rate note falls on a day that is not a
Business Day, we will make the payment on the next Business Day, without
additional interest.
FLOATING RATE NOTES
Each floating rate note will have an interest rate formula. The formula may
be based on:
(a) the CD Rate;
(b) the CMT Rate;
(c) the Commercial Paper Rate;
(d) the Federal Funds Rate;
(e) LIBOR;
(f) the Prime Rate;
(g) the Treasury Rate; or
(h) another Base Rate or formula described in the pricing supplement and in
the note.
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The pricing supplement will also indicate any Spread and/or Spread
Multiplier, which would be applied to the interest rate formula to determine
the interest rate. Any floating rate note may have a maximum or minimum
interest rate limitation.
We will appoint a calculation agent to calculate interest rates on the
floating rate notes. Unless we choose a different party in the pricing
supplement, the paying agent will be the calculation agent for each note. Upon
request, the calculation agent will provide the current interest rate and, if
different, the interest rate that will become effective on the next Interest
Reset Date.
The interest rate on each floating rate note may be reset daily, weekly,
monthly, quarterly, semiannually or annually (this period is the "Interest
Reset Period", and the first day of each Interest Reset Period is an "Interest
Reset Date"), as specified in the pricing supplement. Unless otherwise
specified in the pricing supplement, the Interest Reset Dates will be:
(a) for floating rate notes that reset daily, each Business Day;
(b) for floating rate notes (other than Treasury Rate notes) that reset
weekly, Wednesday of each week;
(c) for Treasury Rate notes that reset weekly, Tuesday of each week (except
as provided below under "Treasury Rate Notes");
(d) for floating rate notes that reset monthly, the third Wednesday of each
month;
(e) for floating rate notes that reset quarterly, the third Wednesday of
March, June, September and December of each year;
(f) for floating rate notes that reset semianuually, the third Wednesday of
each of the two months of each year specified in the pricing
supplement; and
(g) for floating rate notes that reset annually, the third Wednesday of one
month of each year specified in the pricing supplement.
If an Interest Reset Date for any floating rate note falls on a day that is
not a Business Day, it will be postponed to the following Business Day, except
that, in the case of a LIBOR note, if that Business Day is in the next
calendar month, the Interest Reset Date will be the immediately preceding
Business Day.
Floating rate notes will accrue interest from and including the original
issue date or the last date to which interest has been paid or provided for,
as the case may be, to but excluding the applicable Interest Payment Date, as
described below, or Maturity, as the case may be.
Accrued interest on floating rate notes will be calculated by multiplying
the principal amount of such note (or, in the case of an indexed note, unless
otherwise specified in the pricing supplement, the face amount of such indexed
note) by an accrued interest factor. The accrued interest factor will be
computed by adding the interest factors calculated for each day in the period
for which accrued interest is being calculated. The interest factor (expressed
as a decimal calculated to seven decimal places without rounding) for each day
will be computed by dividing the interest rate in effect on that 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 or CMT Rate notes. For these
calculations, the interest rate in effect on any Interest Reset Date will be
the new reset rate.
The calculation agent will round all percentages resulting from any
calculation of the rate of interest on a floating rate note, if necessary, to
the nearest 1/100,000 of 1% (.0000001), with five one-millionths of a
percentage point rounded upward, and all currency amounts used in or resulting
from any calculation on floating rate notes will be rounded to the nearest
one-hundredth of a unit (with .005 of a unit being rounded upward).
Unless we state otherwise in the applicable prospectus supplement, we will
pay interest on floating rate notes as follows:
(a) for notes that reset daily, weekly or monthly, on the third Wednesday
of each month or on the third Wednesday of March, June, September and
December of each year as specified in the applicable pricing
supplement;
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(b) for notes that reset quarterly, on the third Wednesday of March, June,
September, and December of each year;
(c) for notes that reset semiannually, on the third Wednesday of each of
two months of each year specified in the pricing supplement; and
(d) for notes that reset annually, on the third Wednesday of one month of
each year specified in the pricing supplement.
Each of the above dates is an "Interest Payment Date". We will also pay
interest on all notes at Maturity.
If an Interest Payment Date (other than at Maturity) for any floating rate
note falls on a day that is not a Business Day, it will be postponed to the
following Business Day, except that, in the case of a LIBOR note, if that
Business Day would fall in the next calendar month, the Interest Payment Date
will be the immediately preceding Business Day.
If the Maturity for a floating rate note falls on a day that is not a
Business Day, we will make the payment on the next Business Day, without
additional interest.
References below to information services include any successor information
services.
CD Rate Notes
Each CD Rate note will bear interest at a specified rate that will be reset
periodically based on the CD Rate and any Spread and/or Spread Multiplier.
"CD Rate" means, with respect to any Interest Determination Date, the rate
on that Interest Determination Date for negotiable certificates of deposit
having the specified Index Maturity as published in H.15(519) under the
heading "CDs (Secondary Market)".
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published in H.15(519) prior to 9:00 a.m. on the
Calculation Date, then the CD Rate will be the rate for negotiable
certificates of deposit having the specified Index Maturity as published in
Composite Quotations under the heading "Certificates of Deposit".
(b) If the rate is not published either in H.15(519) or in Composite
Quotations by 3:00 p.m. on that Calculation Date, the CD Rate will be the
average of the secondary market offered rates, as of 10:00 a.m., of three
leading nonbank dealers of 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 money market banks with a remaining
maturity closest to the specified Index Maturity in a denomination of
$5,000,000.
(c) If fewer than three dealers are providing quotes, the rate will be
the same as the rate used in the prior interest period.
Commercial Paper Rate Notes
Each Commercial Paper Rate note will bear interest at a specified rate that
will be reset periodically based on the Commercial Paper Rate and any Spread
and/or Spread Multiplier.
"Commercial Paper Rate" means, with respect to any Interest Determination
Date, the Money Market Yield of the rate on that Interest Determination Date
for commercial paper having the specified Index Maturity as published in
H.15(519) under the heading "Commercial Paper--Nonfinancial".
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published in H.15(519) prior to 9:00 a.m. on the
Calculation Date, then the Commercial Paper Rate will be the Money Market
Yield of the rate for commercial paper having the specified Index Maturity
as published in Composite Quotations under the heading "Commercial Paper".
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(b) If the rate is not published either in H.15(519) or in Composite
Quotations by 3:00 p.m. on the Calculation Date, the Commercial Paper Rate
will be the Money Market Yield of the average for the offered rates, as of
11:00 a.m., on that Interest Determination Date, of three leading dealers
of commercial paper in The City of New York selected by the calculation
agent for commercial paper having the specified Index Maturity placed for
an industrial issuer whose bond rating is "AA", or the equivalent, by a
nationally recognized rating agency.
(c) If fewer than three dealers are providing quotes, the rate will be
the same as the rate used in the prior interest period.
Federal Funds Rate Notes
Each Federal Funds Rate note will bear interest at a specified rate that
will be reset periodically based on the Federal Funds Rate and any Spread
and/or Spread Multiplier.
"Federal Funds Rate" means, with respect to any Interest Determination Date,
the rate on specified dates for Federal Funds published in H.15(519) prior to
11:00 a.m. under the heading "Federal Funds (Effective)".
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published in H.15(519) prior to 11:00 a.m. on the
Calculation Date, then the Federal Funds Rate will be the rate on such
Interest Determination Date published in Composite Quotations under the
heading "Federal Funds/Effective Rate".
(b) If the rate is not published either in H.15(519) or in Composite
Quotations by 3:00 p.m. on the Calculation Date, the Federal Funds Rate
will be the average of the rates, as of 11:00 a.m. on that Interest
Determination Date, for the last transaction in overnight federal funds
arranged by three leading brokers of federal funds transactions in The City
of New York selected by the calculation agent.
(c) If fewer than three brokers are providing quotes, the rate will be
the same as the rate used in the prior interest period.
LIBOR Notes
Each LIBOR note will bear interest at a specified rate that will be reset
periodically based on LIBOR and any Spread and/or Spread Multiplier.
The calculation agent will determine LIBOR on each Interest Determination
Date as follows:
(a) With respect to any Interest Determination Date, LIBOR will be
generally determined as either:
(1) the average of the offered rates for deposits in the Index
Currency having the specified Index Maturity beginning on the second
London Business Day immediately after the Interest Determination Date,
that appear on the Reuters Screen LIBO Page as of 11:00 a.m., London
time, on that Interest Determination Date, if at least two offered
rates appear on the Reuters Screen LIBO Page; or
(2) the rate for deposits in the Index Currency having the specified
Index Maturity beginning on the second London Business Day immediately
after such date, that appears on the Telerate Page 3750 as of 11:00
a.m., London time, on that Interest Determination Date.
If we do not specify either Reuters Screen LIBO Page or Telerate Page
3750 in the pricing supplement, LIBOR will be determined based on
Telerate Page 3750.
Where (1) above applies, if fewer than two offered rates appear on
the Reuters Screen LIBO Page, or, where (2) above applies, if no rate
appears on the Telerate Page 3750, LIBOR for that Interest
Determination Date will be determined based on the rates on that
Interest Determination Date at approximately 11:00 a.m., London time,
at which deposits on that date in the Index Currency for the period of
the specified Index Maturity are offered to prime banks in the London
interbank market by four major banks in that market selected by the
calculation agent and in a principal amount that in the
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calculation agent's judgment is representative for a single transaction
in the Index Currency in such market at such time (a "Representative
Amount"). The offered rates must begin on the second London Business
Day immediately after the Interest Determination Date.
The calculation agent will request the principal London office of each of
these banks to quote its rate. If the calculation agent receives at least
two quotations, LIBOR will be the average of those quotations.
(b) If the calculation agent receives fewer than two quotations, LIBOR
will be the average of the rates quoted at approximately 11:00 a.m., New
York City time, on the Interest Determination Date by three major banks in
the Principal Financial Center selected by the calculation agent. The rates
will be for loans in the Index Currency to leading European banks having
the specified Index Maturity beginning on the second London Business Day
after that date and in a Representative Amount.
(c) If fewer than three banks provide quotes, the rate will be the same
as the rate used in the prior interest period.
Treasury Rate Notes
Each Treasury Rate note will bear interest at a specified rate that will be
reset periodically based on the Treasury Rate and any Spread and/or Spread
Multiplier.
"Treasury Rate" means, with respect to any Interest Determination Date, the
rate for the most recent auction of direct obligations of the United States
("Treasury bills") having the specified Index Maturity as published in
H.15(519) under the heading "U.S. Government Securities/Treasury Bills/Auction
Average (Investment)".
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published in H.15(519) by 9:00 a.m. on the
Calculation Date, the rate will be the auction average rate (expressed as a
bond equivalent, on the basis of a year of 365 or 366 days as applicable,
and applied on a daily basis) for such auction as otherwise announced by
the U.S. Department of the Treasury.
(b) If the results of the auction of Treasury bills having the specified
Index Maturity are not published in H.15(519) by 9:00 a.m., or otherwise
published or reported as provided above by 3:00 p.m., on the Calculation
Date, or if no auction is held in a particular week, then the Treasury Rate
will be a yield to maturity (expressed as a bond equivalent on the basis of
a year of 365 or 366 days, as applicable, and applied on a daily basis) of
the average of the secondary market bid rates as of approximately 3:30 p.m.
on the Interest Determination Date, of three leading primary U.S.
government securities dealers in The City of New York selected by the
calculation agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity.
(c) If fewer than three dealers are providing quotes, the rate will be
the same as the rate used in the prior interest period.
Prime Rate Notes
Each Prime Rate note will bear interest at a specified rate that will be
reset periodically based on the Prime Rate and any Spread and/or Spread
Multiplier.
"Prime Rate" means, with respect to any Interest Determination Date, the
rate set forth on that Interest Determination Date in H.15(519) under the
heading "Bank Prime Loan".
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published in H.15(519) prior to 9:00 a.m. on the
Calculation Date, then the Prime Rate will be the average (rounded upwards,
if necessary, to the next higher one-hundred thousandth of a percentage
point) of the rates publicly announced by each bank on the Reuters Screen
USPRIME1 Page as its prime rate or base lending rate for that Interest
Determination Date.
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(b) If fewer than four, but more than one, rates appear on the Reuters
Screen USPRIME1 Page, the Prime Rate will be the average of the prime rates
(quoted on the basis of the actual number of days in the year divided by a
360-day year) as of the close of business on the Interest Determination
Date by four major money center banks in The City of New York selected by
the calculation agent.
(c) If fewer than two rates appear, the Prime Rate will be determined
based on the rates furnished in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business
under the laws of the United States, or any State thereof, having total
equity capital of at least $500 million and being subject to supervision or
examination by a Federal or State authority, as selected by the calculation
agent.
(d) If no banks are providing quotes, the rate will be the same as the
rate used for the prior interest period.
CMT Rate Notes
Each CMT Rate note will bear interest at a specified rate that will be reset
periodically based on the CMT Rate and any Spread or Spread Multiplier.
"CMT Rate" means, with respect to any Interest Determination Date, the rate
displayed on the Designated CMT Telerate Page under the caption " . . .
Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . .
Mondays Approximately 3:45 p.m.", under the column for the specified Index
Maturity for:
(1) if the Designated CMT Telerate Page is 7055, the rate for the
Interest Determination Date; or
(2) if the Designated CMT Telerate Page is 7052, the week or the month,
as applicable, ended immediately preceding the week in which the Interest
Determination Date occurs.
The following procedures will apply if the rate cannot be set as described
above:
(a) if we do not specify any page, the Designated CMT Telerate Page will
be 7052 for the most recent week. If that rate is no longer displayed on
the relevant page, or if it is not displayed by 3:00 p.m. on the
Calculation Date, then the CMT Rate will be the Treasury constant maturity
rate for the specified Index Maturity as published in the relevant
H.15(519).
(b) If the rate is no longer published in H.15(519), or is not published
by 3:00 p.m. on the Calculation Date, then the CMT Rate for that
determination date will be the Treasury constant maturity rate for the
specified Index Maturity (or other U.S. Treasury rate for such Index
Maturity for that Interest Determination Date) as may then be published by
either the Federal Reserve Board or the U.S. 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).
(c) If that information is not provided by 3:00 p.m. on the Calculation
Date, then the CMT Rate will be calculated as a yield to maturity, based on
the average of the secondary market closing offer side prices as of
approximately 3:30 p.m. on that Interest Determination Date reported,
according to their written records, by three leading primary U.S.
government securities dealers (each, a "Reference Dealer") in The City of
New York selected by the calculation agent. These dealers will be selected
from five Reference Dealers.
The calculation agent will eliminate 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 specified Index Maturity and
a remaining term to maturity of not less than the specified Index Maturity
minus one year.
If two Treasury Notes with an original maturity as described in the
preceding sentence have remaining terms to maturity equally close to the
specified Index Maturity, the quotes for the Treasury Note with the shorter
remaining term to maturity will be used.
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(d) If the calculation agent cannot obtain three Treasury Note
quotations, the CMT Rate will be calculated as a yield to maturity based on
the average of the secondary market offer side prices as of approximately
3:30 p.m. on that Interest Determination Date of three Reference Dealers in
The City of New York selected by the calculation agent using the same
method described above, for Treasury Notes with an original maturity of the
number of years that is the next highest to the specified Index Maturity
with a remaining term to maturity closest to such Index Maturity and in an
amount of at least $100 million.
If three or four (and not five) of the Reference Dealers are providing
quotes, then the CMT Rate will be based on the average of the offer prices
obtained, and neither the highest nor the lowest of such quotes will be
eliminated.
(e) If fewer than three Reference Dealers are providing quotes, the rate
will be the same as the rate used in the prior interest period.
EUROPEAN MONETARY UNION
Unless we state otherwise in a pricing supplement, to the extent legally
permissible, neither the occurrence or non-occurrence of an EMU Event, nor the
entry into force of any law, regulation, directive or order that requires us
to redenominate or consolidate on terms different from those we describe
below, will alter any term of, or discharge or excuse performance under, the
Senior Indenture or the notes, nor would it permit the Trustee, the holders of
the notes, us or any of our agents the right unilaterally to alter or
terminate the Senior Indenture or the notes or give rise to any event of
default or otherwise be the basis for any rescission or renegotiation of the
Senior Indenture or the notes. To the extent legally permissible, the
occurrence or non-occurrence of an EMU Event will be considered to occur
automatically pursuant to the terms of the notes.
An "EMU Event" means any event associated with the European Monetary Union
in the European Community, including:
(a) the introduction or operation of the Euro;
(b) the fixing of exchange rates between the currency of a Participating
Member State and the Euro or between the currencies of Participating
Member States;
(c) the substitution of the Euro for the ECU as the unit of account of the
European Community or the European Central Bank;
(d) the introduction of the Euro as the lawful currency in a Participating
Member State;
(e) the withdrawal from legal tender of any currency that, before the
introduction of the Euro, was the lawful currency in any of the
Participating Member States;
(f) the disappearance or replacement of a relevant rate option or other
price source for the ECU or the currency of any Participating Member
State or the failure of the agreed price or rate sponsor or screen
provider to publish or display the required information; or
(g) any combination of the above.
REDENOMINATION
If payments on the notes of a series are to be made in a foreign or
composite currency and (i) the issuing country of that currency becomes a
Participating Member State; or (ii) the currency is the ECU and the Euro is
substituted for it as the unit of account of the European Community or the
European Central Bank, then we may, solely at our option and without the
consent of holders or the need to amend the Senior Indenture or the notes,
redenominate all of the notes of that series into Euros (whether or not any
other similar series of notes are so redenominated) on any interest payment
date after the EMU Date and after the date on which that country became a
Participating Member State or the substitution of the Euro occurred,
respectively. We will give holders at least 30 days' notice of the
redenomination, including a description of the way we will implement it. If we
elect to redenominate a series of notes, it will be redenominated either:
(a) in a manner and in compliance with all requirements of relevant
monetary, stock exchange or other authorities and existing or expected
market practices consistent with the requirements for debt obligations
issued in the Euromarkets that are held in international clearing
systems; or
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(b) if we do not implement the redenomination as described above, we will
convert the nominal specified currency amount of each note of the
series into Euros by using the fixed conversion rate adopted by the
Council of the European Union for the affected currency, and the series
will be replaced either (i) by notes of the same series equal in value
to the amount redenominated, but denominated in Euros and each with a
denomination of one cent; or (ii) if the international clearing systems
for the notes do not then accept for clearance and settlement
redenominated Euromarket debt obligations, each of that denomination,
by notes of the same series equal in value to the amount redenominated,
but denominated in Euros and each with a denomination of one Euro.
We will pay any balance remaining from a redenomination in cash. The cash
adjustment will be payable in Euros to or on the order of holders of the
affected series in the same way interest is paid.
Despite the above procedures, solely at our option and without the consent
of holders or the need to amend the Senior Indenture or the notes, we may
elect that, beginning on the date of redenomination of a series of notes or
any later interest payment date as we may specify, the denominations of the
notes of that series will be one cent (if applicable), Euro 1, Euro 10, Euro
100, Euro 1,000, Euro 10,000, Euro 100,000 and Euro 1,000,000. The minimum
denominations of the notes after redenomination will not be lower than the
equivalent of any minimum denominations of the notes required by law,
regulation or market practice. We may elect to permit holders to exchange
then-existing Euro-denominated notes of a series for notes of the new
denominations having the same aggregate nominal amount as the notes being
exchanged. We will give holders at least 30 days' irrevocable notice if we
make this election.
Once we have redenominated a series of notes (or when we issue any notes
originally denominated in Euros), "Business Day" for those notes will be (i)
as defined for either fixed or floating rate Euro-denominated Euromarket debt
obligations and in a way that is consistent with then-existing or expected
market practices, as we determine them to be; or (ii) if we do not make the
determination described in clause (i), as defined prior to the redenomination
(or issuance); or (iii) if we would be unable to make payments on the notes on
the required dates if the definition were as described in clause (ii), as
defined by us in any other way.
Solely at our option and without the consent of holders, references in the
notes to any other convention (whether for the calculation of interest,
determination of payment dates or otherwise) may be amended, with effect from
(i) the date of redenomination; (ii) the interest payment date following the
substitution of the Euro for the specified currency; or (iii) any later
interest payment date that we may specify to comply with conventions
applicable to Euro-denominated Euromarket debt obligations under requirements
of relevant monetary, stock exchange or other authorities, and any market
practices consistent with those requirements as we, in our discretion,
determine to apply to other Euromarket debt obligations that have also been
redenominated. The terms of the notes will be deemed to be amended
accordingly.
If we elect to consolidate the notes of a series with other similar series
of notes by reference to the same interest payment date as a redenomination of
the notes of that series into Euros or to a later interest payment date, we
will apply the provisions of "Description of Notes--Consolidation" below with
effect from the date of consolidation.
If a redenominated note is a floating rate note, the rate of interest that
will apply to the note beginning on the interest payment date falling on or
immediately prior to the redenomination date will be (i) the interest rate
that applied prior to redenomination, with Euros substituted for the specified
currency, unless that interest rate is inconsistent with then-existing or
expected market practices for Euro-denominated Euromarket debt obligations
with floating rate interest payments of frequencies identical or substantially
similar to the frequency of interest payments under the note, as we determine;
or (ii) if that interest rate is so inconsistent, the interest rate that would
be consistent with then-existing or expected market practices for Euro-
denominated Euromarket debt obligations, in each case with such interest rate
equal to the interest rate applicable to the note (adjusted as described
above), plus or minus any Spread or Spread Multiplier indicated in the pricing
supplement, as we determine.
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Unless and until the notes of a redenominated series are consolidated with
similar series of other securities as described under "Description of Notes--
Consolidation" below, the interest accrual basis and the provisions of the
notes of that series relating to the source and determination of the interest
accrual basis that will begin on the interest payment date falling on or
immediately prior to the date of redenomination will be:
(a) the interest accrual basis and those provisions that applied prior to
redenomination, unless that interest accrual basis is or those
provisions are inconsistent with then-existing or expected market
practices for Euro-denominated Euromarket debt obligations with fixed
rate or floating rate interest payments of frequencies identical or
substantially similar to the frequency of interest payments under those
notes, based, in the case of floating interest rate payments, on the
reference rate for the notes prior to the date of redenomination, as we
determine; or
(b) if the interest accrual basis that applied previously is or those
provisions are so inconsistent, the interest accrual basis or the
provisions of the notes of that series relating to the source and
determination of that interest accrual basis, as the case may be, which
is consistent with the then-existing or expected market practices for
Euro-denominated Euromarket debt obligations with fixed rate or
floating rate interest payments of frequencies identical or
substantially similar to the frequency of interest payments under those
notes, based, in the case of floating interest rate payments, on the
reference rate applicable to the notes (adjusted as described above),
as we determine.
We may, with the consent of the Trustee but without consent of the holder of
any note, make any change or addition to the terms of the notes of a series if
we and the Trustee believe it is necessary or appropriate to facilitate the
implementation of the practical aspects of the introduction of the Euro or to
correct any clear error or any ambiguity or any defective provisions of the
notes, so long as the change or addition is not materially prejudicial to the
interests of the holders of the affected series. Any change or addition will
be binding on the holders of the notes of that series, the Trustee, the paying
agents, us and any of our other agents. Any change or addition will be
considered to be made by operation of the terms of the relevant notes. We will
promptly notify holders of any change or addition.
CONSOLIDATION
If (i) the payments on the notes of a series are to be made in any specified
currency (including ECU) other than U.S. dollars; and (ii) after the EMU Date,
the issuing country of that currency becomes a Participating Member State or,
if the currency is the ECU and the Euro is substituted for it as the unit of
account of the European Community or the European Central Bank, then, subject
to the provisions below, we may, without the consent of the holders of those
notes or the need to amend the Senior Indenture, consolidate the notes of that
series with one or more other similar series of notes on any interest payment
date after the EMU Date has occurred (or if that day is not a business day in
any location that we determine to be necessary or appropriate for the
consolidation, the next day that is a business day in that location). We will
give holders at least 30 days' notice of the consolidation, including a
description of the way we will implement it. A consolidation may only be
carried out if all of the affected notes have been redenominated in Euros on
or before the interest payment date falling on or immediately prior to the
date of the proposed consolidation (if not already so denominated), and no
default or event of default under any of the notes is continuing.
We may exercise our right referred to above if we determine that the notes
that we propose to consolidate (i) may be cleared and settled on an
interchangeable basis with the same securities identification numbers through
the main clearing systems through which each series of notes was previously
cleared and settled unless on the date of the proposed consolidation it will
be impossible so to clear and settle the consolidated notes in one or more of
those systems, in which case the consolidated notes need not so clear and
settle through any unavailable clearing system unless it would be materially
prejudicial to the holders of the notes of the affected series; and (ii) if
any of the series to be consolidated was listed on any European stock exchange
on which debt obligations are customarily listed immediately prior to the
consolidation, will be listed on at least one of those exchanges.
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Once we have consolidated two or more series of notes, "Business Day" for
those notes will be (i) as defined for fixed or floating rate Euro-denominated
Euromarket debt obligations and in a way consistent with existing or
anticipated market practices as we determine them to be; or (ii) if we do not
make the determination described in clause (i), as defined prior to the
consolidation; or (iii) if we would be unable to make payments on the notes on
the required dates if the term were defined as described in clause (ii), as
defined by us in any other way.
From the date of consolidation of any series of notes or any later interest
payment date, we may, solely at our option and without the consent of holders,
change the nominal amounts in which those notes are denominated as a result of
any previous redenomination, as well as the conventions applicable to those
notes, in each case as described under "Description of Notes--Redenomination".
The interest accrual basis and the provisions of a series relating to the
source and determination of the interest accrual basis that will apply to the
consolidated notes beginning on the interest payment date falling on or
immediately prior to the date of consolidation will remain the same if the
series consolidated had the same interest accrual basis and the same
provisions prior to consolidation. If that is not the case, then despite the
provisions of "Description of Notes--Redenomination" above, the interest
accrual basis or the provisions of the notes of a consolidated series relating
to the source and determination of the interest accrual basis that will apply
beginning on the interest payment date falling on or immediately prior to the
date of consolidation will be:
(a) the interest accrual basis or those provisions that applied to those
notes prior to consolidation, unless that interest accrual basis is or
those provisions are inconsistent with then-existing or expected market
practices for Euro-denominated Euromarket debt obligations with fixed
rate or floating rate interest payments of frequencies identical or
substantially similar to the frequency of interest payments under those
notes, as we determine; or
(b) if the interest accrual basis that applied prior to consolidation is or
those provisions are so inconsistent, the interest accrual basis or the
provisions of the notes of that series relating to the source and
determination of the interest accrual basis that would be consistent
with then-existing or expected market practices for Euro-denominated
Euromarket debt obligations with fixed rate or floating rate interest
payments of frequencies identical or substantially similar to the
frequency of interest payments under those notes, as we determine.
Upon any consolidation, without the consent of holders of the affected
notes, we may change the nominal amounts in which the affected notes are
denominated as a result of any previous redenomination. Upon any consolidation
of the notes of a series represented by a global note or master note with any
other series of notes so represented, we may change the depositary that holds
the notes of either series either physically or on behalf of the clearing
system through which the notes of that series are held or we may issue a
replacement global note or global notes representing them. Notes of any series
represented by certificated notes must be exchanged for notes represented by a
global note or master note prior to any consolidation. If an exchange is not
possible under the terms of any notes, we will not consolidate those notes
with any other series of notes represented by a global note or master note.
We may, with the consent of the Trustee but without the consent of the
holders of any note, make any change or addition to the terms of the notes of
a series if we and the Trustee believe it is necessary or appropriate to
implement the relevant consolidation of notes or to correct any clear error or
any ambiguity or any defective provisions of the notes, so long as the change
or addition is not materially prejudicial to the interests of the holders of
the affected series. Any change or addition will be binding on the holders of
the notes of that series, the Trustee, the paying agents, us and any of our
agents. Any change or addition will be considered to be made by operation of
the terms of the relevant notes. We will promptly notify holders of any change
or addition.
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INDEXED NOTES
We may offer indexed notes under which principal or interest is determined
by reference to an index related to:
(a) the rate of exchange between the specified currency for such note and
the Index Currency;
(b) the difference in the price of a specified commodity on specified
dates;
(c) the difference in the level of a specified stock index, which may be
based on U.S. or foreign stocks, on specified dates; or
(d) any other objective price or economic measures described in the pricing
supplement.
We will describe the manner of determining principal and interest amounts in
the pricing supplement. We will also include historical and other information
regarding the index or indexes and information concerning tax consequences to
holders of indexed notes.
Interest payable on an indexed note will be based on the face amount of the
note. The pricing supplement will describe whether the principal payable upon
redemption or repayment prior to Maturity will be the face amount, the index
principal amount at the time of redemption or repayment or some other amount.
AMORTIZING NOTES
We may offer amortizing notes. Unless otherwise specified in the pricing
supplement, interest on an amortizing note will be computed using a 360-day
year of twelve 30-day months. Payments on amortizing notes will be applied
first to interest due and payable and then to the unpaid principal amount.
Further information about amortizing notes will be specified in the pricing
supplement.
BOOK-ENTRY SYSTEM
Upon issuance, all notes having the same original issue date and otherwise
identical terms will be represented by a single global note. Each global note
representing book-entry notes will be deposited with DTC. This means that we
will not issue certificates to each holder. A single global note will be
issued to DTC. DTC will keep a computerized record of its participants (for
example, your broker) whose clients have purchased the notes. Unless it is
exchanged in whole or in part for a certificated note, a global note may not
be transferred, except that DTC, its nominees and their successors may
transfer a global note as a whole to one another.
Beneficial interests in global notes will be shown on, and transfers of
interests will be made only through, records maintained by DTC and its
participants. The laws of some jurisdictions require that certain purchasers
take physical delivery of securities in definitive form. These laws may impair
the ability to transfer beneficial interests in a global note.
We will wire principal and interest payments to DTC or its nominee. We and
the Trustee will treat DTC or its nominee as the owner of a global note for
all purposes. Accordingly, we, the Trustee and any paying agent will have no
direct responsibility or liability to pay amounts due on a global note to
owners of beneficial interests in a global note.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit participants' accounts on the payment date according to
their respective holdings of beneficial interests in the global note as shown
on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to participants whose accounts are credited with
notes on a record date, by using an omnibus proxy. Payments by participants to
owners of beneficial interests in a global note, and voting by participants,
will be governed by the customary practices between the participants and
owners of beneficial interests, as is the case with notes held for the account
of customers registered in "street name." However, payments will be the
responsibility of the participants and not our responsibility or that of DTC
or the Trustee.
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Notes represented by a global note will be exchangeable for certificated
notes with the same terms in authorized denominations only if:
(a) DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered under
applicable law and a successor depositary is not appointed by us within
90 days; or
(b) we determine not to require all of the notes of a series to be
represented by a global note and notify the Trustee of our decision.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the Agents), banks, trust companies, clearing corporations, and
certain other organizations, some of whom (and/or their representatives) own
DTC. Access to DTC's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
OTHER PROVISIONS; ADDENDA
We may modify any provisions of a note by using the section marked "Other
Provisions" on the face of the note or by providing an addendum to the note.
OPTIONAL REDEMPTION, REPAYMENT AND REPURCHASE
The pricing supplement for a note will indicate whether we will have the
option to redeem the note before the stated maturity and the price and date or
dates on which redemption may occur. If we are allowed to redeem a note, we
may exercise the option by notifying the Trustee and the paying agent at least
45 days prior to the redemption date. At least 30 but not more than 60 days
before the redemption date, the Trustee will mail notice or cause the paying
agent to mail notice of redemption to the holders. If a note is only redeemed
in part, we will issue a new note or notes for the unredeemed portion.
The pricing supplement relating to a note will also indicate whether you
will have the option to elect repayment by us prior to the stated maturity and
the price and the date or dates on which repayment may occur.
For a note to be repaid, the paying agent must receive at least 30 but not
more than 45 days prior to an optional repayment date, such note with the form
entitled "Option to Elect Repayment" on the reverse of the note completed. You
may also send the paying agent a facsimile or letter from a member of a
national securities exchange or the National Association of Securities
Dealers, Inc. or a commercial bank or trust company in the United States
describing the particulars of the repayment including a guarantee that the
note and the form entitled "Option to Elect Repayment" will be received by the
paying agent no later than five Business Days after such facsimile or letter.
If you present a note for repayment, such act will be irrevocable. You may
exercise the repayment option for less than the entire principal of the note,
provided the remaining principal outstanding is an authorized denomination. If
you elect partial repayment, your note will be cancelled, and we will issue a
new note or notes for the remaining amount.
DTC or its nominee will be the holder of each global note and will be the
only party that can exercise a right of repayment. If you are a beneficial
owner of a global note and you want to exercise your right of
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repayment, you must instruct your broker or indirect participant through which
you hold your interest to notify DTC. You should consult your broker or such
indirect participant to discuss the appropriate cut-off times and any other
requirements for giving this instruction.
Regardless of anything in this prospectus supplement to the contrary, if a
note is an Original Issue Discount Note (other than an indexed note), the
amount payable in the event of redemption or repayment prior to its stated
maturity will be the amortized face amount on the redemption or repayment
date, as the case may be. The amortized face amount of an Original Issue
Discount Note will be equal to (i) the issue price plus (ii) that portion of
the difference between the issue price and the principal amount of the note
that has accrued at the yield to maturity described in the pricing supplement
(computed in accordance with generally accepted U.S. bond yield computation
principles) by the redemption or repayment date. However, in no case will the
amortized face amount of an Original Issue Discount Note exceed its principal
amount.
We may at any time purchase notes at any price in the open market or
otherwise. We may hold, resell or surrender for cancellation any notes that we
purchase.
UNITED STATES TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations
that may be relevant to a holder of a note that is a U.S. holder. A U.S.
holder is an individual who is a citizen or resident of the United States, a
United States domestic corporation, or any other person that is subject to
United States federal income tax on a net income basis in respect of its
investment in a note. This summary is based on laws, regulations, rulings and
decisions now in effect, which may change. Any change could apply
retroactively and could affect the continued validity of this summary. This
summary deals only with U.S. holders that hold notes as capital assets. It
does not address considerations applicable to investors that may be subject to
special tax rules, such as banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, traders in securities or commodities that elect mark to market
treatment, persons that will hold notes as a hedge against currency risk or as
a position in a "straddle" or conversion transaction, tax exempt
organizations, holders who are not U.S. holders, or persons that have a
"functional currency" other than the U.S. dollar.
You should consult your tax adviser about the tax consequences of holding
notes, including the relevance to your particular situation of the
considerations discussed below, as well as of state, local or other tax laws.
PAYMENTS OR ACCRUALS OF INTEREST
Payments of or accruals of "qualified stated interest" (as defined below) on
a note will be taxable to a U.S. holder as ordinary interest income at the
time that the holder accrues or receives such amounts (in accordance with the
holder's method of tax accounting). If a U.S. holder using the cash method of
tax accounting elects to receive payments of interest pursuant to the terms of
a note in a currency or currency unit other than U.S. dollars (a "foreign
currency"), the amount of interest income realized by the holder will be the
U.S. dollar value of the foreign currency payment based on the exchange rate
in effect on the date of receipt regardless of whether the payment is
converted into U.S. dollars. In the case of an accrual basis U.S. holder, the
amount of interest income will be based on the average exchange rate in effect
during the interest accrual period (or with respect to an interest accrual
period that spans two taxable years, at the average exchange rate for the
partial period within the taxable year). Alternatively, an accrual basis U.S.
holder may elect to translate all interest income on foreign currency-
denominated notes at the spot rate on the last day of the accrual period (or
the last day of the taxable year, in the case of an accrual period that spans
more than one taxable year) or on the date the holder receives the interest
payment if that date is within five business days of the end of the accrual
period. A U.S. holder that makes this 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. A U.S. holder that uses the
accrual method of accounting for tax purposes will recognize foreign currency
gain or loss on the receipt of a foreign currency interest payment if the
exchange rate in effect on the date the payment is received differs from the
rate applicable to a previous accrual of that interest income. This foreign
currency gain or loss will be treated as ordinary income or loss, but
generally will not be treated as an adjustment to interest income received on
the note.
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PURCHASE, SALE AND RETIREMENT OF NOTES
A U.S. holder's tax basis in a note generally will equal the cost of the
note to that holder, increased by any amounts includible in income by the
holder as original issue discount and market discount, and reduced by any
amortized premium (each as described below) and any payments other than
qualified stated interest made on the note. The cost to a U.S. holder of a
note denominated in a foreign currency will be the U.S. dollar value of the
foreign currency purchase price on the date of purchase calculated at the
exchange rate in effect on that date. In the case of a foreign currency note
that is traded on an established securities market, a cash-basis U.S. holder
(or, if it so elects, an accrual-basis U.S. holder) will determine the U.S.
dollar value of the cost of the note by translating the amount paid at the
spot rate of exchange on the settlement date of the purchase. The amount of
any subsequent adjustments to the holder's tax basis in a note in respect of
foreign currency-denominated original issue discount, market discount and
premium will be determined in the manner described below. The conversion of
U.S. dollars to a foreign currency and the immediate use of that currency to
purchase a note generally will not result in taxable gain or loss for a U.S.
holder.
Upon the sale, exchange or retirement of a note, a U.S. holder generally
will recognize gain or loss equal to the difference between the amount
realized on the transaction (less any accrued qualified stated interest, which
will be taxable as such) and the U.S. holder's tax basis in the note. If a
U.S. holder elects to receive foreign currency in respect of the sale,
exchange or retirement of a foreign currency note, the amount realized
generally will be the dollar value of the foreign currency the holder receives
calculated at the exchange rate in effect on the date the foreign currency
note is disposed of or retired. In the case of a foreign currency note that is
traded on an established securities market, a cash-basis U.S. holder (or, if
it so elects, an accrual-basis U.S. holder) will determine the U.S. dollar
value of the amount realized by translating the amount at the spot rate of
exchange on the settlement date of the sale, exchange or retirement.
The election available to accrual-basis U.S. holders in respect of the
purchase and sale of foreign currency notes traded on an established
securities market, which is discussed in the two preceding paragraphs, must be
applied consistently to all debt instruments from year to year and cannot be
changed without the consent of the Internal Revenue Service.
Except as discussed below with respect to market discount and foreign
currency gain or loss, gain or loss recognized by a U.S. holder on the sale,
exchange or retirement of a note generally will be long-term capital gain or
loss if the U.S. holder has held the note for more than one year. The Internal
Revenue Code of 1986, provides preferential treatment under certain
circumstances for net long-term capital gains recognized by individual
investors. Net long-term capital gain recognized by an individual U.S. holder
generally will be subject to a maximum tax rate of 28% for notes held for more
than one year and to a maximum rate of 20% for notes held more than 18 months.
Legislation currently pending in Congress generally would, if enacted in its
current form, subject long-term capital gain recognized by an individual
holder to a maximum rate of 20% for notes held for more than one year,
effective for amounts properly taken into account on or after January 1, 1998.
The ability of U.S. holders to offset capital losses against ordinary income
is limited.
Notwithstanding the foregoing, gain or loss recognized by a U.S. holder on
the sale, exchange or retirement of a foreign currency note generally will be
treated as ordinary income or loss to the extent that the gain or loss is
attributable to changes in exchange rates during the period in which the
holder held the note. This foreign currency gain or loss will not be treated
as an adjustment to interest income that the holder receives on the note.
ORIGINAL ISSUE DISCOUNT
U.S. holders of Original Issue Discount Notes generally will be subject to
the special tax accounting rules for original issue discount obligations
provided by the Internal Revenue Code and certain Treasury regulations. U.S.
holders of these notes should be aware that, as described in greater detail
below, they generally must include original issue discount in ordinary gross
income for U.S. federal income tax purposes as it accrues, in advance of the
receipt of cash attributable to that income.
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In general, each U.S. holder of an Original Issue Discount Note with a
maturity greater than one year, whether the U.S. holder uses the cash or the
accrual method of tax accounting, will be required to include in ordinary
gross income the sum of the "daily portions" of original issue discount on
that note for all days during the taxable year that the holder owns the note.
The daily portions of original issue discount on an Original Issue Discount
Note are determined by allocating to each day in any accrual period a ratable
portion of the original issue discount allocable to that period. Accrual
periods may be any length and may vary in length over the term of an Original
Issue Discount Note, so long as no accrual period is longer than one year and
each scheduled payment of principal or interest occurs on the first or last
day of an accrual period. In the case of an initial holder, the amount of
original issue discount on an Original Issue Discount Note allocable to each
accrual period is determined by (i) multiplying the "adjusted issue price" (as
defined below) of the note at the beginning of the accrual period by a
fraction, the numerator of which is the annual yield to maturity of the note
and the denominator of which is the number of accrual periods in a year and
(ii) subtracting from that product the amount (if any) payable as qualified
stated interest allocable to that accrual period. The term "qualified stated
interest" generally means stated interest that is unconditionally payable in
cash or property (other than debt instruments issued by the Company) at least
annually during the entire term of an Original Issue Discount Note at a single
fixed interest rate or, subject to certain conditions, based on one or more
interest indices. In the case of an Original Issue Discount Note that is a
floating rate note, both the "annual yield to maturity" and the "qualified
stated interest" will be determined for these purposes as though the note will
bear interest in all periods at a fixed rate generally equal to the rate that
would be applicable to interest payments on the note on its date of issue or,
in the case of some floating rate notes, the rate that reflects the yield that
is reasonably expected for the note. (Additional rules may apply if interest
on a floating rate note is based on more than one interest index.) The
"adjusted issue price" of an Original Issue Discount Note at the beginning of
any accrual period will generally be the sum of its issue price (including any
accrued interest) and the amount of original issue discount allocable to all
prior accrual periods, reduced by the amount of all payments other than any
qualified stated interest payments on the note in all prior accrual periods.
All payments on an Original Issue Discount Note (other than qualified stated
interest) will generally be viewed first as payments of previously accrued
original issue discount (to the extent of the previously accrued discount),
with payments considered made from the earliest accrual periods first, and
then as a payment of principal. The "annual yield to maturity" of a note is
the discount rate (appropriately adjusted to reflect the length of accrual
periods) that causes the present value on the issue date of all payments on
the note to equal the issue price. As a result of this "constant yield" method
of including original issue discount income, the amounts so includible in
gross income by a U.S. holder in respect of an Original Issue Discount Note
denominated in U.S. dollars are generally lesser in the early years and
greater in the later years than amounts that would be includible on a
straight-line basis.
A U.S. holder generally may make an irrevocable election to include in its
income its entire return on a note (i.e., the excess of all remaining payments
to be received on the note, including payments of qualified stated interest,
over the amount paid by the holder for the note) under the constant yield
method described above. For notes purchased at a premium or bearing market
discount in the hands of the U.S. holder, the holder making this election will
also be deemed to have made the election (discussed below in "Premium and
Market Discount") to amortize premium or to accrue market discount in income
currently on a constant yield basis.
In the case of an Original Issue Discount Note that is also a foreign
currency note, a U.S. holder should determine the U.S. dollar amount
includible as original issue discount for each accrual period by (i)
calculating the amount of original issue discount allocable to each accrual
period in the foreign currency using the constant yield method, and (ii)
translating the foreign currency amount so received at the average exchange
rate in effect during that accrual period (or, with respect to an interest
accrual period that spans two taxable years, at the average exchange rate for
each partial period). Alternatively, the holder may translate the foreign
currency amount so derived at the spot rate of exchange on the last day of the
accrual period (or the last day of the taxable year, for an accrual period
that spans two taxable years) or at the spot rate of exchange on the date of
receipt, if that date is within five business days of the last day of the
accrual period, provided that the U.S. holder has made the election described
under "Payments or Accruals of Interest" above. Because exchange rates may
fluctuate, a U.S. holder of an Original Issue Discount Note that is also a
foreign currency note may recognize a
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different amount of original issue discount income in each accrual period than
would the holder of an otherwise similar Original Issue Discount Note
denominated in U.S. dollars. Upon the receipt of an amount attributable to
original issue discount (whether in connection with a payment of an amount
that is not qualified stated interest or the sale or retirement of the
Original Issue Discount Note), a U.S. holder will recognize ordinary income or
loss measured by the difference between the amount received (translated into
U.S. dollars at the exchange rate in effect on the date of receipt or on the
date of disposition of the Original Issue Discount Note, as the case may be)
and the amount accrued (using the exchange rate applicable to such previous
accrual).
A subsequent U.S. holder of an Original Issue Discount Note that purchases
the note at a cost less than its "remaining redemption amount", or an initial
United States holder that purchases an Original Issue Discount Note at a price
other than the note's issue price, also generally will be required to include
in gross income the daily portions of original issue discount, calculated as
described above. However, if the subsequent holder acquires the Original Issue
Discount Note at a price greater than its adjusted issue price, the holder may
reduce its periodic inclusions of original issue discount income to reflect
the premium paid over the adjusted issue price. The remaining redemption
amount for an Original Issue Discount Note is the total of all future payments
to be made on the note other than qualified stated interest.
Certain of the Original Issue Discount Notes may be redeemed prior to
Maturity, either at the option of the Company or at the option of the holder,
or may have special repayment or interest rate reset features as indicated in
the pricing supplement. Original Issue Discount Notes containing these
features may be subject to rules that differ from the general rules discussed
above. If you purchase Original Issue Discount Notes with these features, you
should carefully examine the pricing supplement and consult your tax adviser
about them since the tax consequences of original issue discount will depend,
in part, on the particular terms and features of the notes.
SHORT-TERM NOTES
The rules described above will also generally apply to Original Issue
Discount Notes with maturities of one year or less ("short-term notes"), but
with some modifications.
First, the original issue discount rules treat none of the interest on a
short-term note as qualified stated interest, but treat a short-term note as
having original issue discount. Thus, all short-term notes will be Original
Issue Discount Notes. Except as noted below, a cash-basis U.S. holder of a
short-term note that does not identify the short-term note as part of a
hedging transaction will generally not be required to accrue original issue
discount currently, but will be required to treat any gain realized on a sale,
exchange or retirement of the note as ordinary income to the extent such gain
does not exceed the original issue discount accrued with respect to the note
during the period the holder held it. A U.S. holder may not be allowed to
deduct all of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a short-term note until the Maturity of the
note or its earlier disposition in a taxable transaction. Notwithstanding the
foregoing, a cash-basis U.S. holder of a short-term note may elect to accrue
original issue discount on a current basis (in which case the limitation on
the deductibility of interest described above will not apply). A U.S. holder
using the accrual method of tax accounting and some cash method holders
(including banks, securities dealers, regulated investment companies and
certain trust funds) generally will be required to include original issue
discount on a short-term note in gross income on a current basis. Original
issue discount will be treated as accruing for these purposes on a ratable
basis or, at the election of the holder, on a constant yield basis based on
daily compounding.
Second, any U.S. holder of a short-term note (whether a cash- or accrual-
basis holder) can elect to accrue the "acquisition discount", if any, with
respect to the note on a current basis. Acquisition discount is the excess of
the remaining redemption amount of the note at the time of acquisition over
the purchase price. Acquisition discount will be treated as accruing ratably
or, at the election of the holder, under a constant yield method based on
daily compounding. If a U.S. holder elects to accrue acquisition discount, the
original issue discount rules will not apply.
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Finally, the market discount rules described below will not apply to short-
term notes.
As described above, certain of the notes may be subject to special
redemption features. These features may affect the determination of whether a
note has a maturity of one year or less and thus is a short-term note. If you
purchase notes with these features, you should carefully examine the pricing
supplement and consult your tax adviser about these features.
PREMIUM AND MARKET DISCOUNT
A U.S. holder that purchases a note at a cost greater than the note's
remaining redemption amount will be considered to have purchased the note at a
premium, and may elect to amortize the premium as an offset to interest
income, using a constant yield method, over the remaining term of the note.
This election, once made, generally applies to all debt instruments held or
subsequently acquired by the holder during or after the first taxable year to
which the election applies. The election may not be revoked without the
consent of the Internal Revenue Service. A U.S. holder that elects to amortize
the premium must reduce its tax basis in the note by the amount of the premium
amortized during its holding period. Original Issue Discount Notes purchased
at a premium will not be subject to the original issue discount rules
described above. In the case of premium on a foreign currency note, the holder
should calculate the amortization of the premium in the foreign currency.
Amortization deductions attributable to a period reduce interest payments in
respect of that period, and therefore are translated into U.S. dollars at the
rate used by the U.S. holder for those interest payments. Exchange gain or
loss will be realized with respect to amortized premium on a foreign currency
note based on the difference between the exchange rate computed on the date or
dates the premium is amortized against interest payments on the note and the
exchange rate on the date when the holder acquired the note. For a U.S. holder
that does not elect to amortize premium, the amount of premium will be
included in the holder's tax basis when the note matures or is disposed of.
Therefore, a U.S. holder that does not elect to amortize premium and that
holds the note to Maturity must generally treat the premium as capital loss
when the note matures.
If a U.S. holder purchases a note at a price that is lower than the note's
remaining redemption amount, or in the case of an Original Issue Discount
Note, the note's adjusted issue price, by 0.25% or more of the remaining
redemption amount (or adjusted issue price), multiplied by the number of
remaining whole years to maturity, the note will be considered to bear "market
discount" in the hands of the holder. In this case, gain realized by the
holder on the disposition of the note generally will be treated as ordinary
interest income to the extent of the market discount that accrued on the note
while held by the holder. In addition, the holder could be required to defer
the deduction of a portion of the interest paid on any indebtedness incurred
or continued to purchase or carry the note. In general, market discount will
be treated as accruing ratably over the term of the note, or, at the election
of the holder, under a constant yield method. A U.S. holder must accrue market
discount on a foreign currency note in the specified currency. The amount
includible in income by a U.S. holder in respect of accrued market discount
will be the U.S. dollar value of the accrued amount, generally calculated at
the exchange rate in effect on the date that the note is disposed of.
A U.S. holder may elect to include market discount in gross income currently
as it accrues (on either a ratable or constant yield basis), in lieu of
treating a portion of any gain realized on a sale of the note as ordinary
income. If a U.S. holder elects to include market discount on a current basis,
the interest deduction deferral rule described above will not apply. The
election, once made, applies to all market discount debt instruments acquired
by the United States holder on or after the first day of the first taxable
year to which the election applies. The election may not be revoked without
the consent of the Internal Revenue Service. Any accrued market discount on a
foreign currency note that is currently includible in income will be
translated into U.S. dollars at the average exchange rate for the accrual
period (or portion thereof within the holder's taxable year).
INDEXED NOTES AND OTHER NOTES PROVIDING FOR CONTINGENT PAYMENT
Special rules govern the tax treatment of debt obligations that provide for
contingent payments ("contingent debt obligations"). These rules generally
require accrual of interest income on a constant yield basis in respect
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of contingent debt obligations at a yield determined at the time of issuance
of the obligation, and may require adjustments to these accruals when any
contingent payments are made. We will provide a detailed description of the
tax considerations relevant to U.S. holders of any contingent debt obligations
in the pricing supplement.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The paying agent will be required to file information returns with the
Internal Revenue Service with respect to payments made to certain U.S.
holders. In addition, certain U.S. holders may be subject to a 31% backup
withholding tax in respect of these payments if they do not provide their
taxpayer identification numbers to the paying agent. Persons holding notes who
are not U.S. holders may be required to comply with certification procedures
to establish that they are not U.S. holders in order to avoid these
information reporting requirements and backup withholding tax.
PLAN OF DISTRIBUTION
We are offering the notes on a continuous basis through agents that have
agreed to use their reasonable best efforts to solicit orders. We have the
right to accept orders or reject proposed purchases in whole or in part. The
agents also have the right, using their reasonable discretion, to reject any
proposed purchase of the notes in whole or in part. We will pay an agent a
commission ranging from .150% to .750% of the principal amount of notes with a
stated maturity of 1 year to 30 years. The exact commission paid will be
determined by the stated maturity of the notes sold. Commissions with respect
to notes with stated maturities of over 30 years will be negotiated at the
time of sale. The following table describes the potential proceeds we will
receive but does not include expenses payable by us which we estimate to be
$887,000:
<TABLE>
<CAPTION>
PRICE TO AGENTS' COMMISSIONS AND
PUBLIC DISCOUNTS PROCEEDS TO THE COMPANY
-------------- ------------------------ ----------------------------
<S> <C> <C> <C>
Per Note................ 100% .150% to .750% 99.850% to 99.250%
Total................... $1,000,000,000 $1,500,000 to $7,500,000 $998,500,000 to $992,500,000
</TABLE>
We may arrange for notes to be sold through any agent or may sell notes
directly to investors. If we sell notes directly to investors, no commission
or discount will be paid. We also may sell notes to any agent as principal for
the agent's account at a price agreed upon at the time of sale. Such notes may
be resold by the agent to investors at a fixed public offering price or at
prevailing market prices, or at a related price, as determined by the agent.
Unless otherwise specified in the pricing supplement, any note sold to an
agent as principal will be purchased at a price equal to 100% of the principal
amount minus a discount equal to the commission that would be paid on an
agency sale of a note of identical maturity.
Agents may sell notes purchased from us as principal to other dealers for
resale to investors and other purchasers and may provide any portion of the
discount received in connection with their purchase from us to such dealers.
After the initial public offering of the notes, the public offering price, the
concession and the discount may be changed.
The notes will not have an established trading market when issued. Also, the
notes will not be listed on any securities exchange. The agents may make a
market in the notes, but are not obligated to do so and may discontinue any
market-making at any time without notice. There can be no assurance of a
secondary market for any notes, or that any notes will be sold.
The agents may be deemed to be "underwriters" within the meaning of the
Securities Act. We have agreed to indemnify the agents against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that they may be required to make in connection with such
indemnification.
The notes have not been and will not be registered under the Securities and
Exchange Law of Japan. We and the agents will not offer or sell any note
directly or indirectly in Japan or to residents of Japan or for the
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benefit of any Japanese person (which term means any person resident in Japan,
including any corporation or other entity organized under the laws of Japan)
or to others for reoffering or resale directly or indirectly in Japan or to
any Japanese person except in circumstances that result in compliance with any
applicable laws, regulations and ministerial guidelines of Japan taken as a
whole.
GLOSSARY
The following is a glossary of terms used in this prospectus supplement.
"Business Day" means any day, other than Saturday or Sunday, that is (i)
neither a legal holiday nor a day on which banking institutions are authorized
or required by law, regulation or executive order to close in (a) The City of
New York, (b) the City of Chicago or (c) if the specified currency for such
note is other than U.S. dollars, ECU or Euro, the Principal Financial Center
of the country issuing such currency; (ii) if the specified currency for such
note is ECU, a day that does not appear as an ECU non-settlement day on the
display designated as "ISDE" on the Reuter Monitor Money Rates Service (or a
day so designated by the ECU Banking Association) or, if ECU non-settlement
days do not appear on that page (and are not so designated) a day on which
payments in ECU may be settled in the international interbank market; (iii) if
the specified currency for such note is Euro, a day fixed as described under
"Description of Notes--Redenomination" above; and (iv) if such note is a LIBOR
note, a London Business Day.
"Calculation Date" means the date by which the calculation agent calculates
an interest rate for a floating rate note, which will be one of the following:
"Prime Rate"-- the earlier of (i) the tenth day after the related Prime
Rate Interest Determination Date or, if such day is not a Business Day, the
next Business Day, or (ii) the Business Day immediately before the
applicable interest payment date or Maturity, as the case may be.
"CD Rate"-- the earlier of (i) the tenth day after the related CD Rate
Interest Determination Date or, if such day is not a Business Day, the next
Business Day, or (ii) the Business Day immediately before the applicable
interest payment date or Maturity, as the case may be.
"CMT Rate"-- the earlier of (i) the tenth day after the related CMT Rate
Interest Determination Date or, if such day is not a Business Day, the next
Business Day, or (ii) the Business Day immediately before the applicable
interest payment date or Maturity, as the case may be.
"Commercial Paper Rate"-- the earlier of (i) the tenth day after the
related Commercial Paper Rate Interest Determination Date or, if such day
is not a Business Day, the next Business Day, or (ii) the Business Day
immediately before the applicable interest payment date or Maturity, as the
case may be.
"LIBOR"-- the LIBOR Interest Determination Date.
"Treasury Rate"-- the earlier of (i) the tenth day after the related
Treasury Rate Interest Determination Date or, if such day is not a Business
Day, the next Business Day, or (ii) the Business Day immediately before the
applicable interest payment date or Maturity, as the case may be.
"Federal Funds Rate"-- the earlier of (i) the tenth day after the related
Federal Funds Effective Rate Interest Determination Date or, if such day is
not a Business Day, the next Business Day, or (ii) the Business Day
immediately before the applicable interest payment date or Maturity, as the
case may be.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 p.m. Quotations for U.S. Government Securities" published by
the Federal Reserve Bank of New York.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable pricing supplement (or any
other page as may replace such page so that service for
the purpose of displaying Treasury Constant Maturities as reported in
H.15(519)), for the purpose of displaying Treasury Constant Maturities as
reported in H.15(519). If no such page is specified in the applicable pricing
supplement, the Designated CMT telerate Page shall be 7052, for the most
recent week.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is specified in
the applicable pricing supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London
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interbank rates of major banks for the applicable Index Currency, or (b) if
"LIBOR Telerate" is specified in the applicable pricing supplement or neither
"LIBOR Reuters" nor "LIBOR Telerate" is specified as the method for
calculating LIBOR, 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.
"EMU Date" means the day on which the third stage of European Monetary Union
has started or events have occurred that have substantially the same effects
and consequences as those of the start of third stage of European Monetary
Union as contemplated by the Maastricht Treaty in effect as of the date of the
Senior Indenture.
"Fixed Conversion Rate" with respect to any specified currency means the
irrevocably fixed conversion rate between the Euro and such specified currency
adopted by the Council of the European Union according to Article 109 1(4)
first sentence of the Treaty of Rome.
"H.15(519)" means the publication entitled "Statistical Release H. 15(519),
Selected Interest Rates", or any successor publication, published by the Board
of Governors of the Federal Reserve System.
"Index Currency" means the currency (including composite currencies)
specified in the applicable pricing supplement. If no such currency is
specified in the pricing supplement, the Index Currency will be U.S. dollars.
"Index Maturity" for any note is the period of maturity of the instrument,
obligation or index from which the Base Rate is calculated.
"Interest Determination Date" means the date as of which the interest rate
for a floating rate note is to be determined, to be effective as of the
following Interest Reset Date and calculated no later than the related
Calculation Date (except in the case of LIBOR which is calculated on the
related LIBOR Interest Determination Date). The Interest Determination Dates
will be indicated in the applicable pricing supplement and in the note.
"London Business Day" means (i) if the Index Currency is other than Euro or
ECU, any day on which dealings in such Index Currency are transacted in the
London interbank market; (ii) if the Index Currency is Euro then such a day
fixed as described under "Description of Notes--Redenomination" above; or
(iii) if the Index Currency is ECU, then any day that does not appear as an
ECU non-settlement day on the display designated as "ISDE" on the Reuter
Monitor Money Rates Service (or a day so designated by the ECU Banking
Association) or, if ECU non-settlement days do not appear on that page (and
are not so designated) any day on which payments in ECU may be settled in the
international interbank market.
"Maastricht Treaty" means the treaty on European Union which was signed in
Maastricht on February 1, 1992 and came into force on November 1, 1993.
"Maturity" means the date on which the principal of a note or an installment
of principal becomes due and payable as provided in the note or in the Senior
Indenture, whether at stated maturity or by declaration of acceleration, call
for redemption or otherwise.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
-----------
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the period for which accrued interest is being
calculated.
"Original Issue Discount Note" means (i) any note where the difference
between (x) the first price at which a substantial amount of the notes that
are part of the same issue is sold for money (other than to an underwriter,
placement agent or wholesaler) and (y) the stated redemption price at the
maturity of the note is at least 0.25% of that stated redemption price
multipled by the number of full years from the issue date to the stated
maturity; and (ii) any other note designated by the Company as issued with
original issue discount for U.S. federal income tax purposes. The stated
redemption price at Maturity of an Original Issue Discount Note is the total
of all payments to be made under the Original Issue Discount Note, other than
payments of qualified stated interest.
S-25
<PAGE>
"Participating Member State" means a member state of the European Community
established by the Treaty of Rome that adopts the Euro in accordance with the
Treaty of Rome.
"Principal Financial Center" will generally be the capital city of the
country of the specified Index Currency, except that with respect to
Australian dollars, Deutsche marks, Dutch guilders, Italian lire and Swiss
francs, the Principal Financial Center shall be Sydney, Frankfurt, Amsterdam,
Milan and Zurich, respectively.
"Spread" means the number of basis points (one basis point equals one-
hundredth of a percentage point) that may be specified in the applicable
pricing supplement as being applicable to the interest rate of a floating rate
note.
"Spread Multiplier" means the percentage that may be specified in the
applicable pricing supplement as being applicable to the interest rate of a
floating rate note.
"Treasury Rate Determination Date" for each Interest Reset Period will be
the day of the week in which the Interest Reset Date for such Interest Reset
Period 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, except that such auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
such Friday will be the Treasury Rate Determination Date pertaining to the
Interest Reset Period commencing in the next succeeding week. If an auction
date shall fall on any day that would otherwise be an Interest Reset Date for
a Treasury Rate note, then such Interest Reset Date shall instead be the
Business Day immediately following such auction date.
"Treaty of Rome" means the Treaty of Rome of March 25, 1957, as amended by
the Single European Act of 1986 and the Maastricht Treaty, establishing the
European Community, as amended from time to time.
S-26
<PAGE>
PROSPECTUS
MCDONALD'S CORPORATION
DEBT SECURITIES
McDonald's Corporation (the "Company") may use this prospectus to issue from
time to time one or more series of debt securities which may be either senior
debt securities or subordinated debt securities with a total initial public
offering price or purchase price of up to $1,000,000,000, or the equivalent
thereof in one or more foreign currencies. Debt securities of each series will
be offered on terms to be determined at the time of sale. We may sell debt
securities for U.S. dollars or a foreign or composite currency, and payments
on debt securities may be made in U.S. dollars or a foreign or composite
currency. Debt securities may be issuable as individual securities in
registered form without coupons, or as one or more global securities in
registered form. We will provide the specific terms of an offering of debt
securities, including the designation as senior debt securities or
subordinated debt securities, in an accompanying prospectus supplement.
The debt securities will be unsecured. Unless otherwise specified in a
prospectus supplement, the senior debt securities will rank equally with all
of our other unsecured and unsubordinated indebtedness. The subordinated debt
securities will be subordinated to all of our senior indebtedness.
We may offer debt securities in any of the following ways:
. directly;
. through agents;
. through dealers; or
. through one or more underwriters or a syndicate of underwriters in an
underwritten offering.
We will describe how a particular offering of debt securities will be made
in the prospectus supplement for the offering.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
The date of this prospectus is July 21, 1998.
<PAGE>
MCDONALD'S CORPORATION
GENERAL
McDonald's Corporation and its subsidiaries develop, operate, franchise and
service a worldwide system of restaurants which prepare, assemble, package and
sell a limited menu of value-priced foods. These restaurants are operated by
us or, under the terms of franchise arrangements, by franchisees who are
independent third parties, or by affiliates operating under joint-venture
agreements between us and local businesspeople.
McDonald's restaurants offer a substantially uniform menu consisting of
hamburgers and cheeseburgers, including the Big Mac, Quarter Pounder with
Cheese and Arch Deluxe sandwiches, the Filet-o-Fish, Grilled Chicken Deluxe
and Crispy Chicken Deluxe sandwiches, french fries, Chicken McNuggets, salads,
milk shakes, sundaes and cones, pies, cookies and a limited number of soft
drinks and other beverages. In addition, the restaurants sell a variety of
products during limited promotional time periods. McDonald's restaurants
operating in the United States are open during breakfast hours and offer a
full breakfast menu including the Egg McMuffin and the Sausage McMuffin with
Egg sandwiches, hotcakes and sausage; three varieties of biscuit sandwiches;
Apple Bran muffins; and cereals. McDonald's restaurants in many countries
around the world offer many of these same products, as well as other products
and limited breakfast menus. We test new products on an ongoing basis.
We have restaurants located in all 50 of the United States and the District
of Columbia, and in many foreign locations, principally Japan, Canada,
Germany, England, Australia and France. At March 31, 1998, there were 23,346
restaurants worldwide, of which 12,413 were located in the United States and
10,933 in 108 other countries. An additional 399 restaurants were under
construction at March 31, 1998, including 326 outside the United States.
At March 31, 1998, 62% of our restaurants were operated by independent
franchisees, 21% were operated by us and our subsidiaries and 17% were
operated by affiliates (entities in which we and/or our subsidiaries have an
equity interest of 50% or less and in which the remaining equity interest
generally is owned by a local resident).
Our principal executive offices are located at One McDonald's Plaza, Oak
Brook, Illinois 60523, telephone: (630) 623-3000.
WHERE TO GET MORE INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission (the "SEC") relating to the debt securities. This prospectus does
not contain all of the information described in the registration statement.
For further information, you should refer to the registration statement.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room in Washington,
D.C. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference room. Our SEC filings are
also available to the public at the SEC's web site at http:/www.sec.gov.
The following documents that we have filed with the SEC are incorporated
into this prospectus by reference and considered a part of this prospectus:
(a) Our Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(b) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
and
(c) Our Current Reports on Form 8-K dated January 5, February 10, April 17,
April 30, May 6, and June 18, 1998.
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Later information that the Company files with the SEC will update and
supersede this information. We are also incorporating by reference all
documents that we file with the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the date of
this prospectus and prior to the termination of the offering of the debt
securities.
We will provide any of the above documents (including any exhibits that are
specifically incorporated by reference in them) to each person, including any
beneficial owner, to whom a prospectus is delivered. You may request these
documents at no cost. Written or telephone requests should be directed to:
McDonald's Shareholder Services, McDonald's Corporation, Kroc Drive, Oak
Brook, Illinois 60523, telephone: (630) 623-7428.
USE OF PROCEEDS
Unless otherwise stated in the applicable prospectus supplement, we intend
to use the net proceeds from the sale of the debt securities for general
corporate purposes, which may include refinancing of debt, capital
expenditures such as the acquisition and development of McDonald's restaurants
and the purchase of our common stock under our ongoing share repurchase
program. Specific allocations of the proceeds for such purposes have not been
made at this time.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------- ------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........... 4.57 4.53 5.16 5.11 5.20 5.26 4.86
</TABLE>
The ratios of earnings to fixed charges shown above have been computed on a
total enterprise basis. Earnings represent income before provision for income
taxes and fixed charges. Fixed charges consist of interest on all
indebtedness, amortization of debt issuance costs and discount or premium
relating to any indebtedness, fixed charges related to redeemable preferred
stock and a portion of rental charges (after reduction for related sublease
income) considered to be representative of the interest component in the
particular case.
DESCRIPTION OF DEBT SECURITIES
The following is a description of the general terms of the debt securities.
We will provide specific terms of a series of debt securities and the extent
to which these general provisions apply to that series in a supplement to this
prospectus.
The senior debt securities are issued under an Indenture (the "Senior
Indenture"), dated October 19, 1996, between us and First Union National Bank,
as Trustee (the "Trustee"). The subordinated debt securities are issued under
a separate Indenture (the "Subordinated Indenture") dated as of October 18,
1996, between us and the Trustee. The Senior Indenture and the Subordinated
Indenture are sometimes collectively referred to in this prospectus supplement
as the "Indentures." Copies of the Indentures are filed as exhibits to our
registration statement No. 333-14141 and are incorporated into this prospectus
by reference. The following summaries highlight some of the provisions of the
Indentures but they may not contain all of the information that is important
to you. Numerical references in parentheses below are to Articles and Sections
of the Indentures. Except as otherwise indicated, the terms of the Indentures
are identical. As used under this caption, the term "debt securities" includes
the debt securities being offered by this prospectus and all other debt
securities issued by us under the Indentures.
3
<PAGE>
GENERAL
The Indentures do not limit the amount of debt securities that we may issue,
and we may issue debt securities in one or more series. The debt securities
will be unsecured. Unless otherwise specified in the prospectus supplement,
the senior debt securities will be unsubordinated obligations of the Company
and will rank equally with all of our other unsecured and unsubordinated
indebtedness. Certain of our unsecured obligations may, however, under certain
circumstances, become secured by mortgages as a result of negative pledge
covenants applicable to such obligations while the senior debt securities
remain unsecured. Payments on the subordinated debt securities will be
subordinated to the prior payment in full of all of our senior indebtedness,
as described under "Subordination of Subordinated Debt Securities" and in the
applicable prospectus supplement.
The prospectus supplement for each offering will specify whether the debt
securities being offered will be senior debt securities or subordinated debt
securities, and will provide the following terms, where applicable:
(a) the title of the debt securities;
(b) any limit on the aggregate principal amount of the debt securities;
(c) the date or dates on which the principal and any premium of the debt
securities will be payable;
(d) the rate or rates at which the debt securities will bear interest; the
date or dates from which interest will accrue; the interest payment
dates on which interest will be payable; and the record dates for such
interest payment dates;
(e) whether the debt securities are to be issued as original issue discount
securities and the amount of discount with which the debt securities
will be issued;
(f) the place or places where payments will be made;
(g) the terms of any redemption of the debt securities that we may make at
our option;
(h) the terms of our obligation, if any, to redeem, purchase or repay the
debt securities pursuant to any sinking fund or similar provisions or
at the option of a holder;
(i) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which the debt securities will be
issuable;
(j) if other than the principal amount, the portion of the principal amount
of the debt securities that will be payable if the maturity of the debt
securities is accelerated;
(k) any changes in any of the events of default or remedies with respect to
the debt securities;
(l) if the debt securities are non-interest bearing, the "stated
intervals";
(m) the currency in which we will make payments on the debt securities; and
(n) any other terms of the debt securities that do not conflict with the
applicable Indenture. (Section 2.02)
We may issue debt securities at a discount below their stated principal
amount, bearing no interest or interest at a rate that at the time of issuance
is below market rates. We may also issue debt securities that have floating
rates of interest but are exchangeable for fixed rate debt securities. Federal
income tax consequences and other relevant considerations will be described in
the applicable prospectus supplement.
Unless otherwise provided in the prospectus supplement for an offering,
payments on the debt securities will be made at the offices of the Trustee in
New York, New York and Charlotte, North Carolina, although we may make
payments of interest by check mailed to the holders. (Sections 2.02, 4.01 and
4.02) Debt securities may be transferred or exchanged at the office or agency
that we maintain for that purpose, subject to the
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<PAGE>
limitations provided in the applicable Indenture, without any charge except
for any tax or governmental charges. (Section 2.06)
Any money that we pay for principal of (and premium, if any) or any interest
on any debt security that remains unclaimed at the end of two years will be
repaid to us on demand, and afterwards the holder of such debt security may
look only to us for payment. (Section 12.05)
GLOBAL SECURITIES
If any debt securities are issuable in temporary or permanent global form,
the applicable prospectus supplement will describe the circumstances, if any,
under which beneficial owners of interests in the global security may obtain
definitive debt securities. Payments on a permanent global debt security will
be made in the manner described in the prospectus supplement. (Section 2.01)
LIMITATION ON LIENS COVENANT IN THE SENIOR INDENTURE
The covenant described below applies with respect to any and all series of
senior debt securities, unless we specify otherwise in the applicable
prospectus supplement. We will describe any additional covenants for a
particular series of senior debt securities in the applicable prospectus
supplement.
For your reference, we have provided a list of definitions of the
capitalized terms used in the covenant at the end of the description.
We will not, nor will we permit any Restricted Subsidiary to, issue or
assume any debt for money borrowed if such debt is secured by a mortgage,
security interest, pledge, lien or other encumbrance (mortgages, security
interests, pledges, liens and other encumbrances are called "mortgage" or
"mortgages") upon any Principal Property or upon any shares of stock or
indebtedness of any Restricted Subsidiary (whether such Principal Property,
shares of stock or indebtedness are now owned or hereafter acquired) without
in any such case effectively providing that the senior debt securities, and at
our option any other indebtedness of the Company or any Restricted Subsidiary
ranking equally with the senior debt securities, are secured equally and
ratably. These restrictions do not apply to debt secured by:
(a) mortgages on property, shares of stock or indebtedness of any
corporation existing at the time the corporation becomes a Restricted
Subsidiary;
(b) mortgages on property existing at the time of its acquisition and
certain purchase money mortgages;
(c) mortgages securing debt of a Restricted Subsidiary owing to the Company
or another Subsidiary;
(d) mortgages on property of a corporation existing at the time it is
merged into or consolidated with the Company 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
Company or a Restricted Subsidiary;
(e) mortgages in favor of any country or any political subdivision of any
country, or any instrumentality thereof, to secure certain payments
pursuant to any contract or statute or to secure any indebtedness
incurred for the purpose of financing all or any part of the purchase
price or the cost of construction of the property subject to such
mortgages; or
(f) any extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any mortgage
referred to in the foregoing clauses.
Notwithstanding the above, we and one or more Restricted Subsidiaries may,
without securing the senior debt securities, issue or assume secured debt if,
after giving effect to the transaction, the aggregate of the secured debt then
outstanding (not including secured debt permitted under the above exceptions)
does not exceed 20% of the shareholders' equity of the Company and its
consolidated subsidiaries as of the end of the preceding fiscal year. The
transfer of a Principal Property to a subsidiary or any third party will not
be restricted. (Section 4.06)
5
<PAGE>
The term "Principal Property" means all real property owned by us or any
Restricted Subsidiary which is located within the continental United States of
America and, in the opinion of our Board of Directors, is of material
importance to the total business conducted by the Company and its consolidated
affiliates as an entity. (Section 1.01)
The term "Restricted Subsidiary" means any subsidiary (i) substantially all
the property of which is located within the continental United States of
America, (ii) which owns Principal Property and (iii) in which our investment,
direct or indirect and whether in the form of equity, debt, advances or
otherwise, is in excess of U.S. $1,000,000,000 as shown on our books as of the
end of the fiscal year immediately preceding the date of determination. A
"Restricted Subsidiary" does not include any subsidiary primarily engaged in
financing activities, primarily engaged in the leasing of real property to
persons other than the Company and its subsidiaries, or that we characterize
as a temporary investment. (Section 1.01)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the prospectus supplement, the following
provisions apply to the subordinated debt securities.
The subordinated debt securities will, to the extent described in the
Subordinated Indenture, be subordinate in right of payment to all of our
indebtedness for borrowed money, whether now or in the future, which is not by
its terms subordinate to our other indebtedness. However, senior indebtedness
will not include amounts owed to our trade creditors in the ordinary course of
business. At March 31, 1998, our aggregate amount of senior indebtedness was
approximately $5.1 billion.
Except as provided under the Subordinated Indenture, if any one of the
following events occurs, we will pay all principal, premium, if any, and
interest on the senior indebtedness in full before we make any payment on the
subordinated debt securities:
(a) any insolvency or bankruptcy proceedings of the Company, including any
receivership reorganization or similar proceedings;
(b) any proceedings for voluntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or
bankruptcy proceedings; and
(c) any series of subordinated debt securities is declared due and payable
because of an occurrence of an event of default under the Subordinated
Indenture.
The Subordinated Indenture does not limit the incurrence of additional
senior indebtedness. The senior debt securities constitute senior indebtedness
under the Subordinated Indenture.
The prospectus supplement may have further information regarding the
subordination of the subordinated debt securities of a particular series.
EVENTS OF DEFAULT
The Indentures describe an event of default with respect to any series of
debt securities as being any one of the following events:
(a) default for 30 days in any payment of interest on such series;
(b) default in any payment of principal of or premium, if any, on debt
securities of such series when due (and continuance of such default
for a period of 10 days in the case of subordinated debt securities);
(c) default in the payment of any sinking fund payment on debt securities
of such series when due (and continuance of such default for a period
of 10 days in the case of subordinated debt securities);
(d) default for 60 days, after appropriate notice, in performance of any
other covenants in the Indentures (other than the limitation on liens
covenant in the Senior Indenture and any other covenant included in
6
<PAGE>
the Indentures solely for the benefit of another series of debt
securities), unless it cannot with due diligence be cured within the 60-
day period due to causes beyond our control;
(e) certain events of bankruptcy, insolvency or reorganization of the
Company; or
(f) default in the performance of a particular covenant applicable to that
series after appropriate notice and opportunity to cure the default.
The Senior Indenture defines a default for 120 days after appropriate notice
in the performance of the limitation on liens covenant as an additional event
of default with respect to the senior debt securities.
An event of default with respect to a particular series of debt securities
issued under either of the Indentures does not necessarily constitute an event
of default with respect to any other series of debt securities issued under the
Indentures. If an event of default under clause (a), (b), (c) or (f) above with
respect to the Indentures is continuing with respect to any series of debt
securities, the Trustee or the holders of not less than 25% in aggregate
principal amount of the affected series of debt securities may declare the
principal amount (or, if the debt securities are original issue discount
securities, the specified portion of the principal amount) of such series to be
due and payable. In case an event of default under clause (d) or (e) above with
respect to the Indentures or with respect to the limitation on liens covenant
of the Senior Indenture is continuing, the Trustee or holders of not less than
25% in aggregate principal amount of all the debt securities may declare the
principal amount (or, if any debt securities are original issue discount
securities, the specified portion of the principal amount) of the debt
securities of all series to be due and payable. Any event of default with
respect to a particular series of debt securities may be waived by the holders
of a majority in aggregate principal amount of those debt securities, except,
in each case, a failure to pay principal of, or premium, if any, or interest on
those debt securities. (Section 6.01; Section 6.07)
We are required to file an annual officers' certificate with the Trustee
concerning our compliance with the Indentures. (Section 4.05) Subject to the
provisions of the Indentures relating to the duties of the Trustee, each
Indenture provides that the Trustee will be under no obligation to exercise any
of its rights or powers at the request, order or direction of the holders of
the debt securities unless the holders have offered the Trustee reasonable
indemnity. (Sections 6.04 and 7.01) Subject to indemnification and other rights
of the Trustee, the holders of a majority (voting as one class) in principal
amount of each affected series of debt securities may direct the time, method,
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any of the Trustee's trusts or powers. (Section 6.07)
MODIFICATION OF THE INDENTURES
We may enter into supplemental indentures with the Trustee without the
consent of the holders of the debt securities to:
(a) evidence the assumption by a successor corporation of our obligations;
(b) add covenants for the protection of the holders of the debt
securities;
(c) add or change any of the provisions of the Indentures to permit or
facilitate the issuance of debt securities of any series in bearer or
coupon form;
(d) cure any ambiguity or correct any inconsistency in the Indentures;
(e) establish the form or terms of debt securities of any series as
permitted by the terms of the Indentures; and
(f) evidence the acceptance of appointment by a successor trustee.
(Section 10.01)
With the consent of the holders of not less than 66 2/3% in aggregate
principal amount of each affected series of debt securities, we may execute
supplemental indentures with the Trustee to add provisions or change or
eliminate any provision of the Indentures or modify the rights of the holders
of those debt securities. However,
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<PAGE>
no such supplemental indenture will, among other things (a) extend the fixed
maturity of any debt security, or reduce the principal amount (including in
the case of a discounted debt security the amount payable upon acceleration of
the maturity thereof), reduce the rate or extend the time of payment of
interest, or make the principal of, premium, if any, or interest, if any,
payable in any coin or currency other than that provided in the debt security,
without the consent of the holder of each affected debt security or (b) reduce
the percentage of holders required to consent to the supplemental indenture,
without the consent of the holder of each affected debt security. (Section
10.02)
DISCHARGE OF INDENTURES
We, at our option, (a) will be discharged from all obligations under the
Indentures in respect of the debt securities of a series (except in each case
for certain obligations to register the transfer or exchange of those debt
securities, replace stolen, lost or mutilated debt securities, maintain paying
agencies and hold monies for payment in trust) or (b) need not comply with
certain restrictive covenants of the Indentures (including the limitation on
liens covenant in the Senior Indenture) and will not be limited by any
restrictions with respect to merger, consolidation or sales of assets with
respect to those debt securities, in each case if we deposit with the Trustee,
in trust, (x) money or (y) U.S. government obligations or a combination of (x)
and (y) which will provide enough money to pay all the principal (including
any mandatory sinking fund payments) of, and interest, if any, and premium, if
any, on, those debt securities when due. (Section 12.02) In order to select
either option, we must provide the Trustee with an opinion of counsel or a
ruling from, or published by, the Internal Revenue Service, to the effect that
holders will not recognize income, gain or loss for Federal income tax
purposes as a result of our exercising the option and will be subject to
Federal income tax as if we had not exercised the option. (Section 12.02) In
addition, we may also discharge our obligations with respect to a series of
debt securities by depositing with the Trustee, in trust, enough money to pay
at maturity or upon redemption all of the debt securities of such series,
provided that all of the debt securities of such series are by their terms to
become due and payable or called for redemption within one year. No opinion of
counsel or ruling from the Internal Revenue Service is required with respect
to a discharge in these circumstances. Upon any discharge of debt securities
described above, the holders of those debt securities may look solely to such
trust fund, and not to us, for payments. (Sections 12.01 and 12.02)
CONCERNING THE TRUSTEE
We and our subsidiaries and affiliates maintain banking relationships
(including the extension of credit) in the ordinary course of business with
the Trustee. The Trustee is also trustee under other indentures under which we
have issued other senior and subordinated debt securities.
PLAN OF DISTRIBUTION
We may offer debt securities in any of the following ways:
(a) directly;
(b) through agents;
(c) through dealers; or
(d) through one or more underwriters or a syndicate of underwriters in an
underwritten offering.
We will describe how a particular offering of debt securities will be made,
including the names of any underwriters, the purchase price of the securities,
the proceeds of the offering and any underwriters' discounts or commissions,
in the prospectus supplement for the offering.
If we use underwriters or dealers in the sale, the underwriters or dealers
will acquire the debt securities for their own account and may resell them in
one or more transactions, including negotiated transactions, at a fixed
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public offering price or at varying prices determined at the time of sale. We
may offer debt securities to the public either through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate.
Unless otherwise described in the applicable prospectus supplement, the
obligations of the underwriters to purchase debt securities will be subject to
certain conditions precedent, and the underwriters must purchase all of such
debt securities if they buy any of them. The underwriters may change any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers from time to time.
We may also sell debt securities directly or through designated agents. Any
agent involved in the offer or sale of debt securities will be named, and any
commissions payable by us to such agent will be described, in the applicable
prospectus supplement. Unless otherwise indicated, an agent will act on a best
efforts basis for the period of its appointment.
Any underwriters, dealers or agents participating in the distribution of
debt securities may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of debt securities may be
deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "Securities Act"). Agents and underwriters may be
entitled under agreements entered into with us to indemnification against
certain civil liabilities, including liabilities under the Securities Act, or
to contribution with respect to payments that the agents or underwriters may
be required to make in respect of such liabilities. Agents and underwriters
may be customers of, engage in transactions with, or perform services for, us
or our subsidiaries or affiliates in the ordinary course of business.
If so indicated in the prospectus supplement, we will authorize agents and
underwriters to solicit offers by certain institutions to purchase our debt
securities at the public offering price set forth in the prospectus supplement
pursuant to delayed delivery contracts providing for payment and delivery on
the date or dates stated in the prospectus supplement. These delayed delivery
contracts will be subject only to those conditions described in the relevant
prospectus supplement, and the prospectus supplement will describe the
commissions payable for the solicitation.
LEGAL MATTERS
Gloria Santona, Vice President, Deputy General Counsel and Secretary of the
Company will pass on the legality of the debt securities being offered by the
Company. Ms. Santona is a full-time employee of the Company and owns shares of
the Company's common stock directly and as a participant in various employee
benefit plans. Ms. Santona also holds options to purchase shares of the
Company's common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 1997, as set forth in their report, which is incorporated
in this prospectus by reference. Our consolidated financial statements are
incorporated by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
9
<PAGE>
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT (INCLUDING ANY ACCOM-
PANYING PRICING SUPPLEMENT) OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS SUPPLEMENT (INCLUDING ANY ACCOMPANYING PRICING SUPPLEMENT) AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OTHER THAN THE SECURITIES OFFERED BY THIS PROSPEC-
TUS SUPPLEMENT (INCLUDING ANY PRICING SUPPLEMENT) OR AN OFFER TO SELL OR A SO-
LICITATION OF AN OFFER TO BUY ANY SUCH SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURIS-
DICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT (INCLUDING ANY AC-
COMPANYING PRICING SUPPLEMENT) NOR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT
THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SINCE ITS DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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PROSPECTUS SUPPLEMENT
<S> <C>
Risk Factors............................................................... S-2
Capitalization............................................................. S-3
Important Currency Information............................................. S-4
Description of Notes....................................................... S-4
United States Tax Considerations........................................... S-18
Plan of Distribution....................................................... S-23
Glossary................................................................... S-24
PROSPECTUS
McDonald's Corporation..................................................... 2
Use of Proceeds............................................................ 3
Ratio of Earnings to Fixed Charges......................................... 3
Description of Debt Securities............................................. 3
Plan of Distribution....................................................... 8
Legal Matters.............................................................. 9
Experts.................................................................... 9
</TABLE>
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$1,000,000,000
MCDONALD'S CORPORATION
LOGO
MEDIUM-TERM NOTES
DUE FROM 1 YEAR
TO 60 YEARS FROM
DATE OF ISSUE
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
July 29, 1998
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